10/26/2004 -- If you think the networking industry experienced some turbulence in the not-so-distance past, you may not have seen anything yet.

Market research specialist In-Stat/MDR says that a new breed of small business and branch office multi-service devices will emerge over the next 12 to 24 months that—to a perhaps unprecedented degree—could turn the networking industry upside down.

These new devices, which In-Stat proposes to classify in a new “Business Gateway” product segment, will grow from $1.2 billion in 2004 to $16.6 billion in 2008. The research firm says the Business Gateway is a modular, standards-based device that offers high-availability and a a wide variety of service modules, along with integrated system management.

To some extent, says Keith Nissen, a senior analyst with In-Stat/MDR, vendors are already delivering Business Gateway-type products. Cisco, for example, markets its 3800 Multi-Service Access Router that In-Stat classifies as a low-end Business Gateway device. Not surprisingly, however, the Business Gateway—which In-Stat says comprises a more or less “office-in-a-box” form factor—is a departure from Cisco’s traditional product offerings.

According to In-Stat, the market for the emerging Business Gateway product segment includes small businesses with 20-99 employees, in addition to branch offices of mid-market and large enterprise customers. Of course, In-Stat doesn’t expect that the emerging Business Gateway market segment is going to cut into the bread-and-butter revenues of Cisco and other vendors: Specialized, stand-alone networking products will continue to sell very well, the researcher says, while fixed-configuration, multi-service devices will dominate the residential, SOHO and small business markets.

Cisco, for its part, has had trouble in the branch office and SMB markets, largely because of its ties to IOS, which—a selling point in high-end environments—is viewed as difficult to use and configure for these customers. “For Cisco, every product launch is a compromise between the newest features and backwards compatibility,” wrote Joel Conover, a principal analyst for enterprise infrastructure with consultancy Current Analysis Inc., after Cisco released several new Catalyst switches designed for branch office and SMB customers last month. “Cisco has introduced new technology and faster performing routers, but Cisco also had to remain true to IOS, restricting the architectural changes that Cisco could make to the routers. Thus the 1800, 2800 and 3800 are still architecturally single-CPU devices built on a monolithic operating system.” -Stephen Swoyer