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Bluetooth's quiet success NO.8

Bluetooth's quiet success

It was born amid a blaze of hype at the height of the dotcom boom, but initially failed to thrive. Indeed, Bluetooth, a shortrange wireless technology used to interconnect portable devices, has been declared dead on many occasions. Early versions of the technology suffered from compatibility problems; an ambitious demonstration of the technology at a trade show in 2001 failed to work. And while Bluetooth struggled despite all the hype from its backers, another wireless technology, WiFi, took off on its own. Obituaries of Bluetooth have appeared many times in the technology press, usually attributing its demise to the success of WiFi. "Bluetooth is in full retreat," declared Sean Maloney, an Intel executive, in 2001. Other analysts issued similar verdicts.

But reports of the death of Bluetooth proved to be premature: today it is in rude health. Sales of Bluetooth devices more than doubled in 2005 to reach 320m units, and the figure is expected to exceed 520m this year-equivalent to more than 10m units a week and far outstripping sales of WiFi chips. Around one in four mobile phones sold now support Bluetooth.

And after years of insisting that Bluetooth was more than just a way to link a wireless headset to a mobile phone, its backers seem to have been vindicated, as other uses for Bluetooth have at last begun to emerge. Last year 60% of Bluetooth chips went into mobile handsets and 15% into wireless headsets, says Scott Smyser of iSuppli, a marketresearch firm, but the other 25% went into other devices, from laptop computers, keyboards and mice to Bluetoothenabled clothing.

This success, after its rocky start, is due to a combination of factors, says Stuart Carlaw, an analyst at ABI Research. In many countries Bluetooth's fortunes were boosted by new legislation banning the use of mobile phones without a handsfree kit while driving. This prompted many people to buy Bluetooth headsets. Several carmakers, led by Audi, also began to incorporate microphones and speakers, capable of connecting to a handset via Bluetooth, into their vehicles.

As consumers became more aware of Bluetooth and began to ask for it, handsetmakers started to include it as a means of differentiating their products and increasing their margins. Adding a Bluetooth chip to a phone now costs very littlearound $2, says Mr Carlaw, down from $20 in 2001-but allows the manufacturer to increase the price of the handset by far more, and opens up a new market for highmargin accessories. Finally, operators began offering Bluetooth headsets as incentives to new customers. Again, the perceived value of the headset is far higher than its cost to the operator, so this increases margins.

Greater adoption has, in turn, cleared the way for the inclusion of Bluetooth in all kinds of new products. In addition to Bluetoothenabled jackets, motorcycle helmets and sunglasses with builtin wireless headsets, the controllers for two nextgeneration videogames consoles due to be launched later this year, Sony's PlayStation 3 and Nintendo's Wii, will use Bluetooth. Because Bluetooth is an industry standard, both consolemakers can buy chips and software off the shelf, which is quicker and cheaper than developing their own proprietary technologies, says Mr Carlaw.

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