Updated: Mar 5
The smart home has been just around the corner for decades. Let's
take a look at why we're still waiting, and what it will take for smart homes to finally become real.
Time and again, the impending emergence of the smart home was announced. It never quite materialized. While smart thermostats and smart security systems may have some traction, to date, the best bet so far has been the invasion of smart speakers into consumers’ homes. These have been heralded as the final breakthrough of the smart home. The adoption of smart speakers is strongest with millennials, which some consider the most adventurous demographic.
While smart speakers on their own may be entering the early majority market stage, this is certainly not the case for their use with smart home applications. Most people use their smart speakers for information services, rather than for controlling their smart homes. Smart home adoption is far from main stream and demonstrates a generational gap similar to on-demand entertainment in 2005 as documented in this study by the IBM Institute for Business Value. It took another decade and offerings such as Netflix and Pandora for on-demand entertainment to become truly main stream.
True, technology has made leaps and bounds the last 30 years: the Internet is providing a ubiquitous platform, devices have become much more capable and affordable, user interfaces have become more intuitive, processing power has grown by orders of magnitude, artificial intelligence has become main stream, and cloud technology is supporting abundant low cost services. Industry analysts are reporting large markets, $87B in 2019, and solid future growth, with largest portion though, in entertainment and simple solutions such as lighting control. And after all that, CBInsights reminds us, the smart home continues to be in a state of emergence. Technology is not enough. he ecosystem has to be used to create solutions that consumers find valuable.
This series of blog posts examines the state of the smart home market and the technology supporting it, and proposes an agenda to overcome the final barrier, by transitioning from a focus on smart devices to a focus on smart living based on services and experiences, with smart technologies in a supporting role.
Part I looks at the state of the smart home market.
Part II reviews the state of the technology fueling this market.
Based in these two perspectives, Part III proposes an agenda for moving from a focus on a smart home to smart living.
Part IV finally examines the technology advances still needed to achieve a true breakthrough for consumers.
Part I: State of the smart home market - Consumers are conflicted
Consumers are conflicted about smart home devices, on one hand showing great enthusiasm and expectations for its benefits, and a deep wariness about security and privacy on the other. They want to enjoy the benefits of smart homes without encroachment on their personal space and data, and without loss of their safety and security.
Consumers are buying connected devices and expect to buy more in the near future.
They want security systems to keep an eye on their homes while away and to deter unwanted visitors. They are looking for increased convenience in managing their lighting and climate. They seek ways to save energy, check on their pets, monitor their health and sleep, and check on the well-being of elderly relatives.
On the other hand, they have become very concerned about the security and privacy implications of connected homes. A constant in the discussions of smart homes has become the risk of hacking. Hardly a week goes by without reports of network break-ins or loss of consumer data in connected web services. As Park Associates reports, more than ¾ of consumers surveyed are concerned about security. Attackers appear to focus particularly on homes of affluent people who are likely to be early adopters.
Consumers’ privacy concerns are growing as well. Even more than social media, consumers fear smart homes might expose their personal data and use them in ways they can’t control. With many devices and services, the use of consumers’ data is considered part of their payment, even if that is not always stated explicitly. People who want to determine how much their smart home devices are spying on them can check out this tool from Princeton University.
The wide variety of terms in devices’ end-user licenses makes it difficult for consumers to understand how their data are used. A study by a team in the UK showed that fully understanding the terms of devices that are part of “works with NEST” would require reading almost 1000 license agreements! The privacy terms in the agreements are likely to be rather hard to comprehend, as the New York Times’ review of social media service terms found out. The continuing exposures about abuses of personal data by social media companies are driving public awareness. Governments are starting to respond to those concerns, for instance, in Europe by issuing the GDPR, and in California by passing their privacy act.
As the smart home concept is becoming more exposed among consumers, additional concerns emerge. If devices are too smart, consumers may feel that they become creepy. Many devices require, or at least promote, subscriptions to ongoing services. These services may prove valuable, but consumers must be convinced that the additional services are worth continuous outlays. While there are some expectations for a subscription economy to emerge, there are also signs of consumer reluctance.
Proliferation of devices
Business Insider Intelligence divides smart home devices into remotes and IoT devices. Remotes provide the human interfaces for interacting with the IoT devices that sense the environment or perform physical functions.
Smart speakers are a recent high-profile addition to the remotes category. While they can issue commands to many IoT devices, their use with smart living is limited, as they can only issue commands but receive no feedback from the devices. They also can’t handle continuous “dialogues.” Their major uses are invoking digital cloud services, such as listening to music or answering questions2, rather than interacting with IoT devices to control smart home functions. Smart phones are the other major class of remotes. Smart phone apps offer more powerful user interfaces than smart speakers, being able to facilitate dedicated two-way interactions. Connecting directly to device manufacturers’ services in the cloud without using voice services as intermediaries, they also offer greater privacy. Remotes are experiencing rapid functional improvements, increasing household penetration, and consolidation to a small number of service providers.
The remainder of this post discusses IoT devices and the associated services, as they provide the real foundation for smart living.
The evolution of technology has been driving great expectations for home IoT devices and the associated business3. The penetration of IoT device types in homes is much lower than that of remotes. The rapid technology evolution, with new features appearing continuously, drives fast obsolescence and limits consolidation. It sometimes leaves consumers stranded when their devices are no longer supported.
There is a profusion of device types, from generally intuitive ones such as smart lights and connected door locks, to rather novel ones such as wearables for dogs and trash cans connected to the Internet. Many devices appear to be driven by what is technically possible, in the hope that they will lead consumers to discover unmet needs. These solutions looking for a problem hope to discover the “killer app”. Even for specific device types, the large number of manufacturers and the great diversity of features makes it difficult for consumers to decide on the most suitable ones. The proliferation of device types accelerates the fragmentation of the market, and the lack of standards for connectivity, function, and user interfaces, partly caused by attempts at differentiation in search of market leadership, inhibits the emergence of a coherent market place. In some sense the home IoT device market feels like a bubble that will have to burst for a viable market to emerge.
IoT devices range from fixtures to which connectivity has been added for remote control, such as lights, electrical outlets, and thermostats, to major appliances such as refrigerators, ranges, or clothes washers and completely new types of devices such surveillance cameras. For now, smart fixtures and other small home devices largely appeal to do-it-yourself enthusiasts. Many new major appliances are available with Internet connectivity. However, the cost and longevity of major household appliances implies a low replacement rate, slowing down the penetration of new features. In addition, consumers don’t appear to perceive much value yet from the connectivity, resulting in a low actual connection rate.
Manufacturers and service providers use a variety of approaches to sell and install IoT devices. At the low end, offerings are aimed at tinkerers for do-it-yourself installation. Consumers often have difficulties connecting the devices and configuring them to obtain their full functionality. At the somewhat limited high end of the market, commercial installation, often of entire apartments with a broad variety of functions, is overcoming these problems. Looking to leapfrog the retrofitting approach, some developers are starting to build in smart functions during initial construction. In another approach, device manufacturers wrap services around their devices and look to sell the value of the services rather than focusing on devices. Examples are security services and leak detection services. As these are more or less closed systems, technical standards and interoperability are less important. Finally, some providers market comprehensive services, focusing on their quality and management, independent of the devices used to deliver them.
After devices have been installed and configured, some aspects of their use can become easier by connecting them to smart speakers for voice control. However due to the inherent limitations of smart speakers — limited automation capabilities, limited context considerations, and the fact that devices cannot initiate interactions — control through smart speakers rarely enables the full potential of connected devices. Custom smart phone apps dedicated to individual devices usually support their full function.
Some large players are looking to use voice control or hubs to form the foundation of broad-based ecosystems. In the absence of industry standards, these ecosystems threaten to become incompatible. Consumers may have to decide whether they want to become members of the Apple HomeKit family, the Google Home family, the Amazon Alexa family, or the Samsung SmartThings family. While each of these ecosystems provides some consistency regarding user interfaces, installation, and functionality, the value of connecting several devices to a single hub and user interface is not always clear. Watching the front door using a video door bell and monitoring for water with a moisture sensor in the basement don’t benefit much from using a common user interface. Sometimes it appears that the objective of linking home devices into an ecosystem is to collect as much data as possible about consumers’ lives, rather than a desire to make those lives better.
Looking for revenue
Creating ongoing revenue streams is the holy grail of many offerings. Service providers use a variety of go to market models depending on their main business. Google and Amazon harvest much of their value by using the data they collect for advertising or commerce. Manufacturers such as Samsung and Apple expect the return on their investment from device sales. Telecom carriers and ISPs are looking to expand their average revenue per user (ARPU). They all look to create platforms, covering many types of applications to create economies of scale.
From the IBM Institute For Business Value study “Three electronics industry strategies for the new data economy” https://ibm.co/3-electronics-strategies
The providers of individual small home IoT devices, such as garage door openers, door locks, or lighting controls, face a difficult problem. They have to support an operating infrastructure to support the devices, privacy concerns, they may even promise not to share the data they collect, further limiting monetization. To encourage paid subscriptions, some manufacturers provide free basic services in the hope that consumers, after experiencing the service, will subscribe to more comprehensive paid services providing additional value. These systems often remain single function systems in a highly fragmented market. An example are home security services where one web site lists more than 100 service providers in the US. Many of these start with home security monitoring, an area where subscription business models are established, and expand from there into other application areas.
Need for consolidation
The great diversity of devices, services, and business models has led to fragmentation of the smart home market. That makes it difficult for any device or service to stand out and achieve economies of scale. With time, winning services, business models, and device types are expected to drive standards and business consolidation, leading to economies of scale that will accelerate market growth. This will happen when manufacturers and service providers understand and address what consumers really value. A recent study exposes a significant gap in this understanding. For instance, while manufacturers believed improved control is a top motivator, consumers ranked control 7th out of 8 features. Conversely, saving time was consumers’ top ranked motivation and ranked 5th on manufacturers’ hierarchy of values.
After this look at the state of the smart home market, get ready for the next installment of this series to examine how the technology supports the market, and where we still need advances to for it take off.
Smart speaker consumer adoption report 2019. voicebot.ai, 2019
The end of television as we know it, a future industry perspective. IBM Institute for Business Value 2007
Smart Home Market, Marketsandmarkets, 2018
Big Tech In The Smart Home Briefing, CBInsights, 2019
2019 Trends to Watch: Smart Home, Ovum, 2018
Changing Dynamics of the Smart Home: Opportunities for Service Providers. Parks Associates, 2019
Predictions 2019: Cybersecurity. Forrester 2018
Contracting for the Internet of Things: Looking into the Nest. Guido Nota La Diega, Research paper Queen Mary University of London, School of Law, 2016
Ten trends shaping the internet of things business landscape. Eric Lamarre, Brett May McKinsey Insights, 2019
The Internet of Things 2019, Peter Newman, Business Insider Intelligence, 2019
The Experience Revolution: Digital Disappointment — why some customers are not fans. IBM Institute for Business Value, 2017