Network World, 01/04/99

Switching at Layer 2 is no longer a mysterious science that only a few companies have mastered. Wire-speed LAN switches are commonplace, and they are getting less expensive all the time.

Vendors often will deny that switches have become commodities because vendors want to keep their margins on the switches high for as long as they can. But it's hard to argue with market dynamics.

Part of the change has to do with the dominance of Ethernet technologies. The power struggle that once raged among the different types of LAN connections has all but vanished. ATM, FDDI, token-ring and other LAN transmission technologies account for just 5% of the LAN hub and switch ports being sold today, with Ethernet accounting for the rest, according to The Dell'Oro Group, a research firm in Portola Valley, Calif.

Because Ethernet is such a known quantity, vendors can now put most of the functions of Ethernet and Fast Ethernet switching into Application Specific Integrated Circuits. Hardwired code ensures the switches are as fast as possible and inexpensive to produce.

This means the vast majority of vendors selling LAN gear can direct their energies into making Ethernet, Fast Ethernet and Gigabit Ethernet as efficient as possible. The more Ethernet they sell, the less it costs.

As a result, users can find stackable 10/100M bit/sec Ethernet switches for less than $150 per port, with their chassis counterparts coming in for less than $200 per port. At well under $100, the price of network interface cards for 10/100M bit/sec Ethernet is the same as the cost of a 10M bit/sec-only card.

The emergence of high-volume, low-priced LAN switches from a new bread of vendors is putting even more price pressure on traditional network hardware makers. Hewlett-Packard, Intel and Samsung are getting into the game. These vendors plan to apply their expertise in producing and selling commodities, such as PCs and monitors.

Of course, traditional LAN players aren't sitting idly by watching these encroachments. 3Com is reacting by tightening its supply chain and by beefing up product reliability, while keeping in step with price drops. And Bay will capitalize on the size and economies of scale it gains through its new parent, Nortel Networks.

Other vendors are likely to take the same approach, and users will benefit as falling Fast Ethernet prices put pressure on Gigabit Ethernet prices. As Gigabit Ethernet emerges over the next few years, users will have a clear upgrade path based on familiar technology.

Predictions: Vendors such as Intel and HP will become larger players in the LAN switching arena, offering better price/performance than some of the larger players. Fast Ethernet products will proliferate and help to drop Gigabit Ethernet prices. LAN switches will continue to get less expensive as they become commodities, giving users plentiful bandwidth at low prices.