Uncovering the $30 Billion Smart Home Opportunity

By Jessica Hernández, Lux Research

Over the past months, telecommunications companies (telcos) have been active in the residential space, announcing partnerships to target homeowners by offering smart home services. The figure below shows a number of these recent announcements as well as past activities from companies such as Deutsche Telekom, AT&T, and Telefónica.

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Giants of the telecommunications industry are becoming more active, announcing partnerships for geographical expansion or to reach a larger number of consumers.

For example, Deutsche Telekom offers a smart home platform, called Qivicon, which includes a hub to connect several third-party smart home devices from its network of over 40 partners, including hardware developers such as Netatmo and eQ-3.

It’s also partnering with utilities in Germany, and it started last year to expand internationally by partnering with Austrian utility, EWW, and more recently with Dutch telco KPN.

In addition to this Orange has a smart home platform that uses hardware from third-party developers, like Fibaro. This product is only available for customers in Poland, France, and recently the company launched the platform in Romania after finalizing a trial program.

Another telco that also has its own smart home platform is AT&T, with its product called Digital Life. Only two weeks ago, Novel Creative Development, a real estate development company, announced a partnership with AT&T and Daikin, the multinational air conditioner manufacturer, to build a fully automated 24-story building with over 500 smart apartment units.

While some companies focus on moving from single-family homes to apartment buildings, other companies are focusing on overlooked geographies. In Latin America, the first telco to tackle the smart home is Telefónica, which announced in February 2016 that it will join forces with Huawei to develop a smart home product for this market. The latter will provide the cloud-based platform and the former will offer its customer base the co-designed smart home experience.

The amount of activity recorded mainly from telcos in the first months of 2016 indicates that we can expect a greater involvement and push from this kind of companies to become the main provider of smart home services.

According to Cisco, the total addressable market for the smart home by 2019 will be of $44.5 billion globally, from which around 67% account from recurring services. To access this market, service providers are entering the space by offering home security services to homeowners and adding smart home capabilities on top by integrating third-party devices (e.g. smart thermostats, sensors, connected light bulbs).

These new entrants are directly competing against established companies in the home security space, such as ADT. The latter is also diversifying its product’s functionalities aiming to go beyond home security, offering additional smart home capabilities such as heating and cooling control by integrating smart thermostats into its solution.

We mentioned previously that there are many players in the space, including large appliance manufacturers, hardware developers, and software service providers, racing to dominate the integration of smart home devices into a centralized smart home platform.

In our smart home report, we state that today the homeowner is still expected to become the system integrator. This is because of all the players addressing the end-consumer at the same time with an increasing amount of different smart home devices tackling energy, well-being, and security. With the recent developments, we can see how the relationships are becoming more complex as different companies are increasingly working together to offer smart home as a service.

For example, hardware developers are certifying their products to integrate them in one or more existing smart home platforms and these developers are also working with telcos that are developing their independent solutions and performing the system integration themselves. These telcos are then offering their proprietary solution to other telcos, utilities, and end consumers directly. The figure below shows the evolution of relationships among all players involved in the smart home space.

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Telecommunication companies are making a mistake by developing their own platform and establishing their own network of partners in order to get their piece of the pie from the recurring service fees that the smart home is enabling.

Instead of engaging with developers of smart home platforms, telcos are assembling their own solution, using proprietary and third-party devices that are normally not the popular ones that are gaining momentum today, such as Nest smart thermostats, August smart door locks, LIFX and Philips connected light bulbs, and SmartThings and Wink hubs.

Telcos should approach existing developers of smart home platforms, such as SmartThings, Works with Nest, and Wink to form partnerships to leverage the network of hardware developers and appliance manufacturers. These existing smart home platforms are continuously growing the number of supported devices, so users are able to choose the devices that fit their preferences; although they leave the entire system integration to the end consumer together with the device costs that pile up.

Those developing devices and appliances focused on the smart home market are advised to monitor telcos offering smart home services; these service providers are capable of bundling separate hardware products and charging a recurring fee to the end consumer that can amortize the devices’ upfront cost for customers and generate additional revenue streams.

Jessica Hernández is a Research Associate on the Intelligent Buildings Intelligence team at Lux Research.  She holds a MSc. in Sustainable Energy Technology from the Delft University of Technology in the Netherlands.

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