[From time to time, we make available to our customers, reports by industry experts on various topics that our editors believe to be of interest to our customers.]
The Growth and Evolution of the Home Networking Market
Overview
With the advent of "no new wires" home networking technologies (phoneline, wireless and powerline) the concept of the "wired" home has moved from the blackboard to the real-world. The much anticipated home networking market really emerged in 1999, with revenues of $134 million. The market is expected to grow dramatically to $495 million by the end of 2000, with global revenues projected to reach $2.4 billion by 2005 (Chart 1).
A number of companies have identified the home networking market as important, not only from a financial perspective, but also from a strategic one. The development of home networking is likely to affect the value of broadband and entertainment services delivered to the home and also have a dramatic effect on existing and newly emerging classes of computer, networking and consumer electronics products.
No major player pursuing product or service opportunities in the residential market can afford to ignore the potential influence that home networking will have on related markets.
The year 1999 saw a raft of home networking products really hit the market shelves for the first time. In this embryonic stage of the market there was strong quarter-on-quarter sequential growth. This indicates that significant revenues lie ahead, but there is also a lesson for solution vendors. Most vendors have begun to appreciate the importance not only of bundling solutions with other purchases (such as PCs), but also of the need for ever-easier set-up wizards. As vendors continue to improve the ease of use of their products they must also look to continue to build awareness of the product category as a whole.
One of the most important industry goals must be to base future strategies on standards (de facto or official). While the phoneline space has developed vigorously because of the excellent work of the Home Phoneline Networking Alliance (HomePNA), wireless is severely fragmented. Similarly, powerline networking, the most immature of the three main "no new wires" home networking technologies, has been troubled until recently by the lack of a standards effort to harmonize the many proprietary approaches being taken.
Drivers of High-Speed Home Networks
There are two trends driving this interest in home networking. The first is that the number of multiple-PC households is growing dramatically. The second is the increase in households with broadband Internet access.
According to our estimates, from 1999 to 2005 the number of multiple-PC households is forecast to more than double from 18.5 million to 38.8 million (Chart 2). Computers are becoming ever more affordable and the Internet is becoming the killer application driving PC penetration into the remainder of US households.
Since there are multiple PCs in many households, it will be a great benefit to the consumer if these PCs can be networked. This includes sharing everything from Internet access to files and peripherals. The economic case for investment in a networking kit is strong.
The second key driver for in-home data networks is broadband connectivity, whether by cable modem or digital subscriber line (DSL). The broadband connection makes a very compelling case for sharing an Internet connection as opposed to dial-up service.
In large measure, the relationship between the "fat pipe" to the home and an in-home network is mutually beneficial. It makes sense for broadband content not to be limited to one device. We forecast that by 2005 there will be 35.7 million US households with broadband access, up from 2.2 million in 1999. This surge will be driven by broader availability and reductions in price of service.
Phoneline
Use of the phoneline takes advantage of existing telephone copper wire inside the home. Most people are comfortable and familiar with the phoneline as they plug their phones and modems into phone jacks. The phoneline provides perhaps the most robust and scaleable "no new wires" solution, but at the expense of coverage and mobility.
The reality is that the phoneline is not as ubiquitous as other network media. There is just not that many phone jacks available per household. This problem can be exacerbated outside the US, where many homes may have only one or two phone outlets. In addition, in other countries, unlike the US, the phone wiring in the home is not owned by the homeowner, but by the telephone operator.
However, at this early stage, phoneline has gotten off to a solid start, aided by a single de facto standards effort (i.e., HomePNA). The wide availability of affordable 1 and 10 Mbps solutions has meant that in 1999 phoneline accounted for 77% of the "no new wires" home networking units shipped (Chart 3).
Wireless
Using RF (radio frequency) technology, wireless local area networks (WLAN) transmit and receive data over the air, minimizing the need for wired connections. Thus, WLANs combine connectivity with user mobility.
The RF medium has an advantage over phonelines and powerlines because it does not have to adapt to existing infrastructure. However, RF represents a more costly solution as it requires a radio.
At the moment RF is unlikely to become the backbone of the home network because of insufficient throughput. While the IEEE 802.11b standard provides for a data rate of 11 Mbps, there could be significantly lower performance in the actual usage conditions.
Furthermore, though RF will maintain healthy growth, there has been industry fragmentation as different companies line up behind HomeRF and IEEE 802.11b. The latter offers higher data rates, but is potentially more expensive. The former provides for a more affordable solution, although it is currently capped by FCC regulations to a data throughput of 1.6 Mbps. Backers of HomeRF are seeking to take advantage of the time-to-market advantage it has in the consumer market for Windows platform solutions, while at the same time trying to convince the FCC to remove the operational restrictions that would allow HomeRF-compliant solutions to reach data rates of 11 Mbps.
ABI believes that that this struggle between HomeRF and IEEE 802.11b is not healthy, though it should not seriously affect the overall adoption of wireless solutions. The second half of 2000 and 2001 will be the time period that will see head-on competition between these two wireless technologies as multiple vendors roll out their products.
Powerline
The powerline has traditionally been viewed as a medium for low-speed control applications that arise out of home automation systems. The powerline represents the noisiest of all the network media, and robust throughput and Quality of Service (QoS) are particular issues.
However, the advantage of a successful high-speed powerline technology is considerable. There is at least one power outlet in every room in a home. Therefore, access to the home network is fairly ubiquitous and the powerline has the potential to easily bridge to device-control applications.
The formation of the HomePlug Powerline Alliance (HomePlug) should have a dramatic impact on this space as it helps neutralize the majority of the proprietary technologies that have been promoted. HomePlug has already selected Intellon’s technology for its baseline technology. As a result the 1.0 specification should be ready by the end of the year, and compliant products available in 2000.
Evolution
Every home networking transmission platform has its relative strengths and weaknesses. It is precisely this aspect that will probably ensure that the home network of the future will be multi-layered, requiring a need to bridge among different types of networks.
As part of the evolution of home networking ABI expects to see wireless and powerline play greater roles. The real growth will come when home networking is embraced on non-PC platforms. Only then will home networking have demonstrated the hallmarks of a mainstream technology: cheap, easy-to-use and pervasive.
As home networking transcends the PC platform there will be a need for it to be pervasive and ubiquitous, and this is difficult to foresee happening with just simple phoneline networking.
Navin Sabharwal is a Senior Analyst with Allied Business Intelligence, covering residential connectivity. His latest study is titled "The Broadband Home: Home Networking Gets Ready To Go Mainstream."
Allied Business Intelligence Inc is an Oyster Bay, NY-based technology research think tank specializing in communications and emerging technology markets. ABI publishes strategic research on the broadband, wireless, electronics, networking, energy and transportation industries. Details of these studies can be found at www.alliedworld.com. Or call 516-624-3113 for more info.
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