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Wireless Prices Under Pressure

Enterprise-grade 802.11 wireless equipment has always deserved a price premium over consumer and SOHO equipment, thanks to better performance, management, security, and upgradeability.

But even though there's no way any enterprise that cares about productivity would take a risk with low-grade equipment, there's also no good reason to assume that enterprise vendors will escape the pressures that have demolished prices in the consumer market.

In this month's Unstrung Insider"Enterprise Wireless LAN Price Survey" – we analyze the list prices of 90 products from 22 different vendors. The primary conclusion is that it will be really tough for all but the most sophisticated and entrenched vendors to turn a decent profit.

The basic problem is intense competition, combined with (whisper it) a paucity of product differentiation. Consider the price of a wireless LAN switch, which ranges between an average of $1,149 per port, for a half-loaded switch, and $799 per port, for a switch fully loaded with multimode access ports.

Given the extra features typically included in switch products, this price compares favorably with that of multimode standalone access points, which cost an average of $840. But with so much competition, it's hard to see how switch vendors will be able to resist cutting prices to win business.

And remember, these are list prices we're talking about, here. As far as Unstrung Insider can discern, resellers are typically offered discounts of between 25 percent and 40 percent off the list price. Naturally, resellers pass some of this discount on to the customer, and naturally, given the need to motivate resellers, further discounts off list price will follow. It's a vicious circle.

Fortunately, there a few tricks that wireless LAN vendors can use to maintain margins and avoid falling too deeply into the commodity trap.

The main weapon is a constant stream of new software upgrades. This could, for example, involve a vendor such as Foundry Networks Inc. (Nasdaq: FDRY) or Extreme Networks Inc. (Nasdaq: EXTR) selling wireless upgrades to LAN switches. Or it could mean a startup such as Aruba Wireless Networks selling an intrusion detection module, or Airespace Inc. selling a location-tracking application, or Trapeze Networks Inc. selling an RF planning tool suite.

Another tactic is to price very competitively on the basic platform and then make up the profit on accessories, such as handhelds, scanners, and so on. Considering its ultra-competitive pricing, this appears to be the approach adopted by Symbol Technologies Inc. (NYSE: SBL). Yet another scheme is to skew pricing heavily in favor of bigger deals at the expense of smaller ones, which appears to be the tactic being used by Chantry Networks Inc.

Despite these efforts, the factor that could ultimately halt price declines is customer inertia. For enterprises happy with their existing LAN switch vendors, it may be more trouble than it's worth to look beyond incumbents such as Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Ltd. (NYSE/Toronto: NT) just to save a few dollars on their wireless deployment. This really underlines the power of the vendor's brand, sales channel, and support over useful technical innovation.

— Gabriel Brown, Chief Analyst, Unstrung Insider

"Enterprise Wireless LAN Price Survey" is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,350. Individual reports are available for $900.

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