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Analysis: Smart Homes - Why Now? (5/1/2012)

By Bill Ablondi, Strategy Analytics

The term Smart Home has been used for decades, and for many conjures up thoughts of the American TV cartoon series 'The Jetsons'. Homes have not achieved the home automation capabilities portrayed in this series, but electronic sensor and control technologies have evolved to a point where they are now incorporated into systems and services affordable for many consumers.

The Jetsons US cartoon sitcom series of the 1960s portayed a futuristic lifestyle.

The widespread adoption of smartphones and pervasive broadband Internet access are facilitating applications that make this smart home infrastructure more valuable to consumers by allowing them to monitor and control systems remotely, as well as when at home. In addition, utilities are prompting adoption of smart home technologies by deploying advanced metering infrastructures (a.k.a. smart grid technologies) to more efficiently manage the generation, distribution and consumption of electricity.

Consumers see evidence of these deployments when smart meters are installed in their homes, allowing utilities to not only measure consumption, but potentially control high-power systems such as air-conditioning units during periods of peak demand. Once installed, these solutions can be expanded with additional monitoring and control capabilities to become part of more extensive smart home systems. Many consumers not inclined to seek out these types of solution are likely to become adopters once prompted by their electricity providers.

Driving smart home adoption

To date, the market for smart home systems and services has been limited to high-end households and technology enthusiasts. However, Strategy Analytics sees a number of factors that have the potential to drive adoption of smart home systems beyond their niche status. Perhaps chief among these is the desire of consumers to remain connected to the people, places and possessions that are important to them. The proliferation of broadband Internet access, both fixed and mobile, coupled with widespread adoption of smartphones, tablets and laptop PCs and increasing use of social media, provide ample evidence of this phenomenon. Additional market drivers include:

* Broadband service providers need to develop additional sources of revenues to offset declining growth in traditional businesses.

* Expansion of offerings from traditional home security systems providers into self-monitoring and control products and services.

* Introduction of affordable, retrofit solutions that can enhance lifestyles, safeguard homes and reduce home operating expenses.

* Manufacturers of appliances and home systems desire to differentiate their offerings and expand their opportunities.

* Government incentives and mandates to reduce energy consumption by connecting residential customers to advanced electricity distribution and management systems.

Building awareness for the capability of smart home solutions is a key factor for widespread adoption. Broadband service providers and security systems and service firms already have well-established customer relationships that can be leveraged to build awareness of the benefits of smart home solutions. This process has already begun with the introduction of Verizon's Home Monitoring and Control service and similar offerings from Comcast, Rogers Communications and the Smart Connect service recently announced by Deutsche Telekom. In addition, security service providers such as ADT and Vivint in the US are extending their businesses to offer customers remote self-monitoring and control capabilities.

Deutsche Telekom recently introduced the Smart Connect service to allow home appliances and technical building services to be easily managed via the Internet. Retrofit

Another inhibitor to the realisation of the Smart Home has been the lack of affordable retrofit solutions. The development of effective wireless and powerline control communication solutions has eliminated the need to wire homes with low-voltage wire - an expensive and disruptive process. Many products do not require professional installation which further reduces cost and increases their attractiveness to consumers.

Smart appliances

Smart appliances designed to work with electric utility smart grid programmes are being developed by most major manufacturers. These smart appliances will become nodes on the monitoring and control networks in smart homes, when they become available. Panasonic introduced a line of appliances in Japan in 2009 that integrate with its Lifinity home control system. GE, LG and Whirlpool are all actively developing similar appliances that are expected to be commercially available within the next 12 to 18 months.

Finding the magic

Although there are market forces lining up to drive adoption of smart home solutions, the realisation of smart home market opportunities is not guaranteed due to a number of market inhibitors that must be addressed by participants, including the perception that smart home solutions are costly and complex, the incompatibility of devices from different suppliers, the shortage of affordable installation services, and most importantly, the intensity of need among consumers for these solutions. Toggle switches for lights work well; pull cords for blinds can get the job done; the list goes on. Industry participants need to find the 'magic' to move smart home solutions from 'nice to have' to 'must have'. This is a marketing mission similar to building the intensity of need for the next iPhone, automobile or kitchen appliance.

Value of home control market (lighting and power management) by region.

Conclusion

The inhibitors to the development of smart home opportunities are definitely not insurmountable and Strategy Analytics believes that there are significant market opportunities for companies pursuing the smart home market. Our current view for one of the first two categories of smart home systems we see gaining traction, lighting and power management control, is that combined, they will grow from less than USD1 billion in 2011 to nearly USD5 billion by 2016.

By Bill Ablondi is the Director Smart Home Strategies for Strategy Analytics Inc., a global research and consulting firm that focuses on market opportunities and challenges in the areas of Automotive Electronics, Digital Consumer, Telematics, Wireless Strategies and Enabling Technologies.

www.strategyanalytics.com