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WLAN: The Quiet Bubble?

Wireless LAN has got a lot of attention over the last year or so, with startups springing up to deliver everything from more sophisticated chips to roaming and security software for concerned enterprise users of this newfangled technology.

Notwithstanding the downbeat economic situation, one or two WLAN startups have even said that they plan to try for an IPO... eventually (see Atheros First With Multimode). This not the kind of talk you hear from startups anymore. So we started wondering, is it possible that wireless LAN could become the next hot ticket for investors -- albeit on a much more modest scale than the e-commerce blow-ups from two or three years ago?

Then the semiannual venture capital report from Growthink Research landed on our desk. Out of the $1.5 billion the researchers say was invested in wireless technology in the U.S. in the first six months of this year, WLAN chipset designers like Resonext Communications Inc. and Magis Networks Inc. scored high with funding rounds of $39 million and $40 million respectively. A substantial number of the other companies mentioned in the report are also working on WLAN hardware and software applications.

This is similar to the kind of focused funding that went into the e-commerce companies that made up the Internet bubble. So, could wireless LAN companies follow another trend next year and start to go for IPOs?

It's certainly possible. Wireless LAN has caught the public imagination in the U.S. in a way that third-generation cellular systems simply haven't. Scores of Websites have sprung up about myriad topics relating to 802.11b, from how to set up your own wireless home networking to "wardriving" and community networks. Newspapers and magazines have written extensively on this new phenomenon.

Let's be clear, now: This whole scene is on a much, much smaller scale than the Internet boom. Wireless LAN isn't quite the hot topic on everybody's lips, as the Internet was back in 1999. However, there is a considerable groundswell of interest in the technology, its applications, and its market potential.

WLAN is also potentially a bubble in the making, for many of the same reasons that the Internet boom turned out to be largely a bust. There's already too much hype about what wireless LAN can and will do, and it is not clear (and won't be for a while) which, if any, WLAN business models will work.

There are many technology issues still be surmounted with wireless LAN. Network coverage is poor, roaming between access points is rarely supported, security is virtually non-existent, and 802.11 cannot support voice calls. Many of these problems will not be sorted out for several years -- if ever. Yet to read some of the coverage in the press, you would think wireless LAN is a panacea for all that ails 3G. It's not; it’s a convenient way to wirelessly network devices or access the Internet over a short distance. People need to keep sight of that fact if the market does do well.

It is also unclear whether the current crop of business models for hotspot service providers will succeed. Simply put, will people pay between $30 to $80 a month for patchy wireless Internet access in coffee shops, airports, and hotels? We don't know yet. The new service from T-Mobile U.S. could prove to be a useful barometer in this respect, if the carrier decides to break out revenues from the WLAN service in its quarterly earnings report.

Of course, hotspot operators are by no means the only game at the WLAN card table. However, they are the public face of WiFi, and the success or failure of their offerings may serve to inflate the WLAN bubble or burst it before it even gets off the ground.

— Dan Jones, Senior Editor, Unstrung
http://www.unstrung.com
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