September 18, 2002 9:00 PM PDT

Microsoft unveils networking hardware

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Microsoft heads for home networking

July 10, 2002
Microsoft plans to release new wired and wireless networking products Thursday into the crowded and hypercompetitive consumer hardware market.

The Redmond, Wash.-based company plans to market five consumer for wireless networks, and another five products for traditional wired networks. But analysts question whether the software giant can make any headway against entrenched competitors.

The analysts point to Microsoft's less-than-stellar track record for selling consumer hardware as reason to question the strategy.

"When you look at Microsoft's hardware business, they haven't done great," said NPDTechworld analyst Stephen Baker. "They've not done poorly, but they've not been able to storm the beaches and take over any market, so to speak."

The computing titan's hardware failures include a 900MHz cordless phone and USB speakers. The company also markets the Xbox game console, joysticks and other gaming gear, as well as a line of keyboards and mice.

"Microsoft hasn't blown anybody away," Baker said. "In fact, Logitech has gone toe-to-toe with Microsoft for years (with keyboards and mice) and has done pretty well."

Still, Microsoft is jumping into the home networking market at an important time. Cahners In-Stat predicts a huge jump in worldwide home networks, 16.6 million in 2002 from 10.5 million in 2001. In a summer survey conducted with HomeNetHelp.com, the research group found that 45 percent of respondents without a home network said that they planned to purchase one within three months. Another 45 percent said they would buy networking gear within six months.

The company also sees other important reasons for getting into the home networking market. Many products planned for later this year, such as , Tablet PC, and wireless smart displays, all benefit from wired or wireless network connections.

Mira smart displays--mobile Web appliances that access the Internet through a PC--require a wireless connection to work. Tablet PC also depends on wireless connectivity. Through Windows Media Player 9 Series, Microsoft hopes to deliver broadband digital media services, such as music from PressPlay and movies through CinemaNow. The new media player, which is currently in the final , would require at least an Internet connection to access these services.

"This (networking product strategy) derives from our concentration on getting information on any device at any time, as well as our initiative to get software and services more broadly distributed in the home," said Adam LeVasseur, group product manager for Microsoft's Consumer Hardware Division.

Yet there's a bottleneck in getting these ideas adopted in the mainstream market, LeVasseur said. The company concluded that one problem came from networking products that are too difficult to use, "and that's a barrier to adoption," LeVasseur added. Microsoft believes its new networking products will simplify the process.

Supporting products such as Tablet PC with home networking gear could mean more to Microsoft in the long run than actual sales, analysts say.

"Microsoft needs an infrastructure to tie all its product stuff together. This is laying the big pipes...the network infrastructure for the home," said Gartner analyst Mike McGuire.

Fierce wireless competition
Microsoft's larger sales battle will be fought in the 802.11b wireless networking, or , market, where Microsoft's mighty brand name may not be enough to displace companies with products retailers recognize as moneymakers, analysts say.

Computers connect over Wi-Fi networks without wires at speeds up to 11 megabits per second (mbps) at a maximum range of 300 feet.

At retail, where the majority of Microsoft's Wi-Fi products would be sold, competition is fierce.

Linksys leads the overall retail wireless networking market by a huge margin. For the year to date, the company claimed 46.4 percent market share, as measured in dollars, according to NPDTechworld. D-Link trails a distant second with 14.6 percent share, followed by Belkin at 9.8 percent share. NetGear is ranked fourth with 7.9 percent market share and Siemens and SMC are tied for fifth place, each with 5.9 percent share.

Microsoft's flagship wireless product will be the MN-500 Wireless Base Station, which also features a four-port 10/100 hub for connecting wired computers. The unit will sell for an estimated $150. Also on tap: The MN-510 Wireless USB Adapter and MN-520 PC Card adapter for notebooks. Both will sell for an estimated $80 each.

"The wireless stuff is a little bit high (in price)," Baker said. He used as example a NetGear wireless USB hub that sells for $50 after rebate at Best Buy or a similar Belkin model for $40 after rebate at CompUSA. Some retailers also were promoting a Belkin wireless base station for $100 and a comparable NetGear model for $120.

Microsoft also will offer two wireless kits, both priced at $220. The MN-610 features a base station and USB adapter, while the MN-620 features a base station and PC Card notebook adapter.

McGuire described either kit, which would be unique among wireless networking products, "as a convenient package by reasonably well known brand name. That could be very powerful with consumers."

On the wired side, Microsoft's main product would be the MN-100 10/100 Ethernet Wired Base Station for $80. Three adapters also will be available: the MN-110 USB adapter for $30, the MN-120 PC Card notebook adapter for $40 and the $25 MN-130 PCI card adapter. The final product is the $40 MN-150 10/100 Ethernet 5-Port Switch.

Good features not enough
Microsoft believes the software provided with its home networking products will distinguish them from competitors' offerings.

For example, the MN-500 wireless hub can automatically detect Internet service provider (ISP) settings that a consumer would normally have to input manually. Once a standard feature on ISDN broadband routers, the "autodetect" function has not been widely adopted for either wireless or wired routers--an advantage Microsoft hopes to exploit.

The setup process also takes advantage of Microsoft's knowledge of its own operating system to automatically configure a PC to use a wireless base station.

Another setup feature involves the Wired Equivalent Privacy (WEP), which is used to protect data transmitted over the wireless network. Most base stations support 40-bit and 128-bit WEP security, but not necessarily turn on the feature by default. This has led to a proliferation of wireless networks that anyone either for free Internet access or hacking.

The MN-500 turns on 128-bit WEP security by default, but Microsoft recognizes the process, which generates a 26-character password, can make setting up additional PCs for wireless access more difficult. So the company makes use of the floppy drive--an anachronism on most PCs--for saving or setting up the configuration data. Recognizing that a few people still use the drives, Microsoft even includes a floppy disc with the MN-500.

While the wireless base station works with non-Windows PCs and Macs, the configuration floppy process requires Windows 98 or later. The USB and PC card adapters also work only with Windows.

"Once you have the network setup, we have another piece of software, the Broadband Network Utility, which is a one-screen view of your network, where you go to troubleshoot if your network connection is live, (see) what the wireless strength is on the network and a wireless diagram of your network," LeVasseur said.

Ease of use features might give Microsoft some advantage, but Baker said other factors have historically made the winners in the home networking market.

"This is a very crowded market and there are lots of products in here," Baker said. "As much as it turns on how well the product works, your ability to get distribution, your willingness to work with the retailer is more important than the product itself. That's going to be pricing and promotion. It's not necessarily branding, but the retailers' desire in promoting something they can make money on."

This working relationship with retailers has effectively shut out other big names that have tried to gain a foothold in the home networking market, such as Compaq Computer, Hewlett-Packard and Intel, Baker said.

"A lot of people with the names have tried to get these products out on the shelf, and it still comes back to NetGear, D-Link, Linksys and SMC--these guys with a networking background--and have had products in these kinds of categories for a long time," Baker explained.

 

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