Will "residential gateway" fuel home networking trend?

Cable providers, telecommunications carriers, and high-tech firms are all working on new home appliances that will serve as a control center for connecting high-speed Internet access with other home appliances, PCs, and phone services.

The companies involved, including AT&T, 3Com, and Motorola, all believe the new appliance, called a "residential gateway," will be as common in the home as refrigerators and ovens. But analysts say its success hinges on numerous factors: competing technologies and a current dearth of standards could hobble the technology's development. The appliance must also be reliable, easy to use, easy to maintain--and cheap, they say.

The device will initially allow consumers to network their PCs, so they can share Internet access, printers, and other peripherals, as well as allow people to play multiplayer games or distribute movies and music throughout the home.

The ultimate goal, potentially five to ten years away, is to have every consumer device connected: A person could turn on the air conditioning through the TV, or a homeowner with a video security camera at home can view the house from a Web browser at work.

New studies show that a lot of consumers want the appliance, but that they don't want to pay too much for it. According to the Yankee Group, 31 percent of U.S. households with PCs said they are interested in a residential gateway, with 62 percent saying they would consider getting one if it were free or part of a service plan, such as an item on a cable bill.

Cahners In-Stat Group predicts the residential gateway market will grow from $200 million in 2000 to $2.4 billion in 2003.

Evolving concept
The cable, phone and technology firms are still debating what a residential gateway should look like. Some think it will be a scaled-down PC with a modem or TV set-top box. Others think it will be a standalone appliance stuck in the corner of a basement or outside of a house.

The first generation devices--available at year's end or early 2000--will feature TV set-top boxes, cable modems, and digital subscriber line (DSL) modems that support wireless networking and phoneline technology, which allows users to connect PCs together by plugging them into phone jacks.

For example, AT&T is working with networking firm Cisco Systems and set-top box maker General Instrument on a cable device that combines high-speed Internet access, home networking, and voice services, so AT&T, a long-distance company, can offer local phone service. Pacific Bell, 3Com, and Motorola are also working on first-generation modem devices.

Other companies, such as Ericsson and IBM, are building small servers with Intel processors that also offer support for home networking technology, including connections to security systems and control of house lights, analysts say. While the products are aimed at existing homes, IBM had previously entered the residential gateway market with a device aimed at the new home market.

Future residential gateways are expected to support powerline technology, which lets people connect devices together by plugging them into electrical outlets.

While the early residential gateways will be available by the end of 1999 or early 2000, the companies need to work out several issues before the appliances take off, analysts say.

Raising awareness
Companies have not developed clear strategies of getting these devices into homes, said Cahners In-Stat analyst Michael Wolf. Since consumers don't want to pay a lot, the gateway providers can emulate the cellular phone model, where the consumer gets the device for "free." But in reality, it's paid over time through monthly service payments, he said.

According to Wolf, DSL and cable modems with home networking technology will cost between $250 to $325, while Ericsson's appliance will cost between $400 to $500. A company called Panja this fall will introduce a residential gateway that costs about $2,500.

The companies have to convince consumers that the product is worth paying for, said Yankee Group analyst Karuna Uppal.

Despite some success in selling home networking kits that connect PCs and the recent high-profile announcement by Apple, which will offer wireless networking on it's new iBook, companies have to do a better job marketing home networking technology, Uppal said.

Of the 2,000 people surveyed in the Yankee Group study, 49 percent said they didn't know whether they'd ever network their home. "There's a significant level of education that needs to happen," she said. "Once it starts happening, it will be easier to get the ball rolling. It's going to be: You go to a friend's house, and they could do cool things like turn the lights on [remotely with a handheld device or browser] or playing multiplayer games on the PCs."

Wolf said the technology must also be reliable and easy to maintain. A new breed of systems integrators, such as Radio Shack, can install and service the technology, much like phone and cable service is done today.

"Reliability is a huge piece of the puzzle. Anything resembling the difficulty of a Windows-based PC will not fly as we all know how much Wintel machines hang up."

The companies also have to ensure their residential gateways are compatible, Wolf said. Standards are needed, because the goal of a residential gateway is to connect homes to a wide area network through a central office, such as a local phone company facility, he said.

One standards effort, called the Open Service Gateway Initiative, hasn't been widely supported, except for companies that support Java, Wolf said.

In other findings, the Yankee Group found that more than 17 million U.S. households, or 37 percent of homes with PCs, were interested in home networking. The year before, only 30 percent of homes showed interest.