[This year Wi-Fi was propelled into widespread consumer attention via Intel's Centrino $300 million marketing campaign. ABI goes on to make future predictions about the rise and fall of Wi-Fi.]

by Ed Reris -- By some measures, 2003 will go down in history as the year of Wi-Fi. On January 8, 2003, almost a full year ago, Intel announced something called Centrino. In the press release announcing the new brand name, Intel claimed that the new logo evokes images of "flight, mobility, and forward movement." With the $300 million ad budget that accompanied the Centrino launch, the entire industry was propelled, even as the industry observed the Centrino platform itself with skepticism. In the ensuing year, the technology has been hailed (or hyped?) as revolutionary, utilizing free, unlicensed spectrum to do everything from replacing your DSL/cable modem to providing everyone with free VoIP calls as a cellular replacement. With the benefit of hindsight, let's examine where the true opportunities are for Wi-Fi, where the hype is, and most importantly, who's going to make money with this technology.

Wireless LAN technology is not necessarily a new technology. What is relatively new is the consumer marketing push behind the technology. Sometimes all a technology needs is a consumer-friendly name (and $300 million) to raise awareness among the mass market. Now that awareness is high for Wi-Fi, the next step is examining the true opportunities for the technology.

Short Term Opportunities Most of the shorter-term opportunities for Wi-Fi technology are still PC- and PDA-centric. While this is not as sexy as some of the other applications for Wi-Fi, these applications will continue to dominate spending on the technology. As advances in security continue, enterprises will reexamine their decision to deploy Wi-Fi networks. Advances in security are coinciding nicely with the broader availability of wireless switches enabling enterprises and other large organizations to deploy Wi-Fi networks faster. Further, these networks generally require less maintenance and are less costly.

A key conclusion, therefore, is that enabling the wireless worker will be a key opportunity on both the infrastructure side (access points, switches, etc.) but also on the client side. Initially the infrastructure will be used mainly for data traffic, as workers rely on the Wi-Fi networks for PDA and PC connectivity. However, just as security enhancements and the availability of advanced equipment coincided nicely, so too will another pair of events.

Corporations are now starting to look at voice-over-IP networks as a true alternative to traditional circuit-switched networks. This, coupled with an enterprise Wi-Fi network, will increase demand for Voice-over-Wi-Fi networks, which leverage the existing Wi-Fi infrastructure to provide wireless voice traffic. Improvements in 802.11 quality of service will help fuel this trend.

These industry shifts will create new, lasting opportunities in the enterprise space.

Medium- to Long-term Opportunities While enterprise applications are about productivity and cost-savings, consumer applications of Wi-Fi are about music, games, video and, fun. While these are more hype-friendly topics for mainstream media, truly mass-market opportunities are still some time away. A key upper-bound metric on the technology's potential in the home is the number of broadband households - Wi-Fi penetration starts with the pipe. Globally, this figure was about 60 million in 2002 and is set to top 80 million in 2003.

If every broadband household in every region had five Wi-Fi devices in 2003, the total installed base would be about 400 million devices. Compare this with the cellular handset industry where ABI Research's mid-range estimates for year-end 2003 is about 475 million shipments. The market potential for consumer-based devices is still relatively small. However, as consumer broadband takes off, so too will demand for Wi-Fi within the home. By 2008, ABI's aggressive forecast for broadband households is about 290 million globally.

As the number of broadband homes is set to triple, consumer uptake of the Wi-Fi products will follow suit. The host of new products and services that are now emerging represent only the beginning of the trend to connect devices within the home using Wi-Fi. Further, new service providers will be enabled by the connectivity enabled by Wi-Fi within the home. Companies like Homeportal are developing solutions to distribute content and services within the home. The key to developing successful products and services is seamless and effortless connectivity from the eyes of consumers. When this basic market requirement is met, Wi-Fi devices (and those of other networking technologies) will take off.

Hype or Reality? As analysts, ABI Research's team is uniquely positioned between the industry and the media. To a certain extent, industries love hype: it builds awareness, which often results in increased sales. However, when hype snowballs, it can get out of control and may build mistrust for a given industry or product category.

Early accounts of Wi-Fi single-handedly killing the 3G market were overexaggerated. So too is some recent hype advocating how cellular technology will compete with "free" voice-over-Wi-Fi. Maybe consumers and employees will stop at a Starbucks or Schlotsky's Deli to check their email on a laptop, but how many will really stop their just to make a free phone call?

The reality is, 3G, in the form of CDMA2000 or UMTS is coming, even with Wi-Fi. Cellular carriers need the capacity these advanced technologies offer. The further reality is that Wi-Fi will whet consumers' appetites for mobile data, thereby actually driving demand for 3G data services.

Voice-over-Wi-Fi will enter the enterprise/campus environment and possibly into the home. For the enterprise, it will be hard for cellular technology to compete in this segment. Voice-over-Wi-Fi systems will be specialized internal communication tools that will offer customized features unavailable on cellular handsets.

Profiting from Wi-Fi How and where Wi-Fi technology enters everyday life at home and in the workplace is fun to ponder. The possibilities are clearly endless. However, the possibilities to make money off of Wi-Fi technology are far more limited.

Consider wired Ethernet. The boom that ensued with this technology in the late 1990's is over. Few people care about this technology. This issue is similar with POTS modems. Remember the modem wars, who was first to the 56K modem? These technologies, for the most part, failed to break out of their computing-centric roots. This categorizes the short-term opportunities for Wi-Fi, as discussed above. There is still money to be made in developing faster, cheaper, longer range, more compact, higher capacity, lower power devices for computing-centric Wi-Fi devices. But the wave will come fast and recede just as fast as previous waves for wired Ethernet and 56K modems.

The real profit potential lies in penetrating devices outside of this realm. Identifying opportunities where Wi-Fi functionality can be specialized and integrated into a larger, more expensive device is a route to higher profits. Consumers and businesses will be more willing to pay for these specialized devices, thereby reducing some of the pricing pressure on Wi-Fi components.

Consider two examples: consumer electronics and vehicles. Consumer electronics with embedded Wi-Fi have an edge over other products with consumers willing to pay more for the added functionality. Embedding Wi-Fi in a $1,000+ HDTV set is a much better way to make money than by tailoring ICs for a sub-$100 access point. Specialized encoding algorithms and MAC layers can increase QOS and the perceived value of the components. For cars and trucks, embedded Wi-Fi will facilitate swift transfer of large amounts of information. Limited in the short-term to trucking fleets, this segment may not reach mass-volumes any time soon, but it does present a niche opportunity for some players. ABI does not anticipate Wi-Fi to reach the OEM platform until the 2006/2007 model year.

In summary, Wi-Fi has emerged as an enabling technology that will extend beyond the computing platform like some of its predecessors. Wi-Fi will live up to much of its hype, but not all players will survive long enough through the initial stage, which is focused on high-volume, low-cost client adapters and access points. Those who do survive, however, will reap the benefits of a more widespread proliferation of the technology.

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