In January, Microsoft captured the No. 2 position in U.S. retail sales of Wi-Fi wireless networking gear, only to see its share drop back down to fourth place in February, according to NPDTechworld. The market researcher tracks sales at retail, which is where the bulk of wireless networking gear is sold.
Considering that, its early rise up the market share charts was very impressive, said NPDTechworld analyst Stephen Baker.
But in January, other Wi-Fi manufacturers started selling faster gear that caught on quickly with consumers. Microsoft delayed delivering products in this category ahead of the ratification for "g"-class routers. Wi-Fi gear in that category, however, has grabbed consumer attention and market share, apparently at Microsoft's expense.
Wi-Fi is a wireless networking technology based on the 802.11b, 802.11a and--. Wi-Fi lets people wirelessly access and share resources on a network. The "b" standard, with maximum throughput of 11 megabits per second (mbps), is the mostly commonly sold at retail and in PC notebooks. By contrast, 802.11a and 802.11g pump data at up to 54mbps. Only "g" is backward-compatible with "b," so some manufacturers also sell combination "a/b" networking gear.
Microsoft on Friday plans to announce that it will ship products based on 802.11g in the second half of the year, once the "g" standard has been ratified by the Institute for Electrical and Electronics Engineers and approved for interoperability by the Wi-Fi Alliance.
"The fact Microsoft didn't come out with 'g' product seemed to be a prudent move, since there is no final standard yet," Baker said. "Now it looks like that if you didn't do a 'g' product, that was a mistake."
Microsoft argues that the 802.11g specification is currently in draft form and that the Wi-Fi Alliance has not yet approved the specification to ensure compatibility across the board with 802.11g and current 802.11b products from other vendors.
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"Customers who buy products based on the draft specification have no guarantee that their products won't be obsolete in a few months," said Todd Greenberg, product manager for broadband networking at Microsoft. "We want to ensure that customers have the best possible experience with our 802.11g products, so we're waiting to ship our products until the specification is finalized and approved."
The software maker wants its customers to have networking products that have security turned on by default and other features to ease their use, Greenberg said.
Early products based onwith products based on 802.11b, causing manufacturers such as Microsoft and Hewlett-Packard to shy away from offering products based on the unfinished specification. Others, such as market share leader Linksys, took the risk to gain market share, and after some initial problems with their 802.11g products, the risk seems to have paid off.
In January, Microsoft was on a roll, passing NetGear and D-Link in U.S. retail sales. As measured in dollars, Linksys led the market with 51 percent share, followed by Microsoft at 13.5 percent and NetGear and D-Link in a dead heat at 12.5 percent. Belkin pulled up the rear with 4.5 percent share, according to NPD Intelect.
Microsoft also captured the second position as measured in unit shipments, with 13 percent share, behind Linksys' 49.6 percent share. NetGear came in third with 12.5 percent retail market share, followed by D-Link at 12 percent and Belkin at 5.7 percent.
But a month later, Microsoft's fortune had reversed, as the company dropped to the fourth position in both dollars and units, according to NPDTechworld. In dollars, Linksys again led, gaining to 54.5 percent share. NetGear took the second spot with 12 percent share, followed by D-Link at 11.2 percent, Microsoft at 10.5 percent and Belkin at 6 percent.
As measured in units, Linksys took 54.2 percent market share in February, followed by NetGear with 12.5 percent share. D-Link captured the third position with 10.3 percent market share, followed by Microsoft with 9.4 percent and Belkin with 7.3 percent.
"G" whiz numbers
Baker said that without question 802.11 a/b and 802.11g sales played a huge factor in reversing Microsoft's early success in retail wireless networking sales. "It looks like everyone is going to push 'g' harder than we thought, so I think this really is going to hurt (Microsoft)," he said.
During their first month on store shelves, 802.11g products captured 5 percent of Wi-Fi retail sales. Together 802.11 a/b and 802.11g products made up 10 percent of wireless networking sales in January, according to NPDTechworld.
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"Right off the get-go, 'g' was 5 percent of sales, which is a very impressive start," Baker said.
By February, 802.11 a/b and 802.11g products had moved up to 15 percent of the market, with Linksys racing ahead of competitors and stomping on Microsoft's share gains.
"Linksys sold about all of the "g" stuff in February," Baker said. "Twenty percent of their dollars was in 'g' products."
In an unexpected trend that shows how competitive the Wi-Fi market can be, average selling prices dropped in February from January even as 802.11g sales soared, according to NPDTechworld. Baker said he had expected 802.11g gear to sell for a "premium price," while 802.11b became "the loss-leader stuff." Average retail selling prices for networking gear dropped to $86 in February from $89 a month earlier.
Comparing February to January, the average price of Linksys Wi-Fi dropped to $86 from $92; NetGear dropped to $82 from $89; D-Link stayed the same at $93; Microsoft rose to $95 from $93; and Belkin stayed the same at $70.
The margins are razor thin in the Wi-Fi gear market, but initially Microsoft's brand name helped it gain on competitors, even at a premium price.
Microsoft and other heavyweights, such as Sony andto enter the market--see the Wi-Fi market as a strategic necessity, according to equity research analyst William Bao Bean with Deutsche Bank.
"It's not just about revenue or profitability--they're setting the stage to sell other products and services, such as Xbox Live and MSN Broadband in Microsoft's case," said Bean. "Without networking, companies are essentially on an island, and what they want to do is build bridges to other product areas, such as your phone, home stereo or car."
while average selling prices fell significantly, which has slimmed down profit margins. The players have been forced to lower prices quickly to remain competitive. Microsoft, which is on the high end of the price spectrum, began selling a wireless base station for $150, but effective Wednesday a base station will cost $99 with a $20 mail-in rebate. A wireless notebook kit with a base station and a notebook adapter had cost about $220, and starting Wednesday it will cost $169 with a $20 mail-in rebate.
Bean noted that he's been surprised by the .
Theis expected to increase by 160 percent to 6.8 million units in 2002 compared with 2001, according to In-Stat/MDR.