FEATURED IN: Home Toys, June 1999
                by: Kurt Scherf, Parks Associates

In-home networking appears poised for tremendous growth, and Parks Associates anticipates that computer- and entertainment-based networks alone will exceed $4 billion in five years. This isn’t to say, however, that there aren’t still challenges remaining that could stunt the growth of this emerging market. Standards issues still need to be resolved; licensing issues remain with some notable technologies; and perhaps most importantly, the US consumer still does not have enough information about networking to make an educated choice today.

Home toys indeed.

The average homeowner is about have a plethora of choices when it comes to home networking. Will it be:

• Simple computer networking, allowing the creation of a home LAN to share files and Internet access? And will it be Ethernet, phonelines, powerlines, or ether (radio frequency) that will distribute the data signals?

• Higher-bandwidth entertainment networking, enabling a homeowner to distribute music and video anywhere in and around the home and allowing the creation of instant home entertainment centers?

• Whole-house control of lighting, appliances, HVAC systems, security controllers? Will it be done via a wireless remote, a PC, the television, voice, or some other method? And how much will it really cost?

• Purchased at retail, via the Internet, or through a high-end installing dealer?

After a year of build-up, home networking is a reality, with the likes of Diamond Multimedia Inc. (HomeFree™), Intel Corp. (AnyPoint™ Home Network), Proxim Inc. (Symphony™), and a host of other players in the game already. By all accounts, sales of networking products – limited as they have been – over the past 12 months have been quite good, and the race has just begun. Before the year is over, expect more computer (3Com Corp., Cisco Systems Inc., Lucent Technologies Inc., and Microsoft Corp., etc.), entertainment (Philips Electronics N.V., Sony Corp., Toshiba Corp., etc.), and home control (Echelon Inc., PHAST Corp., Smart Corp., etc.) networking applications to hit the shelves.

If 1999 isn’t "The Year of Networking," then as we usher in a new millennium next year (or the year after, depending on which historical calendar you’re using), pundits like myself will likely declare next year as the point in time when networking really takes off.

As we catch our breath from the past year’s breathtakingly fast developments, some trends are beginning to emerge. They include:

The Lack of a Clear Networking Leader: Although some analysts would have you believing that phoneline networking technologies are going to dominate the market, I believe such predictions are premature at this early stage. Clearly, the phoneline supporters (members of the Home Phoneline Networking Alliance in particular) have aggressively pursued the adoption of a networking technology (a first-generation 1 Mbps solution proffered by Tut Systems Inc. with a 10 Mbps solution to follow this summer) and products to the market. I agree that bandwidth becomes a critical factor in the growth of the home networking market, and the technologies already developed by such companies as Epigram Inc. (which was acquired by network developer Broadcom Corp. on April 25) that enable the distribution of video throughout the home are very exciting. However, I believe that RF-based solutions will play a significant role in the in-home networking market. Despite the added cost of untethered networking, I believe that convenience and flexibility will attract a wide range of consumers (including a big base of consumers who are bringing laptops home from the office). Sure, cost will be a factor, but look at the popularity of cordless over corded phones in the home. Despite the fact that cordless phones cost, on average, twice as much as corded phones, they now outsell corded models, according to the Consumer Electronics Manufacturers Association (CEMA). What kind of phone was your most recent purchase? Later this year, expect news from the players pursuing powerline networking technologies. We have already seen a Microsoft-Intellon partnership. Don't be surprised to see some other big-name players hop on board the powerline bandwagon.

Additional Opportunities for the Home Installer: Let’s face it – the push to bring affordable home control to the masses has not worked to this point. However, there are signs that the push to bring "home automation" to the masses may again be the buzz. First and foremost, the entry of such companies as Compaq Computer Corp., Honeywell Inc., Intel, Microsoft, Mitsubishi Electric America, and Philips (the Home API Working Group) into home control development has been sorely needed. As foreign as it may sound, Microsoft may indeed become a major player in home controls (there is a reason the company has now aligned itself with the Home Automation Association and has placed one of its executives on the HAA board).

In the long run, an active Microsoft eventually helps everyone in the home controls business. First and foremost, the company’s name recognition among US consumers is excellent. Despite the continued battle with the Justice Department, a recent Gallup Poll indicates that the vast majority of the public views Microsoft positively. Second, the company continues to work to bring low-cost and easy-to-use home control technology to the average homeowner. (Microsoft has denoted its efforts as the "Jetsons Project.")

Other players will also rejuvenate the home control market. Utah-based PHAST Corp. has experienced success with its Landmark® System, a high-end central controller. In fact, among the sample of dealers in Parks Associates’ recently released 1998-1999 Dealer Survey, the Landmark System was most-installed system. According to dealers, PHAST Corp.’s success lies in the quality of its product and in the fact that through the PHASTLink Partners Program (PPP), other residential subsystems (lighting, HVAC, security, etc.) can be built to interact with the core system. On March 18, 1999, PHAST Corp. announced that it had delivered the 100,000th compliant device.

Structured Wiring Will Grow in Importance: Like other home networking efforts, structured wiring (which Parks Associates defines as at least two Category 5 (or higher-rated) UTP cables and two RG-6 coaxial cables (fiber optional) arranged in a "star" or "home run" topology back to an enclosure) has struggled to reach a firm footing in new construction. Due mainly to cost considerations, builders have resisted the installation of the "future-proofed" infrastructure unless specifically requested by the new home buyer. Now, however, it appears that the structured wiring industry has turned the corner. Thanks to some important agreements between Bell Atlantic and IBM, and between Lucent Technologies and community developers, among others, Parks Associates anticipates that more and more new homes will be fitted with the high-bandwidth network infrastructure needed for today and tomorrow’s applications. We anticipate that revenues will exceed one-half billion dollars in a few years.

In-home networking appears poised for tremendous growth, and Parks Associates anticipates that computer- and entertainment-based networks alone will exceed $4 billion in five years. This isn’t to say, however, that there aren’t still challenges remaining that could stunt the growth of this emerging market. Standards issues still need to be resolved; licensing issues remain with some notable technologies; and perhaps most importantly, the US consumer still does not have enough information about networking to make an educated choice today. On this matter, the industries vying for market share will need to make a concerted effort in marketing and advertising these products. It won’t be enough to advertise these products as "technologies;" rather, consumers will have to view them as "solutions" with inherent value before they will make their purchase decision. We believe that, in the long run, they will find a great deal of value with in-home networks.