Legendary computer guru Bob Frankston says Bluetooth failed: I'd argue that it still could be saved. Bluetooth required many different pieces to be useful, some of which needed massive investment and retooling. For instance, Microsoft only offers limited Bluetooth features (dial-up networking, cable replacement, input device), so Windows users who try to use Bluetooth may require special drivers for individual devices, and have a horrible experience compared to Mac users. Apple has integrated and sophisticated Bluetooth support since Mac OS X 10.2 last August (it just got updated today, too). Apple doesn't yet support printing.
Wi-Fi got the kickstart in that two Wi-Fi devices (an access point and a client) make Wi-Fi worthwhile. Add a second, a third, a 10th client, and it becomes indispensible. Put it in a public place, and you've got a new industry. Microsoft gave Wi-Fi full support in Windows XP; Apple way back in 1999 in Mac OS 8.
Wi-Fi's utility grows as more distinct locations are added -- even if it's just your home, favorite coffeeshop, work. Bluetooth requires many devices, all of which can talk to each other, and OS support, to be minimally useful and doesn't benefit from widespread deployment.
Setting up Wi-Fi can sometimes be complicated, but generally a default DHCP client configuration get you most of the way there, and then you login if it's an account-based service. Bluetooth's configuration can have 30 or 40 steps just to get all the devices talking and in the right mode.
Bluetooth is showing up prebuilt into tens of millions of computing units this year: handhelds, laptops, other devices. The tipping point has arrived, and it will either finally catch fire -- probably only if GPRS service becomes affordable -- or burn out.
Bluetooth's big advantages over Wi-Fi were supposed to be cost for the chips, power consumption, and ease of ad hoc setup. None of those except power appear to be true yet! [via TechDirt]
The thing is, there are still classes of device for which Wifi will not work, or if it does work, it will be no easier to use than bluetooth. You talk about automatic DHCP setup of wifi devices, and this is all true. That's great for a device that you don't mind being promiscuous, like a base station. But what about all those other devices that need to be available only to a limited set of other devices, but still connected? If you can demonstrate a way that the process of connecting these devices can be simpler than the current bluetooth process of discovery and pairing I will be very surprised. Bear in mind that this process works with devices that have no screen and no user-interface at all apart from one or two buttons - for example, headsets.