Insights

The Comical, Astronomical Smart Home Hype

April 28, 2014 | Sce Pike

Back in August 2013, Gigaom Research predicted that the market size for Smart Home technologies would be $1.5 billion by 2017. Just a couple months later, in October of 2013, Markets and Markets Research predicted the Global Smart Home market to be sized at $51 billion by 2020. After the purchase of Nest by Google, more press outlets starting citing the bigger number of $71 billion in 2018 by Juniper Research.

The numbers again:

$1.5 billion in 2017 – Gigaom Research (release date August 2013)
$51 billion in 2020 – Markets and Markets Research (release date October 2014)
$71 billion in 2018 – Juniper Research (release date January 2014)

These are just a few reports citing astronomical growth, there are tons more research groups egging on this new industry and trying to predict how these numbers will come about.

The Wrong Approach

Here’s the bottom line – the Smart Home industry which is supposed to be part of the Internet of Things will never happen when the industry is taking a Technology first approach. A whole lot of companies are building products because they can without the consideration of how users and other industries will participate in this new ecosystem. No one is creating an ecosystem, not really, instead they are very much focusing on siloed product models which they hope will lead to a platform that others can adopt and build ecosystems with. This is one of the problems in trying to get adoption of Smart Homes, everyone is trying to build a platform by building a product.  A bit backwards, in my humble opinion. Now, I know there are solutions out there such as Revolv, Prodea and AllJoyn that are trying to truly approach it from a platform angle but the reverse may be true for them, without a solid hardware product they may not get an entry point into peoples’ smart home to push the adoption of their solution by other providers.

These products are also very expensive, $50-80 for an outlet from Belkin and $200 for a starter kit from Phillips for light bulbs. If the prices stay this way then maybe the higher $71 billion number from Juniper Research will be recognized by 2018. Yet, these price tags seem way beyond the average consumer’s reach.

When I think about the average consumer and how to produce a product for them, I always think about my mom and I do some preliminary research with her. I won’t bore my readers with the details of this conversation in which I try to help her realize the value of these products and how they can positively impact her life. In the end, she sort-of wanted a Belkin WeMo plug—but not for $80. She wouldn’t even let me buy it for her because she didn’t want me to spend that much on something she might use. This is another problem with the state of the Smart Home world today. It’s a very elitist space and people don’t have a strong need for all these seemingly “cool” and latest technologies. My parents love their little townhome and they think that their lights, outlets, doors, and appliances all work just fine. Why should they feel the need to change them?

One can argue that my parents are not the target market for this space. That really, the Smart Home industry is still targeting early adopters. Fine, that makes a good point, but let’s look at who we might identify as early adopters. “Predictably, younger Americans are the most avid early adopters. 24% of those under aged 18-35 want to be first in line, but the 35-49 age group is not far behind, at 22%.” If we are looking at the 20 and 30 year olds as the demographic that are willing to try out these technologies, we have to understand if they are truly in a position to adopt, from a situational and economic standpoint. Nearly half, 43% of those under 30 rent homes and about 37% of 30 – 44 year olds rent as well.  As renters they are not really in an easy position to retrofit their homes, nor do they want to make the investment to do so. Those that own homes and are willing to be early adopters of technology may not economically be in a position to afford an $80 plug. Even more costly, some would argue, is their time. The DIY nature of the current Smart Home products is a tremendous detriment to adoption as well. Let’s be honest, there are many of us who don’t have time to change a standard light bulb and will leave it burnt out for days, let alone change it with a new Smart one and then set aside time to program that light bulb. The high costs, in terms of price and time and the wrong assumptions of the target market, early adopters, and their current home situation is another detriment to the adoption of these technologies.

The Possibly Right Approach?

What can be done to make those astronomical numbers work besides wishful thinking? Let’s look at Connected Thinking and the example I give for the perfect execution of it, Apple iPhone. Look, I’m not a huge fan-girl of iPhone, I personally use HTC One with Android default Kit Kat OS right now. However, I do believe that the way they brought iPhone to market was a perfect execution of Connected Thinking, which is to consider real world market forces: the User, the Industry, and the Technology. Before iPhone, there were lots of Smart Phones. I worked on many of them, primarily the Palm and Treo products, which I still consider to be the first Smart Phone and has a soft spot in my heart. #loveyoupalm  Other biggies were Nokia Symbian, WinMo, Blackberry aka Crackberry and alas, none of them survived the iPhone. Why? Because early tech enthusiasts may have loved them, but my mom, the average consumer didn’t see the value in them. Her phone made voice calls and sent the occasional texts just fine. She didn’t see the point of switching from her clamshell feature phone to a Smart Phone. That is, until the tremendous value of the iPhone compelled her to switch. So what did she value the most? It was really the basic things that Apple did right, the hardware, the user experience, and the app store. Now, she didn’t switch to an iPhone until 2009 or so when there were enough apps in the app store that made sense to her. The other thing that Apple did really well was build the technology backbone and software distribution that allowed for other industry players to participate, leverage and build value on top of the iPhone. By including other industry players they fulfilled one of the market forces of Connected Thinking, Industry, and let them thrive. By fulfilling Industries’ needs, they created tremendous value for the Users, as it permeated and reached into various aspects of the User’s life and thus fulfilled their needs.

The Smart Home world is much like the Smart Phone world was before the introduction of iPhone. There are a lot of players all creating products targeted at early adopters without Connected Thinking: Users, Technology and Industry. For the Smart Home world to really reach that $71B by 2018, we need to take a step back and approach this problem from a higher level. A lot of people are betting on Google or Apple to do this but I’m hoping for something different. I’m hoping a new player or a perhaps unexpected old player, will come out with the right solution. I guess we’ll see. I know one thing, the Smart Home will happen no matter what and while I hope for everyone’s sake that it’s at the figure predicted by Juniper, without Connected Thinking, it’ll be slow going.

Author:
Sce Pike

SCE PIKE Managing Partner | Citizen, Inc.