Home Analysis Connected Home Service providers, utilities and retailers will fight for smart home

Service providers, utilities and retailers will fight for smart home

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Service providers are looking for the next big opportunity beyond broadband and television and many think it is the smart home. With established subscriber relationships and devices in the home, they are in a good position to target this emerging sector but there are plenty of challenges, and there will be lots of competition, on their journey from triple-play to multi-play.

There is still a way to go developing standards for interoperability between device platforms and protocols for the smart home, and also in convincing households that the benefits are worth having, but the stage is now set for rapid expansion.
The biggest hurdle to overcome will be consumer indifference, according to some analysts, yet the  experience in the U.S., which is the most advanced market for whole home services, suggests that consumers can be tempted by well packaged offerings, providing operators do not overcharge for them. The message from U.S. deployments is that connected home services are firstly a churn-buster and that operators should be patient and not greedy in seeking additional recurring revenues.

There is also some early evidence that smart home services can attract new customers. Comcast, the world’s largest cable operator and also first major cable operator to deploy whole home services in the U.S., has reported that its Xfinity Home has not only reduced churn rates but that 22% of its users had come across from rivals.

In 2013 there were 16 million homes in the U.S. with at least one “smart thing” such as a remote control for setting heating, compared with 14 million in Western Europe and 60 million worldwide, according to the research and consulting firm Strategy Analytics. The company’s projections for 2018 are 42 million in the U.S., 41 million in Western Europe and 195 million worldwide, suggesting growth will be fastest in the Far East and developing markets.

Interestingly, growth prospects look even better when defining smart homes by the stricter criterion of having an extensible software platform capable of supporting multiple devices rather than just one isolated item. “On a global basis, there are around 2.7 million homes utilising an extensible smart home platform offered by a service provider,” says Craig Foster, Lead Analyst at technology research group GigaOM. “This service provider could be a telco, cable operator, security company or electric/gas utility. By 2017 we expect there to be close to 35 million homes using home automation platforms supplied by service providers across the globe.”

Numbers of devices and platforms do not equate directly with revenues, of course, but Strategy Analytics’ figures suggest a fairly close correlation. The analyst firm’s prediction is that total global revenues from smart home systems and services will have risen from $35 million in 2013 to $91 million in 2018.

Notably, the U.S. revenue contributions are double those of Western Europe in proportion to the number of devices, reflecting the proven willingness of consumers there to pay extra for smart home services. The forecast also reflects regional differences in the type of services consumers are prepared to pay for. In 2013 revenues from smart home services in Western Europe were $7 million compared with $14 million in the U.S., with Strategy Analytics predicting this disparity will be sustained, with $14 million against $30 million in 2018.

Given these rather paltry revenue predictions, some telcos may ask whether it is worth the cost and commitment of investing today in smart home platforms or services, especially in Europe. But revenues are not the whole story and, in any case, the market is very young. Telcos a generation ago could have taken the view that data was not worth investing in because revenues were tiny compared with voice, and the same looked to be the case for mobile versus fixed line services.
For the moment, combatting churn is the biggest motive for developing smart home services, according to Bill Ablondi, Director for Smart Home Strategies at Strategy Analytics. This is because it adds a further barrier against switching providers. “The more services consumers subscribe to, the less likely they are to churn,” he observes. ”Reduction in churn on its own may not be enough to justify smart home investment but it is a big factor.”

Another factor is that the more developed broadband markets of North America and Western Europe are approaching saturation, so that operators need somewhere else to go. ”That’s why some have gone into Voice over IP. Now security, energy management, remote monitoring and heating control are being looked upon increasingly for potential new streams of revenue as opposed to purely defensive moves.”

Broadband operators may not be allowed to sit back comfortably and watch while new subscriptions from these whole home services roll in. Ablondi points out that utilities, retailers and appliance vendors will all weigh in, sometimes with models that undercut or undermine the traditional recurring revenue approach.

While smart home forecasts do not tend to break the field down between different service provider categories, broadband providers will meet strong competition, at least in the U.S., from the emerging retail sector, according to GigaOM’s Foster. “The DIY segment, which the likes of Lowe’s, SmartThings, Staples and Amazon are targeting, will be a fast growing one,” Foster predicts.

Broadband operators have a headstart through their established relationships with their customers, especially if they have already installed some form of home network. But as retailers like Staples are showing, this is no guarantee that broadband operators will be the ones providing smart home services. There is a real risk they will be the dumb pipe serving somebody else’s gateway.

The battle to ‘own’ the home is commencing, as indicated by Bob Cooper, Chief Marketing Officer at Zonoff, whose software platform is the basis for the Staples Connect service. “We believe the market will grow consistently and rapidly as more entrants come into the space and consumer awareness is raised,” he says.

“We expect growth to come from retailers, cable companies, telcos and consumer electronics OEMs, all of whom see tremendous value in ‘owning’ the customer experience. The smart hub device, whether it is standalone or embedded inside another device such as a set-top box, is the ‘high ground’ of the home and offers great opportunities for those channel partners who secure it.”

This is an excerpt from the new Videonet report, ‘From triple-play to multi-play’. This report  takes a look at the emerging smart home market and the potential role for broadband service providers and likely strategies if they want to build upon their existing customer relationships and CPE and migrate from a triple-play to multi-play provider. It covers the smart home opportunities and challenges, competition and differentiation, standards development and consumer perceptions. It analyses pioneering service provider efforts like Comcast Xfinity Home, AT&T Digital Life, Deutsche Telekom (and its QIVICON open platform approach) and Telecom Italia. The report looks at rival offers and strategies from utilities like British Gas and retailers like Staples and gathers insights from across the smart home ecosystem from the likes of Strategy Analytics, GigaOM, IHS Electronics & Media, ADB, Zonoff, iControl, OSGi Alliance, DLNA and HGI. You can download it (free) here.


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