Baker said that without question 802.11 a/b and 802.11g sales played a huge factor in reversing Microsoft's early success in retail wireless networking sales. "It looks like everyone is going to push 'g' harder than we thought, so I think this really is going to hurt (Microsoft)," he said. During their first month on store shelves, 802.11g products captured 5 percent of Wi-Fi retail sales. Together 802.11 a/b and 802.11g products made up 10 percent of wireless networking sales in January, according to NPDTechworld. "Right from the go, 'g' was 5 percent of sales, which is a very impressive start," Baker said. By February, 802.11 a/b and 802.11g products had moved up to 15 percent of the market, with Linksys racing ahead of competitors and stomping on Microsoft's share gains. "Linksys sold all of the "g" stuff in February," Baker said. "Twenty percent of their dollars was in 'g' products." In an unexpected trend that shows how competitive the Wi-Fi market can be, average selling prices dropped in February from January even as 802.11g sales soared, according to NPDTechworld. Baker said he had expected 802.11g gear to sell for a "premium price," while 802.11b became "the loss-leader stuff." Average retail selling prices for networking gear dropped to $86 (£55) in February from $89 a month earlier. Comparing February to January, the average price of Linksys Wi-Fi dropped to $86 from $92; NetGear dropped to $82 from $89; D-Link stayed the same at $93; Microsoft rose to $95 from $93; and Belkin stayed the same at $70. The margins are razor thin in the Wi-Fi gear market, but initially Microsoft's brand name helped it gain on competitors, even at a premium price. Microsoft and other heavyweights, such as Sony and Cisco see the Wi-Fi market as a strategic necessity, according to equity research analyst William Bao Bean with Deutsche Bank. "It's not just about revenue or profitability -- they're setting the stage to sell other products and services, such as Xbox Live and MSN Broadband in Microsoft's case," said Bean. "Without networking, companies are essentially on an island, and what they want to do is build bridges to other product areas, such as your phone, home stereo or car." Shipments of Wi-Fi products nearly quadrupled in 2002 while average selling prices fell significantly, which has slimmed down profit margins. The players have been forced to lower prices quickly to remain competitive. Microsoft, which is on the high end of the price spectrum, began selling a wireless base station for $150, but effective on Wednesday, a base station will cost $99 with a $20 mail-in rebate. A wireless notebook kit with a base station and a notebook adapter had cost about $220, and starting on Wednesday, it will cost $169 with a $20 mail-in rebate. Bean noted that he's been surprised by the number and types of products that are gaining networking capabilities. The volume of Wi-Fi products shipped to the home market is expected to increase by 160 percent to 6.8 million units in 2002 compared with 2001, according to In-Stat/MDR.
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