Without universal standards, email encryption remains flawed, and leaves corporations open to attack.

Email may be the killer app of the online world, but it also represents the Achilles heel of corporate networks. Email-delivered viruses have been crippling servers for years, with no letup in sight.

A year-end report by tech security company Trend Micro, for instance, says virus attacks cost corporations $55 billion worldwide in 2003, up from $30 billion in 2002 and $18 billion in 2001.

The best way to plug the security holes in corporate email systems, say experts, is two-way encrypted mail. Senders are easily tracked – a no-no for those trying to dodge the law. But lack of universal standards has slowed the technology’s functionality and adoption rate.

The Internet Engineering Task Force (IETF), the group that oversees the communication standards, has developed an encryption method called Secure/Multipurpose Internet Mail Extensions (S/MIME), which is based on technology by RSA Security and backed by Microsoft, America Online, and Research in Motion.

A competing technology called Pretty Good Privacy (PGP), or OpenPGP, is widely used. Companies like Qualcomm and Network Associates have incorporated OpenPGP into their products, favoring its small size and customization abilities.

Both the S/MIME and PGP standards use different technology but can be designed to work together, says Network Associates. Most of the time, however, they do not.

Although Microsoft is the 800-pound gorilla pushing S/MIME, few use it for external email, according to Marc Luescher, an analyst with Ferris Research. Blame it on the kinks and hassles related to encryption authentication management, as well as inadequate directory support, and delegation snags.

Encrypted email is not without its flaws. There is no guarantee, for instance, that an encrypted email can be read by the recipient. An executive may not be able to forward email to a home account and read it, or move back and forth from a desktop to a laptop. Lack of delegation ability means a secretary or other assistant may not have access to an email.

In a Ferris survey, fewer than 10 percent of large companies (5,000 employees or more) are installing system-wide email encryption. That falls to less than 1 percent for the smaller companies of 500 to 5,000 employees. “Even when an organization is piloting or adopting secure external messaging, it’s unlikely to be used by more than 5 percent of users,” he says. It doesn’t take much to do the math: the other 95 percent remain vulnerable to attack.

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Keeping at arm’s distance from your coworkers – and boss – seems to be catching on.

More than half of the 109 million households in the U.S. have a digital home office, according to a new report from the Yankee Group, a communications and networking research firm. This includes households with telecommuters, home-based businesses, or the employee who occasionally works from home. Europe and Asia are seeing similar trends.

In 2003, 56 million U.S. households had a digital home office, a 33 percent increase from 42 million in 2001, Yankee reports. The rise in broadband has boosted the ease of telecommuting, and this is reflected in buying patterns, as more IT hardware is bought for the small office/home office (SOHO) market.

Thirty percent of telecommuters and 26 percent of home-based businesses have laptop PCs – much higher than the U.S. household average of 17 percent. Similar figures show telecommuter households are more than twice as likely to buy wi-fi systems, PDAs, and fax machines.

Home networking may be the biggest growth area, according to Business Communications Company researcher Malika Rajan. She expects wireless and traditional LANs will generate 47 percent of SOHO-derived revenues through 2007.

Yankee analyst Michael Kelleher notes that the SOHO consumers are willing to buy products that keep them up to date while on the move. “Devices and services for productivity are at the heart of the digital home office opportunity,” Mr. Kelleher says.

He breaks SOHO buying patterns into three distinct ownership phases. In the first phase, the consumer buys a desktop personal computer and wireline telephone service. The second phase brings dial-up Internet, a mobile phone, printer, and accessories. Finally, the SOHO consumer will upgrade to home networking and buy broadband Internet access, and additional PCs or laptops, PDAs, and other productivity equipment.

“Most digital home offices are in the first and second stages,” Mr. Kelleher says. “The third stage presents the best opportunities for providers.”

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Once the domain of obscure startups, wi-fi has suddenly evolved into a multi-billion dollar marketplace that is attracting some of high tech’s biggest names.

Pioneer wi-fi equipment makers like Accton, Belkin, Envara, and Nomadix are having to make room in their ranks for blue-chip manufacturers like Intel, Cisco, AT&T, Dell, Apple Computer, Motorola, Hewlett-Packard, and SonyEricsson. Banking on their brand names, the behemoths are stepping up their game, recently making major commitments to the 802.11 wi-fi standard.

Incentives and strategies vary. Some are seeking new markets for existing products, others want to expand their brand into new territory. In February, for example, Cisco bought the largest wi-fi consumer equipment maker, Linksys, for $500 million in stock. Meanwhile, Intel committed $150 million in investment funding – and an entire division – to exploiting the wireless marketplace for its chip business. “The main thing Intel is trying to do is sell laptops with Centrino chips,” says analyst Jeremy Lopez, of investment research firm Morningstar.

The larger companies likely won’t have to hustle for customers. A recent report by technology research firm Forrester Research says that most of the 28 percent of U.S. enterprises with wi-fi infrastructures in place would rather buy from well-known manufacturers than startups. More good news for the big guys: brand trumps quality. Survey respondents say they would opt for a big name company product, even if inferior to one from a fledgling organization.

Wireless enterprise has grown into a market too big to ignore. During the next five years, $163 billion will be spent worldwide on wi-fi services. The biggest beneficiaries will likely be enterprise networking’s current established players, according to telecom market research firm Insight Research. Worldwide wi-fi hardware and infrastructure revenues were $7 billion in 2003, with a 44 percent annual growth rate. The firm projects the global wi-fi market will see a five-fold increase during the next four years. In that same time period, Europe should overtake the U.S. in wi-fi revenues, according to Insight president Robert Rosenburg.

More than 120 manufacturers have a combined 1,000 wi-fi products on the market, according to the Wi-Fi Alliance, a nonprofit international group that certifies interoperability of wi-fi products.

While companies like Cisco and Intel are making big wi-fi gambits, other blue-chip techs like HP have not been as bold. John McHugh, general manager of HP’s ProCurve-brand networking division says he was reluctant to enter the wi-fi marketplace until it reached a critical mass – combining technological ability and market demand. “Even now, the fundamental pieces are just starting to come together,” he says.

Mr. McHugh says wireless technology is still too complex or costly for many enterprise consumers. The result: They may face the added expense of paying a supplier to custom build a wireless enterprise system. This presents a market opportunity for companies, like Cisco, that build end-to-end enterprise communications systems.

HP’s strategy, says Mr. McHugh, is to try to eliminate as much customizing as possible and drive down prices by applying its expertise in mass production plug-and-play to wi-fi.

With its mass-production off-the-shelf approach, HP is determined to get a share of that wireless market. Its budget-minded plan is three-pronged: a focus on the convergence of voice, video, and data communications over IP and ethernet; the growing consumer demand for high-performance wireless capabilities; and security.

“Since these three areas are moving into the mainstream, the challenge for HP and our competitors is providing secure, mobile data communications convergence with off-the-shelf products,” says Mr. McHugh. He is betting that enterprise customers will forego the customization offered by IBM, Cisco, or a startup firm in favor of its lower-priced approach that one size may fit most.

Wi-fi is fast evolving from niche to ubiquitous, as manufacturers of computer motherboards are hardwiring the technology into the newest laptop models. Companies like Sony Ericsson are planning to completely phase out laptop PC wi-fi adapter cards. “It’s not that we don’t believe in 802.11, but because wi-fi will be embedded in all laptops going forward, making plug-in cards is redundant,” says Roger Dewey, vice president of Sony Ericsson’s Americas M2M (machine-to-machine) Communications division.

Since the 802.11 standard is becoming a stock feature in laptops, Sony Ericsson is intent on exploiting the need to bridge wi-fi and mobile phone networks. “The customer demand is there already,” Mr. Dewey says. “When people are traveling, when they’re living a mobile lifestyle, they want connectivity. That’s the No. 1 driver.” He says he is betting that future connectivity includes easily switching between different wireless technologies, for example, from wi-fi to cell phone networks.

To do that, Sony Ericsson is bringing in big guns like AT&T Wireless, Deutsche Telecom’s T-Mobile, and Cingular. These are the major wireless telecom companies installing the Enhanced Data Rates for Global Evolution (EDGE) standard on their GSM networks. EDGE makes mobile data communication three to four times faster than GPRS cellular services. Mr. Dewey says consumers prefer wi-fi because of its high bandwidth, but want to hook into their cellular data network when they are out of a hot spot’s range.

HP’s Mr. McHugh agrees. “Customers are looking for more value from their purchases than they were four years ago. That behavior is the most basic and fundamental.”

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