IBM has created a "residential gateway," or central server, that allows consumers to connect devices--PCs, appliances, or security systems--with their phone service, cable, and Internet access. The server lets individuals control devices from a single console--allowing a person to turn on the air conditioning, for example, through the TV.
IBM and its competitors, such as Intel and 3Com, are after the emerging home networking market that's expected to reach revenues of $230 million this year and grow to $1.4 billion by 2003, according to a Cahners In-Stat Group study. But they all have different strategies on how to best tackle the market.
IBM is directing its residential gateway product, called Home Director, at the new home market. To get its foot in the networking door, Big Blue is striking deals with land developers and enlisting a new breed of systems integrators, such as local telco Bell Atlantic. The Baby Bell will wire new homes with the networking technology, as well as provide service and support when needed.
Other networking companies, however, are approaching the market from other directions and are focusing on existing homes. Intel, Diamond Multimedia, and others have built small kits that allow users to link together PCs and printers, while sharing a single Internet connection through existing phone lines. Other companies, such as Proxim and WebGear, offer wireless networking connections.
"A lot of companies, the Intels and 3Coms, are doing little do-it-yourself home networking kits to hook up your PCs. IBM's strategy is less do-it-yourself," said Yankee Group analyst Karuna Uppal. "They're more, 'Put this into your house and you're networked.' End of story."
Mary Walker, general manager for IBM Home Networking Systems, said IBM's strategy of targeting networked homes offers higher margins than focusing on some of the small home networking kits that cost several hundred dollars.
For example, IBM charges between $600 to $3,000 for its Home Director Connection Center, which offers ports for home telephone service, Internet access, and video distribution. IBM also sells a more advanced package, which also lets owners control the house's lights, heater, and alarm system, for $10,000 to $15,000.
Those costs are bundled into the cost of a new house, Walker said. "Signing up with this is future-proofing your home," she said.
To raise additional revenue, IBM and their partners also plan to connect the homes in a networked community together through a community Web site, which will include neighborhood news and bulletin boards. The plan jives with IBM's e-business strategy, as the company could place ads and links to e-commerce sites on the community page, Walker said.
IBM's first project is a 2,000-home community development in Houston. The neighborhood's first intranet Web site is scheduled to launch within three months.
"The intranet will let residents communicate with each other. You can get store coupons off of it, baby sitting services, anything," said Linda Simmons, marketing director for Land Tejas Development of Houston.
Over the next year, IBM plans to offer additional home networking products, either alone or with industry partners. Some products include a central network hard drive, easily accessible by every networked PC in a home, as well as a music server, which will allow for music downloads from the Net directly to a stereo system. Another product in the works is a scheduling service, which would allow a busy family to coordinate meetings and appointments.
IBM also plans to make a foray into phoneline and wireless networking technologies, as Intel and other companies have.
Cahners In-Stat analyst Mike Wolf says IBM's initial home networking plan is ambitious, but a good strategy because of the higher profits involved.
"Their ultimate goal is to sell more home gateways or music servers. And the community intranets is futuristic talk," Wolf said. "But they're aiming at a different target than most everyone. They're faced with working with construction companies and developers and selling the idea of structured wiring. It's a lot of sweat and effort to develop the channel. But this can pay off down the road."
Walker said IBM has signed on 37 companies in its Home Systems Integrator Program and plans to partner more with cable and telecommunications companies, who could bundle their high-speed Internet access with IBM's home networking products.
Yankee Group's Uppal said IBM's reliance on partners is a smart move because the company has always struggled selling directly to consumers.
Many home networking vendors will eventually end up combining strategies, Uppal added. One Intel executive recently said the company has no plans to offer a residential gateway. But 3Com--which will release phoneline and wireless technology with Microsoft within the next year--is working on a residential gateway similar to IBM's server. Separately, Motorola and Ericsson have also announced plans to build a gateway.
IBM "will have had this product longer than other people and can achieve a healthy installed base among new home buyers," Uppal said. "This gives them a chance to participate in the market and not have to compete on price with the other companies who perhaps have better brand recognition."