Recent analyst reports continue to be bullish about the bright future of the smart home industry, expecting it to rise to a $121.73 billion value by 2022. That is a huge market potential, and a significant business opportunity for those companies that are ready to step in and claim their share. The big question here is, in the face of sluggish growth in the recent past, how do we monetize this connected home opportunity?
One answer may seem to be rather obvious but it has taken some time to sink in among the industry players. It has less to do with the latest technological developments and fancy gadgets – It can be summarized in a single sentence: just offer consumers what they need. The key issue we face, however, is that consumers do not yet know what they need. Just like ten years ago we perhaps did not appreciate the need for internet in our phones, and now we cannot live without our 24/7 internet-connected smartphone. Ten years from now it will be the same for connected home technologies, we just have to discover this killer value.
It is a mistake to believe that the connected home market is just sitting there, waiting to be conquered. The connected home market is still in a very nascent stage. It needs to be created, almost from scratch. The base is there, and yes, there are some early adopters, but we are not there yet. We need mass adoption for the market to become a reality. For this adoption to happen, we need powerful use cases to educate consumers on the many benefits of connected living technologies. As Formation 8 puts it, “while smart home technologies have attracted tech-savvy consumers, a persuasive use case has yet to be made to drive mass adoption”. To put it in simpler terms – Build it (valuable use-cases) and they will come!
To achieve these use cases, the first step would be to monitor consumer needs, listen to their insights and detect what is missing, or what could be improved through connected technology. Two major early trends in smart home adoption provide illuminating assistance here:
- Smart thermostats received the highest share of the early connected home market in 2015. This is a solid indication that energy consumption is a great use case to sell connected home products. Consumers have shown a great interest in reducing their energy bills while helping save energy.
- Lighting control is expected to grow at the highest rate in the following years. This reinforces the previous assumption, smart bulbs help reduce energy consumption in the homes, especially when combined with smart thermostats. The sensors can adjust the intensity of the artificial light to that of the natural light, and be remotely managed, thus avoiding an unnecessary waste of energy.
These and other use cases are what will convince potential buyers that these technologies can help them solve real, everyday problems (and even save money in the long run), so they must be very powerful and compelling. “To qualify as a need-to-have item, smart devices must address a distinct problem with an innovative solution.” Consumers need to see real, tangible benefits from owning these products, in the short to mid-term; for example, a lower electricity bill, thanks to a smart thermostat and connected lightbulbs that help save energy, or deterring a burglar thanks to a smart alarm system. These benefits do not need to be economic only. They also imply things such as safety or peace of mind (being able to check on the kids that have just arrived home from school while still at the office. Or checking on an elderly parent who lives alone and far from home). In words of Formation 8, “consumers around the globe are willing to pay a premium for a product if it can deliver quantifiable benefits. Therefore, the challenge for companies is to create products that are evaluated not on price but on total cost of ownership”.
Clear use cases still need to be supported by strong revenue models. Aside from the traditional model of “consumer pays” – whether as a one-time fee or recurring monthly services – there are other possible revenue streams for service providers in the connected home market, just beginning to be explored. One of the most relevant ones lies in data analytics. Service providers will be able to exploit the massive amount of information they will collect from consumer usage of their devices, which will prove to be a valuable source of information either if they use it to improve their services (preventative maintenance, custom offerings, for example), or if they sell it to third parties for similar uses.
Either way, finding the best use case-revenue model formula will set us in the right direction to unlock the new market potential, helping us understand what consumers want from their connected homes, how they want to pay for those services and educate them about their options. Service providers, insurance companies, utilities, telcos, healthcare service providers, and all those companies that aim to play a part in the emerging connected home market must work together to achieve this common goal that will benefit them all in the long run.
