Gateways are golden, Part 1

In the late 1990s, residential gateway start-ups were popping out of the woodwork. Sharegate, Global Converging Technologies, Cayman Systems and Panja each planned to sell $500 miracle boxes that could deliver high-speed broadband services around the home. These companies all had high prices and grand visions in common, as well as one other thing: By 2000, they were gone. 

So what happened?

Blame the DSL and cable providers, which demanded the impossible – cheap equipment and services to increase customer revenue. The thing was, cheap modems don’t possess the intelligence or connectivity options to enable revenue-generating services such as gaming or telephony.  

So rather than spend more money on additional equipment to enable services, providers put services on the backburner. Many did roll out a “home networking” service, but most failed to adequately market or support the effort. 

Meanwhile, the start-ups were burning through funding by spending lavishly on tradeshows, marketing, bloated salaries and the like. When the funding dried up, the gateway guys went out of business or got acquired – all except 2Wire, which survived as much by being first to market with an excellent product (hardware and software-wise), as by the nifty fundraising skills of founder Brian Hinman.

Today, as demand for broadband services increases, the outlook for gateways is brightening.  Service providers are putting out requests for proposals for next-generation hardware and many have already launched gateway services. Both CableLabs and the DSLForum are working on defining standards, which will make it easier for the likes of Linksys, Netgear and Motorola to build products. 

In-Stat/MDR believes the current market for residential gateways amounts to only about 3% of the total broadband customer premises equipment market (with 2Wire owning about one-third of that). But by the end of 2004 gateways will account for 8%, and climb to 30% by the end of 2007.   

While we expect 2Wire to continue to command a good chunk of this market – assuming it doesn’t burn through its funding and can launch a successful IPO or get acquired – the big winners will be Netgear and Linksys, which have strong brand recognition and product portfolios, and Siemens and Westell, large manufacturers of broadband hardware that have deep penetration into the service provider markets. 

Next time we’ll look at the future of the gateway market.