Are Smart Homes Still a Thing of the Future?
Published on 15 Jun, 2016
Smart home technology is becoming a very serious business.
We take a hard look at the market, which, like the others, is grappling with economic challenges and imbalances.
Are entrepreneurs in the space seeing their grand vision come true?
Are start-ups really making a mark? Is innovation living up to its hype?
Read on for some of the answers.
The Internet of Things (IoT) has changed the way man looks at technology, and his home.
A brief glance at the popular press leaves no doubt that the world is in the midst of a transition from traditional to connected homes. ‘Smart homes’ are definitely in vogue.
Numerous technological innovations are automating and consolidating household lighting, entertainment, security, as well as heating, ventilation and air-conditioning (HVAC) systems, all of which can now be easily controlled with just a smartphone. It is not only about making life easier—smart home technologies are intensely pushing the envelope to improve user experience, increase energy efficiency, and invigorate privacy and protection.
In fact, when Google purchased Nest for $3.2 billion in January 2014, the who’s who and who’s new of the smart homes world sat up and took note. The acquisition was big news for the mushrooming connected homes market, as it endorsed a concept that no one thought they really needed. The industry has gone into a frenzy, with large companies searching for potential acquisition targets and start-ups scrambling for the big investments.
Factors such as growing demand, rising awareness among consumers and favorable societal trends are making smart homes ‘smarter’. So, from the larger market perspective, let us figure out where all this headed.
Home Automation – Then and Now
The concept of home automation has been in the popular imagination of tech companies and homeowners for more than two decades. Due to technological advancements, home automation technologies became more cost-effective. Today, every household uses them in some form or the other.
From offering just surveillance and secure locking systems, they expanded to include fire and gas leakage detection, controllable lighting and entertainment systems, and energy efficiency monitoring. With so many areas to explore and innovate, the market looks promising for start-ups as well as established players.
Prabir Chetia, Vice President of Business Research at Aranca, states, “Wireless technology is expected to continue to drive the market due to increasing penetration of tablets, smartphones and residential Internet connectivity, and low device and set-up costs.”
Other factors expected to boost the market’s growth include the availability of low-cost smart devices, rising demand for energy-efficient solutions, increasing security concerns, and government incentives for green initiatives.
Mergers & Acquisitions – The Prime Motives
The industry witnessed many mergers and acquisitions in the recent past; the noteworthy ones include the acquisition of Nest by Google and SmartThings by Samsung and the collaborations between Telefonica and Huawei, and Singtel, Samsung and NCS. Moreover, the market is witnessing strategic alliances between existing players, including technology companies, electronic firms, and telecom operators.
What are the prime motives behind such acquisitions, mergers or alliances?
“These collaborations help companies offer products at a lower price to customers and thereby develop consumer relationships, find new sources of revenue and gain a competitive edge in the market,” opines Prakash Kailasam, Vice President of Technology Intelligence & IP Research at Aranca.
Since innovation is the key to unlock the market’s potential, most companies are investing heavily in research and development. However, with the anticipation of weaker global economic conditions, wouldn’t intense R&D prove to be a high entry barrier?
Prabir feels, “Start-ups are leveraging on the technological foundation laid by big giants and offer focused products and services such as security solutions or mobile apps for remote monitoring and access. Also, with the availability of inexpensive hardware and commonality in app development, offering such services is gradually becoming mainstream and does not require significant R&D.”
Thus, while large technology companies such as Google, Apple, Qualcomm, and Intel concentrate on developing their own protocols, start-ups are expected to continue introducing innovative solutions to cater to a broader customer base.
Will the Market Grow?
During 2005–15, the number of patents filed globally in the field of smart homes increased, reaching a high of 1,900 in 2014.
Note: Incomplete data for 2016 due to unpublished filings.
The US notched 11,814 patents, followed by the European Patent Organization (EPO) (5,360), China (4,000), Japan (3,116) and Korea (2,059).
Home automation is considered an effective solution to keep homes safe when not occupied. Surveillance features help in monitoring children and elderly people through smartphone apps. With regard to additional benefits, estimates suggest efficient heating and cooling systems can lead to 5–15% in energy savings. The use of smart energy management devices and smart appliances can reduce additional phantom loads of 7–8% on appliances. Rising concerns about home security amid increasing crime rates, the energy efficiency aspect, and the luxury of convenience may attract more consumers.
With rising disposable incomes in these geographies, consumers are likely to spend more on electricity and luxury products. Thus, the adoption of home automation devices should increase considerably.
What May Trip It?
The picture, however, is not as rosy as it seems, as many problems still lie ahead. Prakash says, “One of the biggest challenges for smart homes is to create an ecosystem, in which disparate devices can connect and communicate with each other irrespective of the type of platform. The lack of standardization with regard to data transmission, collection and storage technologies and their integration with each other for data exchange and other requirements is a major challenge for market players.”
Apart from these, market reports suggest high device costs and data security could be barriers in the adoption of smart homes technology. Adds Prabir, “Although the smart homes market is expected to expand significantly in the coming years, few factors, such as the lack of interoperability of devices, cyber security, and complex and expensive installation processes, are hindering the market’s growth.”
For example, Philips Hue plans to make lighting devices on Apple’s HomeKit Accessory Protocol (HAP). This would imply that only consumers who already own Apple devices could operate a smart light bulb from Philips. Moreover, this light bulb would be compatible with only those devices built on the HAP protocol, thus limiting its interoperability.
To deal with some of the challenges, companies are focusing on developing hubs to support the various protocols so that consumers can control all smart devices through a single location. Samsung’s smart devices and hubs under SmartThings are compatible with other devices that run on protocols such as ZigBee, Z-wave, and Wi-Fi/LAN.
Apart from the developments mentioned above, smart home device providers are developing DIY home automation devices that are simple to use and affordable. Consumers can install DIY devices to control multiple devices through a single app; these devices are a viable option compared to custom home automation systems, which require installation by professionals.
The Road Ahead
The statistics are encouraging for the smart homes market; with advancing technologies and consumer feedback evaluation, companies are doing their best to revolutionize how people interact with technology. Currently, numerous companies with different value propositions operate in the market. The key market players include technology players such as Intel, Google and Microsoft; consumer electronics companies such as Samsung and Philips; established pure-plays such as Honeywell and Creston Electronics; and start-ups such as Nest Labs, Canary and SmartThings. These players are collaborating with each other to share capabilities or develop industry standards.
To sum it up, what does the road ahead look like for the industry?
“The market is growing and will mature slowly. It is fragmented and already witnessing early signs of consolidation. Companies need to address the challenges and work toward streamlining technologies that will allow interoperability of devices to taste success,” concludes Prabir.