Steve Dossick was frustrated by the limitations of his wireless home network. Last November when finally it became clear that he would not find a device capable of storing his MP3s and photos in one place and transmitting them wirelessly throughout his sprawling Silicon Valley house, Dossick’s entrepreneurial instincts kicked in. He built his own solution. The result is Martian Technology, a storage technology company in Menlo Park, CA.

With less than $100,000 in seed capital, Dossick and his team of 10 built a wireless hard-drive-based storage device that connects to a Wi-Fi setup and can stream music anywhere in the network. But Martian is just one of many tiny startups exploiting the growing Wi-Fi infrastructure. These new enterprises are building products that join the living room and the PC. Using off-the-shelf components and capitalizing on license-free slices of the wireless spectrum, these companies are figuring out ways to stream music, photos, and even videos straight into the home theater.

Wi-Fi, or Wireless Fidelity, creates a wireless Ethernet network using access hubs and receiver cards in PCs and even handhelds. According to In-Stat/MDR, a market research firm based in Scottsdale, AZ, nearly 11 million Wi-Fi hubs in the United States are connected to broadband Internet feeds. By 2005 the number of hubs will triple.

Even traditionally cautious telecom companies such as AT&T, T-Mobile, Verizon Wireless, and Sprint are jumping into the Wi-Fi fray, betting that this new technology will add to the bottom line. “So far Wi-Fi has been used primarily for data transport, but it has been so popular that now people want to extend it to different applications,” says Gemma Paulo, a senior analyst with In-Stat/MDR. Widespread applications have so far included such devices as webcams and game console extensions, and this year the hot Wi-Fi products are likely to be “media adapters,” special devices that equip home entertainment units to access files on PCs.

Alan Reiter, president of Wireless Internet and Mobile Computing, a consulting firm in Chevy Chase, MD, is not so sanguine. “There are too many issues that need to be dealt with,” he says. It’s difficult simply to set up a basic home wireless network to transmit only data, Reiter contends, and it’s going to be even tougher to bring together PCs and entertainment devices.

Unfortunately, the situation with other home networking technologies is no better. Initially, the consensus was that Bluetooth-another short-range radio technology-would make it easy for us to connect our home offices and dens wirelessly. But Bluetooth devices are expensive and more complicated than first promised. Wi-Fi, however, is easy to use, and its rapidly falling price has made it an appealing alternative.

“Networked audio players are going to be the killer app of this year,” says Tim Shaughnessy, director of solutions marketing and alliances at Netgear in Santa Clara, CA. Like rival Linksys, Netgear has plans to launch one of these network audio players later this year. However, rivals such as Prismiq of Santa Barbara, CA, are going one step further: they are enhancing their devices with video-streaming features.

Prismiq’s MediaPlayer is a Linux-based device that resembles a DVD player and is designed to connect to a television or home entertainment system using standard audio-video cables; a Wi-Fi card connects MediaPlayer to a PC. The company is negotiating partnerships with consumer electronics manufacturers.

Prismiq’s CEO, Ken Goldsholl, believes that initially most consumers will use such devices to stream music. The widely used 802.11b wireless standard, which transmits data at 11 megabits per second, is not fast enough for streaming video. But as the 54 megabit-per-second Wi-Fi versions-802.11a and 802.11g-make their way into the market, video streaming will become a viable option.

Reiter of Wireless Internet and Mobile Computing cautions that this might not happen anytime soon. He believes that while developers might resolve technology issues quickly enough, content owners, who are extremely worried about copyright issues and illegal file sharing, are going to try to stop the trend. The movie and music industries “think that all of us are criminals until proven innocent,” he says, only partly in jest. “It will be a few years before all these issues get resolved.”

Nevertheless, it’s still not clear whether wireless video streaming, even at those faster rates, will produce broadcast quality. Toronto’s ViXS Systems is tackling that issue. The ViXS chipsets, combinations of 802.11 chips and what the company calls pixel processors, adjust the bit rate of the stream according to network conditions, switching to a lower rate when the network gets too congested and back to a higher rate once the traffic clears. The company claims that because this process occurs in a fraction of a second, the rate changes are not apparent to viewers. ViXS is marketing its product to large consumer-electronics makers, urging them to embed its chip-sets into televisions, personal video recorders, and DVD players.

ViXS has made its first chips compatible with 802.11a, and its anticipated support for 802.11g will enable high-definition television streaming. “All of the major consumer guys are interested in delivering video wirelessly,” says Indra Laksono, ViXS’s cofounder and vice president for R&D. The potential bonanza has helped the company raise around $28 million from Celtic House, a venture capital firm in Toronto, Ontario.

This is good news indeed for Martian Technologies, which only last week introduced a 120-gigabyte drive-more than enough memory to store an entire season of The Sopranos. If companies such as Martian and ViXS succeed, peer-to-peer video sharing may soon dwarf MP3 swapping as the entertainment industry’s worst nightmare.