State of the Smart Home 2017
The Smart Home is still a young category but it reflects deep currents of digitization, connectivity, efficiency, & security. It’s also a long game for platform leaders to further colonize the home. More interestingly, it may be a necessary response to our emerging climate crises. Yet, as the category matures there are large challenges in establishing trust and value.
Although we seem to be moving towards a future of intelligent structures that are aware of their inhabitants and actively model and manage their needs and the physical needs of the house, the comprehensive promise of the smart home is yet to be realized and will likely take a decade before asserting any meaningful presence.
The market
Analysts estimate that by 2020 the market will be worth between $50B and $150B — a pretty wide spread that now includes things like wifi speakers and Alexa voice assistants but mostly falls short of integrated home management systems. A wifi speaker that gets Spotify is barely IoT and does not contribute to a home’s smartness. Similarly, using a smartphone to control lighting isn’t much more than an interface update. It’s notable therefore that the “smart home” label is steadily being replaced by “connected” and “intelligent”.
The promise of cheaper utility bills and rooms that know who you are remains out of reach without considerable remodeling and stronger AI.
The current smart home market is dominated by security and entertainment, neither of which are new categories and both of which mostly rely on dumb tech. Strategically, security is the anchor and (hopefully) the revenue pipeline to build out more services. Entertainment has mostly been driven by wireless speakers integrated with streaming music services like Spotify.
Following behind these segments are connected fixtures like lighting, doorbells and locks, as well as various sensors. These tend to serve higher-end early adopters and technical geeks. There are also a number of niche turnkey home automation providers that cater mainly to wealthy techies but average folk don’t care so much about unevenly distributed futures.
The promise of cheaper utility bills and rooms that know who you are remains out of reach without considerable remodeling and stronger AI. However, the vision of an intelligent home continues to animate the market on both sides, straining towards a future where the home can actively lower our utility bills, manage our waste cycles, streamline our schedules, personalize our entertainment, secure our families, and defend our health and wellness.
The players
The consumer IoT and Smart Home markets have been large & fragmented but are now showing increasing dominance by top-tier platform players. The market can be divided into three sets of providers: cable services, web giants, and 3rd party device makers.
The current market is led less by demand than by supply and vision.
In the states, AT&T’s Digital Life & Comcast’s Xfinity line each market smart home solutions built around their existing hubs, primarily selling security options for remote monitoring with support for 3rd party device ecosystems. The strategy is mainly to keep people on their living room hubs and to hedge against declining phone subscriber adds with some near-future of machine subscribers. Verizon notably discontinued its own smart home efforts in favor of supporting its partner Nexia.
The web giants are also colonizing the living room with their hubs but data-driven providers like Amazon, Google, and Samsung are more interested in using them as entry points to their clouds. They market entertainment solutions like internet access, music streaming, and lighting control, appealing to Internet-biased users rather than the TV-biased users of cable and telcos.
Such a tentative posture coming from Apple is historically a signal that they don’t think the category is mature yet.
Amazon differentiated with Alexa, the voice interface with an API. Their platform is primarily a department store in your house, augmented with on-demand Dash buttons. Google has pursued home utility management and security with Nest and Nest Cam, recently introduced its Alexa competitor, Home, and is rumored to be announcing a home security solution. They offer a premium, tech-forward product line tied into Google’s omnipresent data machine. Samsung has taken a modular approach built around numerous sensor types — a more affordable and distinct offering that caters to the tinkerers who want to instrument their home.
Notably, Apple has HomeKit, a development platform for data management and visualization. They’ve made no branded devices, preferring to rely on the 3rd party providers like the Philips Hue lighting system. Such a tentative posture coming from Apple is historically a signal that they don’t think the category is mature yet.
And while interop protocols have mostly converged around a few standards there is yet to be the flurry of M&A activity that would indicate large opportunities. Indeed, the current market is led less by demand than by supply and vision.
Drivers and enablers
The explosion of consumer IoT devices is supported by easily-capitalized innovators with access to cheap and powerful components and global manufacturing chains. It’s a flurry of experimentation trying to see what sticks. There’s a Cambrian explosion of devices but little comprehensive integration. Most people still don’t see the value.
This is a step towards behavioral profiling by the home, which is necessary to deliver meaningful, personalized services but also begins to feel intrusive and potentially dangerous.
The main barrier to adoption is cost and inconvenience. Component costs will steadily decline as the market proves value but inconvenience will be a hurdle until deep learning solutions are brought to bear. Instead of needing to rewire your home, such solutions will leverage sound, vision, data APIs, and trained classifiers.
The ability to algorithmically extract device signatures from a main current has shown promise. This could enable a learning system to optimize energy usage through appliance monitoring, with similar models for water and HVAC. Connected appliances like ovens are beginning to receive predictive maintenance capabilities, led by companies like GE & LG, but large appliances only get updated maybe every 10 years so there are retrofit barriers.
Door cameras like Nest Cam are starting to receive machine vision biometrics. This is a step towards behavioral profiling by the home, which is necessary to deliver meaningful, personalized services but also begins to feel intrusive and potentially dangerous depending on the data hygiene of the service providers.
Toto offers a toilet that runs simple metabolic analysis but again the retrofit upgrade cycle is a barrier. Most homeowners will never replace their porcelain toilet and if they do they might not choose one that shares their most intimate data beyond the walls of the house.
More aggressive climate change may drive greater adoption as the home faces more immediate economic and environmental pressures.
Solutions will also need to be more flexible and local to address regional pressures, most notably as global warming and climate change reshape environmental conditions. Some homes e.g. will need to manage air quality against dust intrusion and allergens while others may optimize for water capture. More aggressive climate change may drive greater adoption as the home faces immediate economic and environmental pressures.
This all sits in the ongoing current shifting more capabilities (and responsibility) back to the edges. Central management of power, food, and water is not as viable as being distributed, local, and self-sustaining.
This all sits in the ongoing current shifting more capabilities (and responsibility) back to the edges.
For significant market penetration, connected solutions will need to be part of new housing. Just as building codes have led green development, the same will be necessary to bring more connected utilities into new housing (one might expect solar penetration to be an indicator for demand of connected home solutions). The retrofit path will only go so far and many won’t bother if contractors are involved. And yet, we can only mitigate energy waste by remediating our vast existing housing stocks. So, broad growth will be led by new homes under progressive building codes requiring the next generation of energy efficient appliances, followed by competitive and regulatory pressure to retrofit.
Challenges
There are many challenges that should inform product strategies. These include vulnerabilities and intrusion, malware and botnets, bugs in critical services, concerns about privacy and data ownership, decay of unprofitable legacy platforms, and the ability of platforms owners to dictate terms and services. These are set within a condition of declining home ownership and cooling growth across western economies. The future home will likely be less about utopic visions and more about cost performance.
How data is handled and how users manage trust will be a huge challenge as the market grows.
A basic challenge is in usability. A mechanical lock is easy to use, so is a light switch. Grabbing a smartphone, authenticating, launching an app, and browsing a menu to turn on a light is not a durable replacement. Hence the Philips Hue Tap but many providers are still just making basic tasks more difficult.
Deeper than usability, the home is built on trust and safety. Adding connectivity opens more pores to the world, as shown by recent stories of baby monitors being hacked by network malcontents. Likewise, Defcon defeating the August lock with a spoofed guest ID. Vulnerabilities are often not discovered until adoption is high enough to provide an interesting attack surface. More users draws more intrusions.
How data is handled and how users manage trust is a huge challenge. Amazon’s Alexa is an e-commerce front-end with an ear in your home (and it can be subpoenaed to testify against you). Nikko Strom, a founding member of the Alexa team, says “we get an insane amount of data coming in that we can work on.” This is about trust: do you want corporations grabbing more land share in your home? Many users won’t adopt connected home solutions that bus data out of the house to third-parties.
This is a very real consequence of distributing functionality across service ecosystems: ownership, access, and liability are increasingly shared across users and providers with hard EULAs delineating them.
Furthermore, corporate data ownership has overrun repair and tinkering. After the manufacturer prohibited them from making their own repairs in the field, farmers are downloading illegal hacking software from Ukraine in order to quickly fix their connected John Deere tractors. This same situation will emerge in the connected home space as adoption grows and users begin to grasp the implication of their brand lock-in.
This level of literacy is slowly being learned by users getting locked out of their systems or facing feature deprecations. A smart home user recently posted images of water leakage in their house from a humidifier because a network certificate fell out of date.
This is a very real consequence of distributing functionality across service ecosystems: ownership, access, and liability are increasingly shared across users and providers with hard EULAs delineating them. Business leaders are strategizing first-and-foremost about how to anchor their platform deeper into our lives. Second, about how to help us in some value-add capacity.
The home must deliver stability, and change threatens that stability.
And this brings us to the largest challenge: that the home must deliver stability, and change threatens that stability. Shelter, security, family, privacy, nourishment, rest — technology that ignores this or tries to change these qualities or does so inadvertently will fail.
Looking forward (slightly)
In advanced economies, homes and buildings are lumbering towards a future of greater efficiency and more automation. Future-forward connected home solutions will be shaped by two conflicting engines: personal empowerment and platform lock-in. They will have more sensing, tighter coupling to existing utilities and appliances, more integration with user profiles and schedules, and sophisticated deep learning systems that can observe, classify, model, predict, manage and recommend to both machines and inhabitants. And many of these features will be managed and maintained remotely by service providers with different goals and liabilities than the users.
Future-forward connected home solutions will be shaped by two conflicting engines: personal empowerment and platform lock-in.
Providers that don’t effectively convey trust into the home will fail, and their publicized failures will dampen market adoption. A strong differentiator will empower the home and its members by keeping functionality and data entirely on site — something that most data-first service providers can’t wrap their heads around.
Innovators are trying to address needs driven by a host of deep currents: finding security and stability in a VUCA world; accelerating climate chaos in the Anthropocene; the need for efficiency in the home to better manage resources & financial overhead; our pervasive connectivity through digital networks and the digitization of our schedules, responsibilities, and relationships; and the way smart phones have entrained us to expect direct, easy-to-use interface and functionality, and a continuity of profiles and preferences across interface points.
But the home changes slowly — it’s infrastructure wrapped around trust and security, and embedded in glacial building codes and cumbersome cost structures. This is still a visionary long game that has many hurdles to overcome.
