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Recent layoffs in the Wi-Fi industry ought not be cause for alarm, according to analysts and vendors. While the firings may seem severe, they say, this is the normal course of events in an emerging sector.
"There are quite a few players out there right now in the Wi-Fi space and what we are seeing here is just a bit of a shakeout," said Todd van Fleet, an analyst at First Analysis. "When you have a number of players trying to take whatever market share they can, some are going to succeed and some are not."
Who has been taking their lumps? Trapeze Networks is one example. The wireless Internet startup this year raised a whopping $50 million in venture capital funding. By late October, though, the firm had laid off about a third of its staff, saying that the market was not growing as quickly as expected.
Nor is Trapeze the only such example. Vivato, a San Francisco-based 802.11 switch manufacturer, this fall laid off 22 people. This followed an August round of layoffs that sent about a dozen people packing. Vivato now has about 78 employees.
The vendors themselves offer assurances that all is well.
"We had to rebalance our organization," explained Vivato CEO Donald Stalter. "We were really heavy on the product development side, and we had a really small sales and marketing team." That's natural for a startup, he said: Develop first, then go out and sell.
Trapeze meanwhile is more ready to blame external market forces, with corporate executives saying plainly that the demand is just not what they had expected. "We had built out a lot of support functions in various departments that were probably more necessary further down the road. We had planned for some pretty aggressive growth for ourselves and the market, and we just got a little ahead of the curve," said Mike Banic, vice president of marketing at Trapeze.
None of this surprises Julie Ask, a senior analyst at Jupiter Research. It's not that Wi-Fi is in trouble, or even that these firms are on the rocks, she said. Rather, the layoffs are symptomatic of a calculated -- and probably a wise -- retrenchment.
"Some companies may be realizing that this is not going as quickly as they thought it would, and so they are trying to be more careful about how they spend their money in order to survey this," she said. "They may have the best product on the market, but at this point it's not about product. It's about managing your cash."
She did add a note of caution, though, pointing out that there may be some very good reasons why Wi-Fi sales have not taken off at the expected pace, especially in the corporate environment. "Everybody has over-hyped the security issues and how difficult it is to build a wireless LAN, because they want to sell their solutions," she explained. As a result, corporate decision-makers are more nervous than they need be, and are moving forward more slowly than expected. "They want to do some trial and error first."
While most analysts agree that the Wi-Fi market is headed for an upward swing, this does not mean that all of today's vendors still will be around to reap the benefits.
"We have identified over 20 startups doing wireless switches," said Gartner Research analyst Ken Dulaney. "That is far too many to succeed."
It's not just that the field is too crowded. Dulaney suggested that these firms also may be misdirecting their attentions. "These new vendors are really fighting over technical niches that are not overall that important to the client base," he said. "So I predict that 80 percent of them will fail within two years."
That may sound grim, and it surely is not the kind of thing the chiefs of these startup firms like to hear. The fact remains, though, that an 80-percent crash rate is not out of the realm of imagination even for the early-stage investors who back these companies. "That is how venture money operates," said van Fleet. "They know at the start that some models will gain traction where others won't."
Thus, while the recent layoffs may not be indicative of deep trouble in the Wi-Fi world, they may well be the first signs that this developing industry is headed toward the kind of consolidation typically seen in a competitive new technological realm.
Seen in that light, "I think it's really to be expected," said Ask.