The Smart Home Promise vs. Reality

The Smart Home Promise vs. Reality

We share with you the article that our Head of Marketing, Daniela Perlmutter, has written to inaugurate the newly created Reader Forum of RCR Wireless News.

Let’s begin with what we, the industry, accept as a truism: Sometime in the near future, the gadgets we see today that control and automate our homes will form the basis of an enormous market. Most people will be able to say that their home is connected and that it is smart.

To achieve that goal, we need to meet a few preconditions from the perspective of the consumer and the value chain: deliver well-communicated, valuable experiences that people are willing to pay for as well as a trusted service provider of these valuable services.

Thus far, with all the advances made on the technology side of things, a disturbing chasm has developed between the promise of the smart home and the reality.

Research firms, such as Strategy Analytics, predict that the smart home products and services market will reach $100 billion by 2019, which represents 224 million households worldwide. Indeed, the many point devices and whole-home solutions already available seem to support these assertions when considering the range of smart products that can do fantastic things in our homes.

The reality, however, does not support the numbers. Among homes with broadband connection, only 14% worldwide have any type of “smart” device. The percentage of total houses worldwide with any type of smart device is only 5% (Strategy Analytics), and growth has not increased significantly since 2007. This stagnation is puzzling in light of the explosion in the use of smartphones, the very technology that should, in theory, have driven smart home adoption to a similar rate of growth.

According to the above report, the penetration of the smartphone among cellphone users worldwide is 38% – well over 50% in most developed nations. Smart home adoption should parallel this growth.

So why, then, does this enormous gap exist?

The three major product barriers that traditionally inhibit adoption of new trends – technology, affordability and the user experience – have all been satisfactorily dealt with.

Any review of the recent Consumer Electronics Show and Mobile World Congress events will show amazing devices and systems in the market that can now be purchased at consumer prices in the hundreds of dollars with simple, self-installation as opposed to upwards of the $10,000 the professional market requires to implement such a system.

By and large, these devices are smart (some are self-learning), user-friendly and allow automation and control that we could only have dreamed about 10 years ago.

If the basic requirements are in place, why are we still in this situation? In the long-term, as many industry analysts – Parks, Berg – predict, mass adoption is going to be driven by service providers and not by the technology vendors’ direct-to-consumer business models.

Almost any study that evaluates consumers’ willingness to pay for a smart home solution puts the value of security and safety above all others. According to Parks Associates, the six smart home features most valuable to consumers are related to security and safety functions, while Strategy Analytics said 55% of Americans are willing to pay for self-monitored security. For this reason, it follows that a solid security module at the base of a smart home offering is imperative. Whether the system offers self-monitored security or is combined with professional monitoring, this value will create revenue.

After security, consumers consider convenience and energy savings to be valuable. Forty-four percent of Americans are willing to pay for a service that automates their household functions, and 79% of Western Europeans with smart home devices have lighting and window control as part of their systems.

Other values that consumers understand and are willing to pay for may include child care and elder care services.
Providers need to shift from feature-based offerings to packages that clearly explain the inherent value proposition to the consumer, ensuring family safety, improving quality of life and saving money.

The messenger
The second precondition deals with the question of who is best placed to deliver these services. Service providers that have established relationships with residential customers are in a prime position for several reasons. They are already a trusted provider – be it for residential security monitoring or communications services. Consumers are far more likely to part with a monthly fee if the provider is already in their houses or has a track record of providing residential products.

These providers already provide desired services with obvious value and can increase their customer reach and average revenue per user by bundling smart home packages with existing triple- or quad-play bundles – alleviating the need for the consumer to find another vendor.

From the vendors’ perspective, they need to support all of this by designing products that are modular and flexible enough to support varying levels of services. Additionally, no single platform developer will be able to – or indeed should – supply the entire range of devices and technologies needed for a fully automated home. Providers need to maintain an open protocol platform with the ability to integrate devices using most of the industry standard communications protocols.

Once the industry has the entire value chain moving in the same direction – valuable service and the right service providers, together with products that support it – uptake of smart home systems should close the adoption gap and realize its undoubted promise.

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