The companies announced plans to combine their expertise in networking and software for easy-to-use technology that will allow users to network PCs, peripherals, and most consumer devices in the home.
The two giants will release Ethernet and phoneline technology--networking PCs together through phone connections--in second quarter of 1999, and a wireless networking product by the end of the year. In the year 2000, the companies will release powerline networking products, which allow users to network PCs through electrical outlets.
"Having 3Com and Microsoft team up validates the home networking opportunity and it means their competition--the IBMs and Intels of the world--will need to respond competitively and get wireless, phoneline, and powerline technologies lined up," said analyst John Todd, of C.E. Unterberg Towbin.
Analysts said the 3Com-Microsoft alliance is a logical one, and they expect other companies to strike similar partnerships as the emerging home networking market grows. Analyst firm Cahners In-Stat believes the U.S. market will reach $230 million by 1999 and grow to $1.4 billion by 2003 as high-speed cable and DSL services become more prevalent.
Cahners In-Stat analyst Michael Wolf said the alliance between Microsoft and 3Com is so far the largest in the home networking market.
"Each company is leveraging each other's strengths," Wolf said. "3Com is successful with modems and network interface cards. Microsoft brings expertise in terms of desktop software and operating systems."
In the limelight
C.E. Unterberg's Todd said today's deal also gives phoneline and powerline companies a bit more clout. Players like Tut Systems and Epigram, wireless companies Proxim and Sharewave, and powerline player Enikia all stand to gain from increased interest in home networking.
"The key thing about this announcement is it raises the visibility of these other networking providers out there," Todd said. "The IBMs, Intels and so forth need to respond to this type of statement and need to either acquire or develop these products from these other suppliers. Time to market is increased because of 3Com's competitive move."
Most home networking companies, like Intel, have latched onto phoneline networking options as it was the first technology to establish standards. Intel has said it plans to enter the wireless market, but is still exploring whether to enter the powerline market.
The home networking market is already fraught with partnerships and joint ventures. Panasonic today announced it has invested an undisclosed sum into phoneline firm Epigram.
Previously, Cisco Systems, which isn't in direct competition with 3Com in the home networking market, partnered with Hitachi and some 30 other companies to have its software integrated into cable modems and set-top boxes.
"Manufacturers are scrambling to get networking technology embedded in the products," said analyst Kurt Scherf of Parks Associates.
Old rivals, old partners
3Com and Microsoft, although rivals in the personal digital assistant market, have previously agreed to partner in other markets. As earlier reported, the pair announced broad plans in mid-January to create Windows-based networking products to help telecommunications carriers, businesses, and consumers build networks that integrate voice, data, and video.
At the time, 3Com said it planned to use Microsoft's Windows NT embedded operating system within its networking hardware for corporations and carriers. Today's announcement consummates of the consumer end of that partnership.
Microsoft and 3Com executives today said their goal is to give consumers a wide variety of easy-to-use, easy-to-install home networking products.
That's why they'll offer Ethernet, phoneline, wireless, and powerline connections, said Neil Clemmons, 3Com's vice president of consumer marketing. "There's an Internet lifestyle emerging where access to the Internet will come from a number of devices. It won't be just one media. It will be multiple media. The goal is to create products that can interoperate and have common interfaces."
Analysts say ease-of-use is key if the technology is to be successful.
"Home networking products need to get a lot more consumer friendly," Wolf said. "You don't want your brother, sister, or mom to have deal with IP addresses. And Microsoft with its Windows operating system can help mask the complexity. If these two companies can pull this off, it will bring credibility to home networking."
Microsoft and 3Com's first-generation phoneline networking product will be sold this fall as add-ons to PCs, as well as separate products at retail stores. The cost will be under $99 per PC.
Future products will include a combination modem and networking card, Clemmons added.
While Cisco and 3Com are networking rivals, the two companies are not competing directly in the home networking market, analysts said. 3Com manufactures low-cost networking cards and modems, while Cisco partners with companies to have its software installed in cable modems and other products for home networking.