Everything You Need to Know About Bluetooth

Bluetooth, one of several wireless technology standards that would allow electronic devices to talk to one another, seems on the verge of capturing the public's imagination.

The technology has been all over the headlines, with recent weeks bringing a high-profile chip collaboration and Broadcom's (BRCM Quote - Cramer on BRCM - Stock Picks) $440 million agreement to acquire Bluetooth chipmaker Innovent. Bluetooth-enabled products should start hitting the shelves in force next year.

But capturing more than a niche in the consumer market will present the more pressing challenge, analysts say, noting the technology's cost and its essential frivolity (do you really need to coordinate your camcorder with your PC printer?). That raises the question of whether Bluetooth, backed though it is by the heavy hitters of the tech world, represents a winning investment opportunity. Even if it is named for a heretofore obscure Scandinavian ruler.

High Profile

In-home networks, commonly called local area networks, or LANs, have been identified as a new frontier of the consumer communications industry. The driving assumption is that the electronics under one roof -- printers, video cameras, computers, cell phones and palm devices -- should work together as a functional connected family.

That idea anchors Ericsson's (ERICY Quote - Cramer on ERICY - Stock Picks) 6-year-old idea, which is named after a character in Viking lore. In 1998, Ericsson enlisted tech big shots Intel (INTC Quote - Cramer on INTC - Stock Picks), Nokia (NOK Quote - Cramer on NOK - Stock Picks), IBM (IBM Quote - Cramer on IBM - Stock Picks) and Toshiba in a collaborative effort to develop a radio-based technology standard. The group has since grown 1,600 firms strong, and each progressive strategic alliance has lent added gravity to the project.

But product delays, high component costs and interoperability problems have plagued the effort, contributing to the view in some precincts that Bluetooth is mere vaporware. And operational problems aside, there is the all-too-real possibility consumers may not be dying for a standardized technology to replace computer cables and to allow such things as file syncing.

"Standards don't create opportunities," says Tom Nolle, president of Cimi, a Voorhees, N.J.-based strategy and analysis firm. Nolle, whose own in-home networking start-up, Telemetrix, failed in the 1980s, consults to most the major telecom service and networking companies. He says he sees no data whatsoever that would "support the assumption that wireless or wired in-home networking is anything but a niche opportunity for at least the next four to five years."

Playing the Field

Even Bluetooth backers are hedging their bets, by lining up with other emerging platforms. Rival solutions include radio, cellular, infrared and Ethernet-based technologies, with names only an engineer could love, such as IEEE 802.11, IrDA, DECT and HomeRF.

No smart tech firm would paint itself into a corner by forming an exclusive agreement that limits other opportunities, says Randy Giusto, head of mobile and desktop computing research at the International Data Corp. "These people have their feet in everything." Of the standard's supporters, Giusto says, "All these folks are in it, but they are in everything else as well." IDC's clients include nearly every major technology company.

Giusto says there are two significant challenges to Bluetooth's success: cost and adoption.

At the core of Bluetooth technology is a silicon chip that must be integrated, in some fashion, into every device to enable short-range communication. Giusto says the cost of that chip should drop to between $10 to $15 by the end of the year, from $20 now. Still, the price isn't yet in the range where device makers can easily absorb the cost.

"You can hide that kind of cost in the price of a $2000 notebook, but the problem is with $300 palm devices or $99 handsets, where you really can't hide that cost," says Guisto. And the device makers know consumer may balk at having to pay extra for it, he says.

There's also the issue of execution. The first Bluetooth-enabled products, already long overdue, are expected to start dribbling out at the end of this year. But the experts have their doubts.

"The Bluetooth group still working on interoperability," Giusto snickers. "The party line is that this will all be decided by the end of the year, by the time the products come out."

Triangle Below Canal

The other problem is of a chicken-and-egg nature. What good is a Bluetooth-enabled phone if you don't have a Bluetooth-enabled computer or friends with their own Bluetooth devices? asks Guisto.

The real hurdle, for now, is that a solution like Bluetooth asks people to buy something that would be easier and cheaper to do with wires.

People tend to flock to a new technology when there is a huge need for the service, but no one seems to be stampeding to this type of application, says Nolle. Wireless LANs have been around for many years and have probably reached 50% of their potential market.

"Consumers are really not willing to pay for this, and wireless solutions are so much more expensive than wired solutions that I don't believe there is any broad opportunity for them," Nolle says.

"The cost of doing in-home networking is relatively high and the demonstrable benefit is very low," Nolle continues. "Unless I am a yuppie with nothing better to do with my money, I'm probably not going to do this."