Articles and whitepapers

1/8/2003

Trends and Outlook for Wireless Home Networks

By Kurt Scherf

1.0 A Brief Backgrounder

For years - probably extending as far back as the 1960s and 1970s - pundits and prognosticators who watched technology developments in the home and small office/home office (SOHO) frequently made bold statements that essentially stated 'The Year of the Smart Home Has Arrived!' These bold statements would then be followed by equally bold (dare I say brash?) forecasts about how much of this so-called 'smart home' gear was going to be purchased by U.S. consumers. These predictions usually came in the form of brightly-coloured spreadsheet charts that - without fail - provided a hockey stick curve upward and to the right. The forecasts looked great, the revenue projections were sunny, and the industry waited for the big bucks to begin to emerge.

Unfortunately, many of these bold predictions failed to materialize, and 'smart home' concepts (mainly targeting such applications as centralized control of lighting, HVAC, and entertainment systems) have not captured the attention of U.S. homeowners beyond a niche of generally high-end and custom-built homes. Although Parks Associates is optimistic that we'll see home management solutions become more mainstream, affordable, and available, many will remain outside the realm of 'mass-market' possibilities, at least for the near-term. However, in specific subcategories of the 'smart home' concept, growth is anticipated to be a great deal more robust. This is particularly evident in the realm of home networking for home computers and home entertainment products. Beginning in 1998, new emphasis was placed on home networking for these applications when efforts aimed at developing 'no-new-wires' networking specification (that at their core enable multiple computers to be connected in a local area network without adding new cabling) were announced.

2.0 Wireless Networks for PC Connectivity

One main challenge to selling the 'smart home' concept to average consumers has been the lack of a clear value proposition. To many consumers, a general reaction to the concept of whole-house automation is typically, 'That's great, but why do I need it?' Connecting home PCs together in a local area network, however, appeals to consumers for a number of reasons:

- A rapidly-growing number of U.S. households are using two or more computers, as parents and children find benefit in having separate systems for work, school, and personal activities. By Parks Associates' estimates, the percentage of U.S. households with two or more personal computers in use is expected to jump from 29% of all U.S. households at the end of 2002 to 39% at the end of 2006. Further, our consumer research indicates that it is among households that already own two or more PCs where the likelihood of purchasing an additional home computer is highest!

- Most end-users are familiar with the benefits of networking home computers, thanks to the proliferation of LANs within office and school settings. Unlike the mobile phone-controlled Jacuzzi, computer networking is a concept that people understand and embrace.

- As broadband Internet penetration continues to grow (from close to 16 million U.S. households at the end of 2002 to approximately 40 million by the end of 2006), consumers will seek ways to share that single connection among several PCs in the home. Enter PC networking, therefore, as an ideal solution to eliminate the hassle that comes when all family members want to use the single broadband-connected PC at the same time! Based on these and other drivers, Parks Associates' projections for the growth of U.S. households with home data networks (Figure 1) is robust. Growing from more than seven million U.S. households at the end of this year, Parks Associates estimates that slightly more than 21 million U.S. households (that's 48% of all multiple-PC households!) will have a home LAN for the purposes of PC connectivity by the end of 2006.

Figure 1 U.S. Households with a PC LAN

Given the anticipated growth in home data networking solutions, what are expectations for the growth in adoption of wireless connectivity solutions - and notably Wi-Fi (IEEE 802.11b)? One of the primary reasons that we believe consumers will adopt wireless solutions for data networking above other choices is the flexibility and mobility it offers, particularly in households that are using laptop PCs. Therefore, one of the data points that we examine is the prevalence of laptop computers in the multi-PC mix.

According to our most recent consumer research (Q4 2001 and Q3 2002), we find that significant portions of multiple-PC households have at least one laptop in the mix (we estimate that at least 60% of multi-PC households use a laptop, either as a full-time home-based computer or brought home from the office or school for use on nights and weekends. Further, anywhere from 15-25% of multi-PC households also have multiple laptops in use. We believe that wireless networking solutions will be a clear first-choice among these households. Secondarily, it will also proliferate in households with only desktop computers (albeit to a lesser degree), primarily configured via Universal Serial Bus (USB) adapters that eliminate the need to 'crack the case' and install network interface cards into the computer. Already, our research indicates that wireless connections in home networks have grown considerably since we began tracking the penetration of various home networking solutions in 2000.

As Figure 2 illustrates, one-fourth of households that have a PC network at present indicate that they are using a wireless solution. This is a dramatic increase from a Q3 2001 survey that Parks Associates conducted, and it indicates just how much wireless solutions have proliferated in a relatively short time period. Ethernet will continue to be a solution of choice for many households (due in large part to its relatively low-cost, its reliability, and end-user familiarity with the solution), but wireless is expected to grow rapidly.

Figure 2 The Changing Face of Home Networks

For example, Parks Associates forecasts that more than 18 million data-centric devices will be connected in networks by the end of 2006. Among 'no-new-wires' options (wireless, power line, phone line, etc.), wireless solutions will dominate the market, accounting for 58% of all 'no-new wires' data-centric networks deployed by the end of this year, and 65% by the end of 2006. The residential gateway (RG), a key interface between wide area network services and the local area network inside the home, will be a key variable in how quickly wireless networks proliferate in the home. The bottom line: as more residential gateway vendors adopt wireless networking solutions as standard features, more U.S. households will incorporate wireless product offerings into their home networks. In Q2 2002, Parks Associates released 'The Residential Gateway Report: Fourth Edition.' In profiling approximately 140 residential gateway offerings from 82 companies, we found that more than 20% of currently-available RG solutions are wirelessly-enabled. We anticipate that this number will grow in coming years.

3.0 Where Does Wireless Networking Go From Here?

Where does wireless networking go from here? Parks Associates believes that the next area of focus for all interested parties within the home networking realm will be connecting entertainment products. We believe that entertainment networks will proliferate mainly in one of two ways:

- Consumers will connect PCs via 'kits' to legacy consumer electronics equipment to stream stored media (mainly audio content, at present); and

- A growing number of emerging consumer electronics products (such platforms as set-top boxes, wireless Web tablets, digital jukeboxes, personal video recorders, etc.) will be available with embedded home networking solutions. This will allow them to share multimedia content stored on a hard drive or available from a broadband Internet connection. (For more information about the growth of entertainment networks, a white paper titled 'The Emergence and Growth of Entertainment Networks' is available for download from Parks Associates)

At present, the home networking environment is decidedly not centred on entertainment as a primary driver. As Figure 3 indicates, most of the devices currently connected within the home are very much centred on productivity applications (PCs, peripherals, etc.), with only a small number of entertainment-centric devices currently networked.

Figure 3 Devices Connected in Home Networks

Despite the low level of entertainment networking within U.S. households at present, Parks Associates expects this to be an extremely lucrative sector of the overall home networking market. In fact, our projections indicate that, by the end of 2006, 125 million devices will be linked in U.S. households for the purposes of storing, streaming, and sharing multimedia content. Given wireless networking's strong push into data-centric connectivity, we anticipate that the wireless chipset vendors will lobby consumer electronics vendors to incorporate wireless connectivity solutions into their products.

Moving forward, wireless networking will need to address (among other points) three main challenges in order to continue to remain viable as a networking player:

- Throughput: Assuming that entertainment applications become a major driver for the growth of home networking, wireless networks will need to address increased bandwidth to account for multi-megabit streams of digital content (audio and video files). Parks Associates will look to solutions such as 802.11g, 802.11a (first in the enterprise then in the home), and Ultra-wideband (at short ranges) to address bandwidth-critical applications.

- Quality-of-Service: Moving beyond simple data functions, the home network will encompass applications requiring a guaranteed quality-of-service. At some point, we anticipate that voice and data networks will be merged, but the short-term need is clearly in the area of multimedia streaming. The IEEE 802.11e MAC extension is an important piece in moving wireless home networking beyond PC-to-PC connectivity and into new applications.

- Security: As wireless networks proliferate in the home and business environments, the 802.11i standard and other measures will be critical in assuring end-users that data on the networked is protected.

Kurt Scherf is Vice President of Research, Parks Associates, a Dallas-based market research firm and consultancy that specialises in emerging residential and SOHO technology solutions.

www.parksassociates.com

(c) August 2002 Parks Associates