It's a jungle out there, and with ISDN numbers increasing every minute, modem vendors are living on a knife edge. Simon Meredith investigates.
Life has changed beyond recognition for modem manufacturers thanks to the Internet - but that change has come at a price. The modem market was crowded even before the current craze took hold, and PCMCIA technology has increased the pressure.
Pace struggled to make ends meet and became PMC Microelectronics, Hayes emerged from Chapter 11 protection in the US only recently, and Dataflex was bought by Amstrad and later decided to forget about selling branded product and focus on OEM business.
But some of the larger US-based modem makers have managed to prosper - US Robotics (USR) and Multitech for example. USR claims to have half of the UK modem market. Last year, according to Dataquest, about a million modems were shipped in the UK; this year, the figure is expected to be about 1.3 million. Even if the average selling price is only u200, that makes it a u250 million business.
Other modem vendors such as Cray, Motorola and Racal have wider interests.
Throughout Western Europe, there are several manufacturers that do well in their home markets but struggle to make any headway outside. The divergence of Europe's telecoms standards protects these companies.
They have been hard times, says Jeremy Butt, general manager of Hayes Europe. 'The volume of people in the market, price competition and new players have all had an effect. It's a boom area and people jump into it and immediately go down the price line.'
Dilip Mistry, MD of Multitech, echoes this view. 'As far as numbers are concerned, modems have moved in huge numbers but the margins are not the same.' DSVD and the addition of voice facilities to V.34 analogue modems will help, he says, but after that there is nowhere left to go with the technology.
Prices have fallen drastically. At under u200 for a V.34 modem with all sorts of tricks thrown in, no one is making much cash unless they are selling in volume. And the pressure is still on.
With the technical boundaries attained, Far Eastern manufacturers are starting to attack the market with low-cost product - 28.8Kbps modems with bundled software are being offered to resellers at under u90 even for one-off purchases; 14.4Kbps modems are offered at less than u50.
This is why Dataflex abandoned its attempts to sell branded product last year, according to marketing manager Bill Hopkin. 'We decided to concentrate on the things we were good at - designing and building modems,' he says.
Dataflex also decided to stop trying to sell its product to the user.
It now only makes modems for other people because, says Hopkin, branding modems makes no difference. 'You don't buy a PC any more, you buy the functionality. The hardware - the modem - then becomes transparent to the user and you start to get the commodity benefits.'
PC vendors may not want to put the modem on the motherboard, but installing it, ready to go, seems to work. Most users don't care what sort of modem it is if it is covered by the vendor's guarantee. This does not mean the modem market is dead in the water. As the Dataquest figures show, it is growing quickly and is not expected to run out of steam for some time.
'There are two or three years of generic growth left in the modem business,' says Butt. In spite of the prices being low, there is no reason why resellers should not benefit from the short-term growth, he adds. 'The market is getting bigger all the time and there is no reason why resellers should not be able to benefit from that.'
According to John Nolan, MD of communications products distributor PPCP, many users are put off by the diminishing size of the modem and are willing to pay extra for a product that makes them feel more secure. 'People say
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