Industry analysts and gurus may have labeled the last half decade the era of the connected home, but so far the revenues have not matched the hype.
It’s true that the growth of connected-home products has been solid—from around $125 million in 2013 to an estimated $180 million in 2014. But the majority of connected-home revenue so far has come from security systems as opposed to the smart appliances and energy-saving devices analysts believe are key to the realization of the connected home.
A recent Gartner survey of 6,500 consumers in the United States and Germany showed that only 16 percent of U.S. online households and 10 percent of German online households own a connected home device. Gartner’s conclusion: the current generation of home automation devices are perceived as being gimmicks that add little value.
But with tech giants Apple and Google in on the game, plus a slew of startups, and mainstays like GE, Comcast, and Philips offering connected-home products as a complement to their similar analog products, the connected home is set to become a booming industry.
BI Intelligence predicts that revenue from connected homes will increase sharply in 2015 to about $300 million and maintain a 67 percent compound annual growth rate for the next five years until it reaches $1.8 billion in 2019.
But achieving this growth rate will require a killer app that finally provides a compelling case for the average homeowner to invest the time and money needed to fully wire their home.
One of the key questions to be resolved is whether that killer app will come in the form of a product—think thermostat, lock, or home appliance—or a platform that connects together multiple products.
One of the strongest contenders in the product space is the Nest Learning Thermostat which learns the occupant’s heating and cooling preferences over time while avoiding the need for programming. A limitation of the Nest thermostat is that it doesn’t support popular connected-home protocols such as Z-Wave and Zigbee, so in most cases it functions as a standalone device.
Platforms on the other hand generally connect multiple products through home automation protocols and compete on their ability to adapt these products to the consumer’s lifestyle. For example, a home automation platform might sense that you have left the house and turn down the thermostat, turn off the lights, lock all of the doors, and turn on the alarm system.
“As the amount of technology in a home increases, there are suddenly several layers of complexity—heating and cooling systems, security systems—each typically having their own operating platform,” syas Delia Hansen, senior residential marketing manager for Crestron, which makes the Pyng app for setting up and controlling smart devices in the home. “The killer app will monitor and manage energy savings, smart locks, thermostats, lighting and shades, giving homeowners the ability to control everything from one platform.”
Key to the strategy of platform providers is building a strong network of developers who can write special purpose applications for the platform. A challenge for platform providers is that the product market is fragmented many different incompatible communications standards. In the end, the winner of the race to develop the first smart-home platform will be the one who figures out what products work together, and which do not.
Samsung, for example, is already making strides to become a leader in the killer app space by taking this open approach. Boo-Keun Yoon, CEO Samsung electronics, announced in his January CES keynote that his company’s smart-tech platform would remain open to encourage development of and secure integration among devices from third-party developers.
“Without this kind of openness,” Yoon says, “there won’t be an Internet of Things because the things will not fit together.”