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Networkers smell cash in the small business market

The market for networking products for small and mid-sized businesses is expected to boom as hardware gets easier to use and prices plummet, a new study shows.

    The market for networking products for small and mid-sized businesses is expected to boom as hardware gets easier to use and prices plummet, a new study shows.

    Networking hardware sales for small businesses will reach $9 billion this year--more than a $1 billion increase from last year's levels--while sales for medium-sized businesses will increase slightly to reach $14 billion, according to new research from analyst firm Cahners In-Stat.

    The study found that the high-growth trend should continue for years to come. By 2002, small business sales will skyrocket to $13 billion, while revenue for mid-sized businesses is expected to jump to $17 million. Mid-sized businesses are those with less than 1,000 employees, according to the study.

    "These are first-generation networks being built in many cases," said analyst Shannon Pleasant, from Cahners In-Stat.

    "It's a huge opportunity that's largely been untapped. They're rapidly growing businesses that need support a variety of applications, email and Internet access--things in the corporate environment that's filtering down to small businesses," she added.

    The main reason is that low-end networking hardware--modems, networking interface cards, hubs, and switches--are easier to install and cheaper to buy, Pleasant said.

    "It's very cheap to set up a local network (LAN) these days--10-Megabit Ethernet is inexpensive and 10/100MB Ethernet is reasonable," she said. "And you don't have to be a techie to put in a network anymore. Most vendors are doing a good job bundling their products together."

    Ethernet is the dominant technology used to connect PCs and server systems across a local network.

    Networking firms, such as 3Com, Intel, Cisco Systems, and Nortel Networks' NetGear, have all tackled the small and medium-sized market as business from large corporations has slowed.

    Cahners In-Stat believes most of the revenue increase from mid-sized businesses will come from companies who are expanding and building remote offices across the nation.

    "In the U.S., there's a real saturation in the enterprise. Networks are built out and there's mild scaling going on, so now it's time to look elsewhere," Pleasant said.

    The larger companies in the networking space will have to compete with smaller players like Ramp Networks for a piece of the market. But the high growth rates are good news for 3Com, which has a large portfolio of products for smaller businesses.

    "LAN networking is becoming a bloodthirsty arena with prices dropping so quickly. You have to sell a lot of these suckers to bring in the bucks," Pleasant said. "But everybody's going to try to play. There's going to be more competition because it's a big opportunity."