Technology can bring major changes in consumer behaviors and disruptions in an Industry Value
Chain.
The IT industry is probably one of the best examples. An Industry that first targeted Business Users and was in the past dominated by PC manufacturer … but which has now evolved to a huge consumer market lead by the GAFAs. Smartphones and Apps are now at the heart of everybody’s life.
At a slower pace, the Smart Home Industry is following a similar trend. It used to be dominated by complex (and expensive) stand-alone solutions, typically addressing a premium niche of the market.
IOT along with wireless technologies have opened the door to new solutions, enhanced consumer benefits and has been transforming the Industry in the past decade.
These changes in the Smart Home Industry have however probably been happening at a slower pace than expected initially for several reasons:
Market fragmentation. Even though market potential is big, the penetration of Smart Home and/or Smart Building is still limited (probably less than 10%).
The consumer benefits are not yet perceived as highly attractive for the Mass Consumers. User behaviors are changing, but gradually. This is however certainly a major field of opportunities, both in residential and non-residential segments.
Still a lack of standardization in the technologies. Perfect interoperability of IOT devices is on its way but not reached yet. The past few years were times of technological battles between major alliances (Homekit, Zigbee, z-wave, KNX, etc …) competing against each other. The recent coalition between Apple, Amazon, Google and the Zigbee alliance (project “connected Home over IP”) might however now speed up progress in that field.
Through this article, I am expecting to bring to the reader an overall strategic perspective of the trends and shifts in the Smart Home Industry Value Chain.
1. The players
It is a complex world with many players and different Companies are pursuing different Strategies and Business Models along this Value Chain, as for example:
Pure Product Strategies, which can be again segmented in different categories: Devices (sensors, actuators) installed in the Home / Building; or Consumer interfaces (such as voice controllers and wearables)
Solution Providers integrating the various components (Devices, Cloud platform, Apps) to target a specific market segment: IOT Platforms and Technology providers; Gateways mostly using wireless Technologies inside the house: Zigbee, z-wave, wifi; Cloud platforms (data storage); Data analytics; Various software tools to design and manage applications, devices and data.
Retail: either specialized networks providing product and installation, or Mass retail platforms.
Major players will also be present at several levels.
I provide here below a simplified representation of the value chain, not focusing on the technical side of IoT platforms but rather on a market view.
From an overall perspective, there are two categories of players:
> The “traditional players”, mostly manufacturers of devices and providers of B2B and B2C Smart Home Solutions. Global players in this category would include for example Crestron, Lutron, Schneider Electric, Control 4, Somfy, …
> The “new players”, often having a core service offer to consumers and aiming at bringing more added-value through Smart Home. This category would include for example:
Internet Services Providers (offering Smart Home Services for a small additional fee over internet subscription)
Real Estate developers and Facility Managers (offering Community Services Apps to all residents)
Or specific services pushed for example by Insurance Companies (linked to Home Safety and Security or some specific benefits such as monitoring of elderly people at home)
Some of the “historical players” often started from being strong manufacturers and technological leaders in their field (Electrical distribution, shading, Alarms, Video door phones, Audio-Visual) and moved up the value chain to enrich their solutions and stretch to new markets.
Most of them are Manufacturers, having Product-driven business models, and distributed either through specialized professional channels (such as System Integrators) or Mass Retailers (such as stores or Ikea).
The “new players” are often coming from Service Business Models:
Internet Service Providers
Utility providers
Facility Managers
Insurance Companies
They have a strong market access to consumers and are looking for more differentiation against their competitors. Interestingly, Smart Home itself is not for them the main target market, but more an added-value to their core offer.
The standardization of the IoT technologies, and the availability of open Cloud platforms (for example from Google, Amazon, Samsung or Tuya) has also considerably lowered the entry barrier for many new players, and smaller service players are now entering the market.
2. The Consumers
Market development will come from consumer demand, technology being only an enabler. The key question is therefore how consumer perceive the Smart Home benefits, and how it is really changing their behavior at home.
For example, consumers might not be ready to pay high price to be able to switch on and off their lights from their mobile phone … but being able to monitor your home access remotely and have the re-assurance that your home is safe might be worth a higher price. Smart Home has already moved from being “high-tech gadgets” to necessary applications in modern homes.
The first direct Smart Home benefits for the consumers might be related to Well-being, Safety and Security. And higher is the perceived value, more attractive will be service offers.
But some other benefits are indirect. For example:
Insurance Companies will want to push solutions that helps to maintain elderly people in their home as long as possible … to reduce Hospital costs.
Developers will want to push solutions that will facilitate the relationship between residents and Facility Managers, in order to improve services and enhance residents experience. This is not only about Smart Home, but Smart Community.
Electricity Providers will want to better manage consumption peaks. Home and Buildings are indeed “sub-systems” of a much larger ecosystem which is the Smart City where optimizing Energy use and reducing carbon emission are major environmental challenges.
And whenever Smart Home is part of a bigger “ecosystem” (smart Community or smart City), the indirect benefits might even have a greater value that the direct benefits to the Smart Home User. Some of these players might even be ready to subsidize the installation of IoT devices in the home to target such indirect benefits.
One issue is however that smarter is the solution, or bigger is the scope, more complex it can become. Managing this complexity will be the major challenge for solution providers.
Consumers will be expecting more added-value benefits but also very friendly and easy to use interfaces and Apps. This is indeed a critical factor in terms of consumers behavior.
I have seen countless examples of Smart Home solutions that at the end were not really used because too complex to understand and use by the users.
This is also a reason why most popular offers currently on the market are only targeting a limited scope of benefits (for example focusing on Security, Climate Control or Comfort) … maybe with a more limited added-value but also simplicity in use.
When it comes to more complex solutions, the amount of data to manage become huge.
Mastering Artificial Intelligence (AI), data analytics and providing smarter Apps to the consumers will be critical to market adoption.
3. The Future
A lot of Companies are today competing for this “smart Home hot spot”: Major solution providers, Telco’s and Internet Providers, some GAFAs (Amazon, Google and Apple in particular), energy providers, Facility Managers in collective housing … each of them pursuing a specific strategy.
As no one is really in a position to take the lead by himself, it will be also times for alliances or mergers.
A market that was in the past a small niche of “technology freaks” … is going to become “state-of-the-art” in every new home tomorrow. There are still challenges ahead but the trends are clear, such as:
From hardware to Software features
Development of added-value Services
Need for smarter consumer Apps
Growing Importance of AI and data analytics to manage the abundance of information.
Data security as a MUST (nobody wants to see hackers taking control of your home)
And a penetration and standardization that will be boosted by larger “ecosystems” (smart community and smart city)
IOT had already heavily transformed several B2B industries such as Agriculture, Healthcare, Transportation, Retail or Manufacturing. The technology penetration is slower in Consumer Market such as Smart Home as it involves real changes in Consumer behavior.
Covid-19 crisis has however already transformed some of these behaviors. Home has become the new place of work for many people.
On another front, building & Home energy efficiency remains a major environmental stake worldwide.
IoT and Smart Home are in the heart of these transformations in the living spaces making it an exciting growing market full of opportunities.
Micolia is available to help you to formulate your Strategy, Business Plan, or carry any specific mission in this field.
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