Less than two years after entering the market, Microsoft is discontinuing nearly its entire line of home-networking equipment, saying that it can do more to drive home-networking adoption by building the necessary technologies into Windows than by competing with hardware vendors.

Only Xbox Adapter Will Continue

Microsoft first entered the home-networking market in Sept. 2002, releasing wireless base stations and PC adapters based on the 802.11b wireless networking protocol, along with products for Ethernet-based wired home networks.

Because these products were very similar in functionality and price to existing offerings from vendors such as Netgear and Linksys (subsequently purchased by Cisco), the company's decision to enter the market was somewhat puzzling. However, Microsoft suggested that competing products were too insecure and difficult to use, and that this was holding back adoption. The Microsoft products, in contrast, had Wireless Equivalent Privacy (WEP, a security standard) turned on by default, and an interface that made them fairly easy to set up. By spurring home networking, Microsoft hoped to sell more PCs, increase broadband adoption (which is important for other Microsoft consumer initiatives, such as the Xbox Live gaming service), and enable new consumer scenarios, such as the ability to transfer digital media from a PC to networked devices.

In Sept. 2003, Microsoft released an updated set of wireless products that support 802.11g (which is faster than 802.11b) and Wi-Fi Protected Access (WPA, which is more secure than WEP) and introduced an 802.11g adapter for the Xbox game console. In Feb. 2004, the company released an 802.11g adapter that could connect to a PC via a USB 2.0 port.

Why Microsoft Got Out

In May 2004, however, Microsoft revealed that it was discontinuing all its home-networking hardware except for the Xbox adapter. The company will support existing products through the end of their two-year warranty, after which support will not be available.

Microsoft explained the turnaround by saying that other vendors had followed its lead in making their products more secure and easier to use, and that it no longer needs to sell networking hardware to forward these goals. Instead, the company believes that it can do more to spur wireless home networking by adding support for relevant technologies to Windows, while letting partners sell the associated hardware.

Cisco's purchase of Linksys in 2003 might also have influenced Microsoft's decision. Unlike the small players that previously dominated the market, Cisco is large and influential enough to drive home-networking standards and adoption, rendering Microsoft's participation unnecessary. In addition, Microsoft needs cooperation from Cisco in many areas, including driving networking standards for businesses, and may not have wanted to compete directly against such an important partner.

Business considerations probably played a part as well. Microsoft had trouble keeping up with the rapid pace of technology changes in wireless home networking. For instance, Linksys shipped 802.11g products (based on an early draft specification) in late 2002, leaving Microsoft's 802.11b products behind a mere three months after they shipped. Even after catching up with the technology, Microsoft's home-networking products were not selling particularly well—their market share fell from 9% in Dec. 2003 to just under 7% in Mar. 2004, according to market research firm NPD. Add razor-thin margins to the picture, and it seems unlikely that selling home-networking hardware was helping Microsoft's bottom line.