During the Internet bubble, John Doerr of Kleiner, Perkins, Caufield & Byers frequently declared that the Internet was in fact "underhyped."
He argued that despite the wild speculation and runaway stock prices, people generally failed to appreciate the significance of the first globally interconnected communications network. I am now prepared to make the same bold proclamation regarding the rise of the 802.11 communications standard, also known as Wi-Fi.
Despite all the press and the hype, I believe that 802.11 is remarkably underhyped, relative to the massive impact this seemingly simple standard will eventually have on the entire wireless communications sector.
One clear lesson in the history of technology and business is that once an open standard gains critical mass, it is extremely hard to derail. The x86 computing architecture and the Ethernet networking standard are two salient examples of this truism. Once a single interoperable standard gains the acceptance of multiple vendors in a marketplace, a consumer bias toward compatibility and scale economics create an increasing-returns phenomenon that is nearly unassailable.
Open standards obtain a high "stickiness" factor with customers as a result of compatibility. Once customers invest in a standard, they are likely to purchase more and more supporting infrastructure. As their supporting infrastructure grows, their switching costs rise dramatically, with respect to competitive alternate architectures. Customers are no longer tied simply to the core technology but also to the numerous peripherals and applications on which they are now dependent. All these things make challenging an accepted open standard a very difficult exercise.
Favorable scale economics result from two key characteristics of open-standard architectures. First, when several companies support the same standard, the architecture benefits directly from the collective research and development efforts of all players in the marketplace. This applies to direct innovation with the standard as well as to an ever-growing community that builds peripherals and applications that reinforce the standard. The second reason open standards have a powerful economic advantage: High volumes lead to lower prices. Lower prices then increase the market for a technology, which in turn drives even higher volumes. The cycle then repeats, driving prices even lower and increasing usage.
These dynamics were unquestionably present in the last quarter-century evolution of the computing industry. When IBM introduced the x86-based personal computer in 1981, most analysts didn't know much about the usefulness of such an expensive and seemingly limited personal computer. Moreover, no one could have ever estimated that the processor inside that device would become a near universal standard throughout the entire computing industry.
And while many technologists would tell you that the x86 architecture is anything but elegant and certainly far from optimal, Intel recently shipped its billionth x86 processor. Along the way, many proprietary computing architectures have, as a result, faced obsolescence. There have also been many well-funded attempts to unseat the standard (remember PowerPC?)--all to date unsuccessful.
Founded in 1980 by Intel, DEC and Xerox, Ethernet has enjoyed a similar success story in the networking industry. Prior to the 1980s, most computer makers followed a vertically integrated strategy, and as a result, each had their own networking standard. However, as more and more vendors jumped on board the Ethernet bandwagon, each of those networking architectures slowly faded away.
While it started as a local-area network technology, today, Ethernet is being used in wide-area networks and even metro-area networks. What's more, it is now being used for voice and video, two applications never envisioned when the standard was introduced.
Simply put, 802.11 is to wireless communications what the x86 is to computing and what Ethernet is to networking. This "open-standard radio" is today supported by more than 115 vendors with more than 900 certified products. The collective R&D of Intel, Broadcom, Cisco Systems and Motorola, as well the entire venture capital community, will move this technology further and further along the price performance curve.
In five short years, a backwardly compatible 802.11g chip began to offer about 25 times the performance at about one-twentieth the price of the first-generation radios in this market. As before, these low price points are leading to increased market opportunities and lower and lower prices. Currently, 802.11 radios are a 50-million-unit-per-year market, but history suggests that this is merely the beginning.
With some 802.11 radio chips approaching $5 price points, Wi-Fi will likely be embedded in every electronic product under the sun. This pervasiveness will impact the communications market in two remarkable ways. First, vendors that build supporting infrastructure and applications will come to assume that Wi-Fi is onboard, further entrenching the standard. Perhaps more importantly, as a client technology, 802.11 will increasingly be considered "free."
In the wireless communications world, the cost of client technology (sometimes referred to as CPE, for consumer premises equipment) typically has a huge impact on overall system economics and therefore adoption. With "free" CPE, 802.11 will have a distinct competitive economic advantage.
Three patterns emerged in previous open-standard architectures that are likely to play out in the open-standard radio market as well. First, numerous vendors underestimated the importance of backward compatibility. Second, vendors were amazed at the performance evolution of the key interoperable standard. Lastly, and as a result of the first two patterns, everyone underestimated the scope and pervasiveness the standard eventually encompassed.
Let's start with compatibility. It is quite clear today that one of the key advantages of the "Wintel" architecture is the huge investment customers have made in terms of software applications--and training to use them. Switching costs are massive. Therefore, projects such as OS/2 and PowerPC failed to gain real traction, despite arguable technical superiority. The same is true of competing networking standards such as Token Ring and FDDI.
These technologies, while also potentially technically superior, are simply too expensive to implement when you consider total cost of ownership. 802.11b is already being used in more than 50 million devices, and by next year, 50 million more will use it. That is a massive installed base of "free" clients that will represent a significant hurdle for any challenger. Ironically, this hurdle can even be an impediment for other open standards that lack customer momentum. Vendors pushing 802.11a and 802.16 will find this to be a significant challenge.
While 802.11b already enjoys quite impressive performance at 11Mbps, many companies building competitive offerings are quick to highlight the relative shortcomings of the technology. Cellular equipment providers will tell you that 802.11 cannot support mobility or voice. Ultrawideband, or UWB, chip manufacturers will tell you that 802.11 has "too much" range and not enough channels. 802.16, or WiMax, chip vendors will tell you that 802.11's range is too small. All these vendors are hazardously ignoring the potent impact on innovation of collective R&D investment.
802.11 will not sit still. Before you know it, the performance gap--especially on a value per dollar basis--will quickly narrow. The x86 processor has doubled its MIPS (million instructions per second) performance every 18 months. Ethernet performance has increased tenfold every three years. The same will happen with open-standard radio, and those that promote the weaknesses of the standard are merely writing the feature list for future innovation on top of the standard.
As a result of compatibility and superior price for performance, experts will continually be surprised by the increasing scope and application of open-standard radio. Many suggested that Bluetooth would occupy many of the sockets now owned by 802.11. Likewise, many vendors now believe that a new standard, UWB, is needed for wireless communications in consumer electronics.
However, system companies such as Linksys and chip companies such as Vixs are showing that these same applications can be tackled without abandoning the open-standard radio that already has momentum. Likewise, while some vendors will argue that 802.11 doesn't do enough to support roaming, mobility, voice or range, engineers across the globe are hard at work improving the standard to do just those things. Vocera, TeleSym and Meru have all added value to open-standard radio and are now deploying compelling voice solutions.
Make no mistake about it: 802.11, or one of its backwardly compatible descendants, will dominate the wireless communications sector over the next 10 years the same way the x86 architecture dominates computing and that Ethernet dominates networking. There will be numerous doubters and numerous challengers, but they will all succumb to the inescapable power of the first true open-standard radio. Resistance is futile. Moreover, 802.11 is indeed underhyped.