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February 18, 2000

Music, Morality, and Moore's Law

“Turn the clock to zero boss
The rivers wide we'll swim across
We're starting up a brand new day”
     -Sting, Brand New Day

It must be difficult for tech investors to keep their heads up these days. Amidst the reset in the NASDAQ, the concerns over corporate IT spending, the reduction in telecommunication capital expenditures, and the economic difficulties surrounding the enormous 3G license fees, optimism is likely a fleeting endeavor. But perhaps all we need is a new hero – some innovation to point to that is changing the world; a technology that is about to explode in terms of unit growth; a new beacon of hope.

One seemingly unlikely candidate for just such a task is a wireless LAN technology that goes by the cryptic name of 802.11b. Also called Wi-Fi by the industry standard group promoting interoperability, 802.11b is the next big thing. Wi-Fi provides for wireless Ethernet transmission primarily between laptops and local access nodes that attach to your standard corporate LAN. Originally a second class citizen in terms of transfer speeds, today’s 802.11 products, which transmit in the unlicensed spectrum at 2.5 Ghz, are capable of speeds of up to 11 Mbps--more than enough speed to keep up with the average Internet connection.

A few years back, wireless LANs appeared to be more research than development. Several scientists wanted to prove “that it could be done,” but with transmission speeds many times slower than with wires, it was hard to see why there would be much value. As the technology evolved, corporate users who prefer laptops found it quite convenient to be able to move around the office (or campus) without the need for a physical LAN connection (Dell laptops now ship with Wi-Fi embedded). Later, facilities personnel began to realize the huge benefit of removing the need for wires when provisioning a new office or even adding a new user.

Universities also became huge consumers of Wi-Fi technology. With thousands of students all clamoring to get on the Internet, no provost could be thrilled with the notion of retrofitting thousands and thousands of CAT5 wires throughout century-old facilities. Wouldn’t it be much simpler if every student could access the Internet from almost any spot on campus, including the common spaces outside the buildings? The answer is unquestionably yes, and some of the largest active Wi-Fi networks are now installed at campuses such as Stanford, MIT, and Carnegie-Mellon.

Like other dislocating technologies, Wi-Fi is now working its way from the office into the home. While home networks are still in their infancy, the benefits of a wireless architecture may be even higher than at the office. Who has the capability to rewire their whole house? And although less obvious, the interest in aesthetics at home heightens the benefit of not stringing wires halfway across the room. Also, as we integrate the home entertainment center with the PC, a wireless link is particularly appropriate. Lastly, what if I could carry my laptop home from work, lay it on the kitchen counter and be online instantly? You can today with Wi-Fi.

From the home we move to public access spaces. Working with companies like Wayport, MobileStar, and Airwave, hundreds and hundreds of airports, hotels, and even restaurants are rolling out Wi-Fi access throughout their facilities. On January 3rd, Starbucks and Microsoft announced that in early spring, each coffee house would begin offering Wi-Fi access for their patrons. Soon, Wi-Fi access may be like VISA: “anywhere you want to be.” Once again, the compelling issue is the portability. You can carry one computer from work to home to the airport and even to Starbucks and always reach your data.

Some startups have an even broader ambition to rollout carrier class Wi-Fi access by installing access points along rooftops in major metropolitan areas. This type of implementation would stress the limits of today’s technology, and business models for this type of access program are specious at best. However, downtown Palo Alto is not much different from the Stanford campus when it comes to size and geography. And with the opportunity to be part of the “next big thing,” I am sure many ventures will attempt to solve the business model problem.

In terms of market size, Frost and Sullivan forecast Wi-Fi manufacturer’s revenue of $884M by the year 2002, and Cahners In-Stat Group suggests that more than 10 million Wi-Fi products will be installed by the end of this year. I will go out on a limb and say that a 200 million-unit market in 10-15 years is not unrealistic, primarily due to the pervasiveness of the technology and the ability to provide access at almost every physical destination in the world. Perhaps cellular carriers should be concerned about the impact on the need for 3G services if Wi-Fi access is pervasive.

Skeptics point to many challenges, including the recently announced security breach in WEP, the encryption protocol associated with 802.11b. Other issues include congestion, interference, and a lack of billing or roaming infrastructure. Still others will point to the emergence of Bluetooth, or the existence of other home LAN protocols with superior technologies. Don’t be fooled. The history of technology has proven again and again that if a certain open architecture gains escape velocity there is no turning back. The cost declines brought on by ramping unit volumes alone are enough to thwart any competitive threat.

Wi-Fi has all the makings of a disruptive and explosive technology: huge growth, a strong value proposition, multiple and expanding uses, industry standardization, and global standardization. There are flaws, but none are insurmountable, and none are nearly large enough to be anything more than a speed bump with respect to the billions of dollars of R&D already pointed into this space. Lastly and most importantly, there is plenty of running room as we move from the corporation to the home to the campus to the airport to the hotel and potentially to a carrier class level. This truly is the next big thing.

Posted by Bill Gurley on February 18, 2000 at 08:00 AM | Permalink | Comments (0)

DISCLOSURE: The information contained Above the Crowd has been obtained from sources believed to be reliable but is not necessarily complete, and its accuracy cannot be guaranteed. Any opinions expressed herein are subject to change without notice. The author is a general partner of Benchmark Capital, a venture capital firm in Menlo Park, Calif. Benchmark Capital and its affiliated companies and/or individuals may have economic interests in the companies discussed herein. © J. William Gurley 2005-2006. All rights reserved.