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The Global Service Provider Smart Home Opportunity

by William Ablondi | Dec 15, 2015

Doom & Gloom Get the Headlines, but Fact Is the Smart Home Market is Growing Big Time

Earlier this year there was a report of a decline in interest in the smart home market, raising a degree of negativity about the genuine opportunity for smart home technology, particularly around how many households are likely to use it. Based on an analysis of 7,000 households’ willingness to pay for various Smart Home capabilities and/or services across the US and Western Europe, we believe the “Early Majority” (those representing the remaining first half of all of those who will eventually adopt something new) is poised to open their wallets.

36% of US households are willing to pay, but who are they?
The analysis identified six distinct consumer segments according to attitudes and behaviors – three of which are likely to buy smart home systems and services. In order of likelihood they are:

1. Green Nesters (16% of the online population) – married families owning multiple smartphones and tablets. Much greater interest in smart home tech around monitoring activities in their home when they’re away.
2. Impressers (13%) – Higher than average income, willing to pay for style and design and believe their lifestyle impresses others. Similar interests as Green Nesters except not “Green”.
3. Millennials (7%) – under 35, more likely not to have children and rent; not own their home. High in interest for a panic button to turn on all lights if they sense an intruder is present.

32% of Western European households are also willing to pay for Smart Home technology.
The same segments are poised to buy, but with different priorities as would be expected. We’ve already seen more than 250,000 households in the UK sign up for the British Gas Connected Homes’ Hive service, and millions of homes across Europe are using a mydlink system. We expect many more European consumers to shop for Smart Home technology in 2016.

The Smart Home is a nascent market, but multiple drivers will move it into the mainstream:
* Consumers seeking to be connected – to their family, friends, colleagues and now their homes.
* Elegantly designed point solutions are enticing consumers to give them a try: Nest’s thermostat, camera and smoke detector; door locks from Kwikset, Schlage and Yale; Canary and Piper cameras… the list goes on.
* BIG Tech brands are entering the market building awareness of the benefits of the technology: Amazon, Apple, Google, Microsoft, Samsung…
* Technology advancements in enhanced visual and voice recognition coupled with cognitive computing on a chip will introduce new value propositions stimulating consumer demand.

In the US, more than 7 million households will have interactive security systems installed by the end of 2015 from ADT, AT&T, Comcast, Vivint and many others. This is in addition to self-monitoring devices, systems and services from manufacturers such as Belkin, Canary, D-Link, Logitech, Peq and scores of others.

By the time 2015 comes to a close, we estimate that 26.8 million households in the US will have some type of smart device or system – automated entertainment, energy, appliance, security or healthcare systems typically controlled remotely through internet technology – up 29% from the end of 2014. We project that growth in the US will continue in 2016 as an additional 5 to 6 million households join the ranks of smart homes for the first time.

Consumer spending in the US will hit nearly $22 billion in 2015 and top $30 billion in 2016. In Western Europe spending will exceed $11 billion in 2016 as the number of smart homes there exceeds 31 million, up 23% from 2015. Globally the market will pass the $100 billion point in 2018 and reach $130 billion by 2020.

Which companies stand to capitalize on the Smart Home market?
There are many potential beneficiaries of the growth in the Smart Home market: technology enablers (software and silicon developers), device manufacturers, retailers, insurance providers, security services firms, home builders and the list goes on. But in this post I want to focus on service providers – broadband, video, voice and wireless carriers.

We believe service providers are well-positioned to succeed in this market. They can leverage their existing subscriber relationships by marketing Smart Home services at every customer touchpoint. All have existing customer support organizations and most have field service operations which can facilitate installation if required by a particular service offering. But the BIG advantage all service providers have is their ability to bundle new services with existing ones at attractive price points. Not all will want to start with a “free” offering, but subsidized hardware in return for a service contract is not new and can be an extremely effective way to introduce the technology and its benefits to consumers.

We took a hard look at the global total available market for service providers and concluded that it will reach 55% of the total $130 billion in 2020 or $71 billion. See the figure below:

The Global Service Provider Smart Home Opportunity

Can service providers profit from the Smart Home market?
Of course, this is a question of paramount importance. This is a topic we address at Strategy Analytics through our custom consulting services, but we learned of a tool Cisco has developed to calculate the return a service provider can expect depending on the characteristics of their customer base, market and the services they choose to offer. They call it the Cisco Monetization and Optimization Index Model for Smart Home. They just posted a blog on the topic which you can read here.



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