Microsoft, 3Com seal defining deal

Home networking may never be the same again following the MS-3Com handshake -- but what about the PalmPilot?

A pact between Microsoft Corp. and networking hardware maker 3Com Corp. to create co-branded home networking products could kick-start what has been a nascent market, said analysts on Thursday.

"Microsoft's role in this is making Windows more home-networking savvy," said Bruce Kasrel, analyst with computer-industry watcher Forrester Research Inc. "Until they do that, this industry will not take off."

Microsoft (Nasdaq:MSFT) intends to add an Internet sharing component to Windows as part of the project, while 3Com (Nasdaq:COMS) will lend its networking expertise.

The companies intend to offer several products that require "no new wiring" -- a key concept in the market.

The Microsoft-3Com pact calls for a product that networks via home phone lines by this summer. A wireless product will follow by year's end, with one based on sending data over power lines within the home expected in 2000.

Creating demand
All in all, it's a fairly aggressive battle plan for a market that is almost non-existent today.

In 1999, revenue from home networking products will only top $230 million, according to multimedia researcher In-Stat. But that figure will more than double next year to $560 million.

The key to spurring that growth? Ease of use, said a Microsoft exec.

"If you buy a product on the shelf today, you won't find the ease-of-use and comprehensive solution that you will find with our [future] products," said Kevin Eagan, director of business development for the Redmond, Wash. company's hardware group.

But even Microsoft's mass many not gather momentum in the market. "Is this a guarantee [of success]? No, there are some big names in this already," said analyst Ron Rappaport with Internet watcher Zona Research Inc.

Already, standards work has begun around the Home Phoneline Networking Alliance and the Home Radio Frequency Alliance -- for the most part exclusive of Microsoft.

Already, the Home PNA has release the first version of a standard for 1Mbps networking, with a second proposal for 10Mbps due out this summer.

And in other news, Panasonic-brand appliance giant Matsushita Electrical Industry Co. Ltd. bought into home network technology maker Epigram Inc. With Matsushita and Intel now in the industry, Microsoft has its work cut out for itself.

Great for 3Com Palm
For 3Com, the deal actually tames some competition. A beneficial side effect for 3Com may be equal Windows treatment for its Palm handheld devices.

With Microsoft and 3Com working closely, any home-network design will have to be information-appliance agnostic.

"Both companies believe very strongly in industry standard," said Roy Johnson, vice president of 3Com's home networking group. "Based on industry standards, it is reasonable to think that a variety of devices get plugged into different networks."

That's good news for Palm, said Zona's Rappaport. "I think ultimately you are going to see PDAs [personal digital assistants] work together," he said.

Antitrust on the brain?
The downside of the deal? Against the backdrop of Microsoft's legal woes, it could open up a whole new Pandora's box of monopolist claims from competitors.

With the indisputable advantage of access to the operating system, Microsoft's ability to push its own specifications in the market may be overpowering.

"Microsoft software in the home is an exclusive advantage," said Zona's Rappaport. "Microsoft has had its hand in the home PC market, and now it sees an opportunity to make a home networking de facto standard."

But Intel Corp. (Nasdaq:INTC), for one, is not worried.

"Every time we turn around we have companies that we buy from, sell to, and compete with all at the same time," said Howard High, a spokesman for the Santa Clara, Calif., chip giant. "It will add a level of complexity -- definitely -- but it is not unique."


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