Find the best App Developers and Mobile Technology Specialists to expand your mobile presence.
Welcome Guest | Sign In
TechNewsWorld.com

WiFi Suppliers Try to Avoid Big Squeeze

By Paul Korzeniowski
Mar 21, 2006 5:00 AM PT

WiFi equipment suppliers are reaching a crossroad: more users are purchasing their products, but at the same time, pricing is declining. To try and prop up their profit margins, suppliers are experimenting with various packaging techniques, such as bundling or unbundling value-added features. For users, some confusion seems likely as they sift though all of the different options, but it shouldn't be too difficult for them to find good deals.

WiFi Suppliers Try to Avoid Big Squeeze

WiFi networks continue to gain interest in both the business and consumer markets. "Businesses are interested in taking advantage of mobility; they understand it offers them a number of ways to help improve employee productivity," noted Craig Mathias, principal at market research firm Farpoint Group. Consumers also find the convenience attractive because it makes it simpler for them to add networking features in their homes.

Consequently, folks are buying more WiFi switches and access points. Market research firm the Dell'Oro Group found that revenue for these products increased by 29 percent in the fourth quarter of 2005. While that number would be welcome news in many markets, it underscores a couple of disturbing trends in the WiFi space. First, the market growth rates are slowing down: Dell'Oro found that hardware revenue increased by 72 percent in the fourth quarter 2004. Second, per-unit pricing has been falling: Dell'Oro found it went down about 6 percent from the third quarter in 2005 to the fourth quarter that year.

Is Faster Speed the Answer?

As the growth and pricing rates start to slow, suppliers need to find new ways to prop up their profits. "The vendors have been hoping that migration to 802.11n systems will lead to higher prices for their products," said Jean Kaplan, an industry analyst with market research firm International Data Corp.

This version of the IEEE wireless LAN standard is designed to boost the top speed from 54 Mbps to more than 100 Mbps. Certain users may find the higher speed attractive for various reasons. First, more devices are being connected to WiFi networks and that creates network bottlenecks. In corporations, the number of mobile users is growing, as more and more employees are being outfitted with laptops and handheld devices. At home, users are now attaching their PCs to TVs and audio systems, and moving digital music and video from device to device. Also, applications are becoming more complex, and voice and video are less tolerant of bandwidth fluctuations than data transmissions.

Progress in this market has been hindered by squabbling among suppliers. Production products were expected in 2006, but that date has slipped to 2007.

Yet, those interested in the higher speed represent a subset rather than a majority of wireless LAN users. "For most users, the current high mark of 54 Mbps of bandwidth is sufficient for their needs," stated Greg Collins, senior director at market research firm Dell'Oro Group.

Let's Do It My Way

Vendors have taken other ploys to boost product pricing. Proprietary extensions that ease installation or management are becoming common. One area where the vendors have been concentrating is the inclusion of more management functions in their systems. Historically, it has been difficulty to put a WiFi network in place. Once such a network is running, traffic patterns tend to change, so it becomes difficult for businesses and consumers to ensure adequate response time. Vendors like AirMagnet, AirWave, AutoCell Laboratories, Cognio, Wavelink and Wireless Valley Communications have been trying to build successful businesses by offering products that help with installation and ongoing management of wireless LANs.

Increasingly, WiFi hardware vendors have been including such functions in their base products. For instance, Cisco Systems has been promoting Cisco Compatible Extensions (CCX), software that adds functionality to its switches. By deploying CCX, users gain additional security functions and recently the extensions have tried to make it easier for enterprises to run voice traffic over WiFi networks.

While the proprietary functions can be helpful, they can also be constrictive. "With any proprietary extensions, customers become locked into one vendor's product line, and in most cases, that is something they would like to avoid." Farpoint's Mathias told TechNewsWorld.

To Bundle or Unbundle

Some vendors are trying an unbundling approach with their systems. Suppliers like Aruba Networks provide a barebones wireless switch for a low price. Customers are then able to add desired functions, similar to the way in which many PCs are now ordered. Theoretically, the end result is customers find the system they desire at the lowest price possible.

As more pricing pressure looms on the horizon, vendors will be pressed to come up with product packaging formulas that work well for their customers. Telcos are looking for ways to increase their coffers, and a growing number are vying to become more significant players in the business and consumer WiFi markets. "Telcos want to do more than sell a modem for Internet services to a customer, they want to install the wireless LAN gateway," noted IDC's Kaplan.

Consequently, the telcos have signed agreements with equipment vendors, such as 2Wire, and have begun bundling their hardware with customers' Internet services. Because the WiFi equipment is often included as part of the original contract, then the per-unit pricing will be dropping and could force traditional WiFi equipment vendors to follow suit.

While the WiFi hardware vendors are trying to hold the line on pricing and profit margins, theirs may be a futile effort. "In all businesses, certain principles hold true," concluded IDC's Kaplan. "With the WiFi market maturing, vendors may be able to slow momentarily but not stop pricing declines."


Facebook Twitter LinkedIn Google+ RSS
What do you think about Google's addition of an 'annoying ad' blocker to Chrome?
It's terrific -- I don't want people making money from harassing me.
It's not enough -- all ads are annoying.
It's dangerous industry dominance -- Google is already too powerful.
It's irrelevant to me -- I already use an ad blocker.
I'd rather put up with ads than pay for online content.
I don't use Chrome, but I'd like to see this in my browser.