Most market research reports indicate significant unit and revenue growth for gateways. For example, In-Stat/MDR estimates that the overall value of equipment with a home networking connection of some sort will grow to over $11 billion in 20051, $3.9 billion of which is attributed to gateway-type devices.2 International Data Corporation (IDC) also predicts considerable growth, predicting total revenue for gateway devices, including hardware, services, and applications to reach $1.1 billion US by 2005.3
The growth of the gateway device industry is driven by three primary factors:
Broadband Access
As the Internet matures, more and more users are switching from dial-up access to high-speed broadband access—a service that was once available only to large enterprise customers. According to research by Cahners In-Stat Group, broadband subscriptions are expected to increase from 52.7 million in 2003 to nearly 84 million in 2005, an increase of 59 percent. Parks Associates believes that the rate of broadband penetration in the home and small business markets “will be a function of the application and services that are made available”4 and to which smart gateway devices can provide access. Growth of broadband access will occur primarily in cable and DSL subscriptions, with additional growth in satellite, fixed wireless, and fiber-to-the-home subscriptions.
Multiple-Computer Households
An increasing number of small offices and homes use more than one personal computer, including desktops, laptops, and common peripheral devices, such as printers, scanners, and digital cameras. They may also use an additional array of mobile, telephone, TV, gaming, and entertainment devices. While not all of these multiple-computer households will have a LAN that connects the various devices, a significant number are expected to have a networked home or small office environment. IDC predicts that in 2005 an estimated 23.5 million or 83 percent of multiple-computer households in the United States will have a home LAN.5
Networked Applications and Services
Used in home and business environments, gateways initially were designed to provide access to basic network services. Increasingly gateways come with rich features and advanced application functionality, enabling service providers and enterprises to provide office and home users a broad variety of value-added services. IDC estimates that network services revenues will grow at a compound annual growth rate (CAGR) of 29.5 percent from 2002-2007, reaching over $300 million by 2007.6 For example, some gateways provide high-quality audio and video encoding in addition to multimedia sharing features. Other gateways come with storage features that enable data and device sharing scenarios and allow users to access favorite music, video, photo collections, and printers from digital devices connected to the network.
Gateways may also include features such as a firewall that protects networked devices from unauthorized access, e-mail filtering to detect junk e-mail, and parental controls to help parents determine which content a child can access on the Internet. Other features include Voice over Internet Protocol (VoIP) telephony services, which can bring sophisticated call signaling features, such as call conferencing, call forwarding, and call transfer to a home or small office using advanced digital phones and the IP network for service. Using network security features such as a virtual private network (VPN), users can access confidential data such as corporate e-mail or online bank records over public networks such as the Internet. Advanced gateways can include device management features that enable corporate security policy management and remote management of networked devices to provide software updates.
Common Types of Gateway Devices
Gateway devices are commonly divided into the following three functional categories, or any combination of these three:
Data Gateway. Data gateways are simple routers primarily used for data throughput. They provide pass-through support for network protocols and services and typically support both wired and wireless networking. Data gateways can be used to pool multiple Internet connections and secure private networks using a firewall. Some data gateways may also provide storage, such as e-mail and voice mail storage.
Multimedia Gateway. In addition to data gateway features, multimedia gateways provide features targeted to audio and video content delivery. Multimedia gateways are often used in conjunction with digital entertainment devices (including TVs, stereo systems, and gaming consoles) and can provide centralized storage, acting as a home server for digital media, such as photos, videos, MP3 files, and Web site hosting. Audio and video streaming are important features in an entertainment gateway, because they enable users to subscribe to Web-based services such as Video-On-Demand (VOD) and VoIP telephony features. Multimedia gateways also typically include encoding capabilities that transcode analog audio and video signals so users can enjoy media such as cable TV on a personal computer screen.
Home Control Gateway. A home control gateway enables home control and security service management over a network. For example, users with a home control gateway can access automated lighting, heating, and security systems from work or while on vacation. Home control gateways also allow network service providers to offer new service packages and generate new revenue streams. For example, through affiliation with local utilities, service providers can securely expose energy consumption patterns to customers and provide informed opportunities such as time-of-day usage pricing.
While many products currently marketed as gateways are basic modems and home routers, the trend is towards versatile, multifunctional devices that provide a variety of easy-to-use networking tools and features. According to In-Stat/MDR, by 2007 over 25 percent of all hubs providing access to the network will be gateways, which combine router functionality with various other features such as multi-media, VoIP, and storage.7
Figure 2. Customer Premises Equipment (CPE) Evolution in Percentage Terms: Modem, router, and Residential Gateway; In-Stat/MDR, 2003.
 Figure 3. Residential Gateway Units with Service Capabilities (units in thousands), In-Stat/MDR, 2002.8
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