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Summer May Be Fading, but the British Smart Home Market is Heating Up!

by William Ablondi | Sep 07, 2016

Last week O2 launched O2 Home commercially. It had been trialing the service with 75 or so consumers, but now it’s beginning to roll it out across the UK. The launch has been long anticipated since Telefónica announced two years ago that it was licensing the AT&T Digital Life platform. Telefónica did test a smart home offering in Spain with the Digital Life platform and recently licensed a platform from Huawei for the Latin American market, but the O2 launch is its first major foray into the European market. (The UK is still considered Europe, right? ;-))

British Gas is the major participant in the UK Smart Home market at the moment. But D-Link, Nest, Climote, Heatmiser, Passive Systems, Owl and others have all been active to some degree over the past few years. BG’s Hive now has well over 300,000 users of it Hive Active Heating system. The company has expanded the range of products it offers to include motion sensors, smart plugs and door/window sensors, a smart bulb and its parent company, Centrica, recently acquired FlowGem, a developer of water leak sensors. We expect Hive’s portfolio of products and capabilities to expand further this year.

Into this mix comes O2, a well-known and respected brand in the UK with a significant retail presence. It is pursuing a different business model from the other players mentioned, specifically BG’s Hive (See our recent report on the subject: Business Models in the Smart Home Market in which we profile Hive, some other success stories and some that have failed.) Hive charges a one-off fee for the thermostat and other devices available, no recurring monthly fee. On the other hand O2 Home carries a recurring fee £20 to £30 per month depending on one of three starter kits. Like Hive, the system comes with professional installation as well as annual system check-up and 30 days video storage for the kits with cameras.

O2 has partnered with some well-known brands to bring O2 Home to market: Samsung, Yale and First Utility among them. Others may not be as well-known in consumer circles, such as Fibaro and tadoo, but they are significant players in the Smart Home market, and not just in the UK. We believe O2 has some other partners in the wings and we’ll be exploring those and other aspects of their roll-out strategy in an upcoming Insight.

What’s at stake?
Consumer spending in the UK Smart Home market will hit £1.4 billion this year and rise to £2.3 billion by 2020. Not all of that is addressable by service providers such as O2. We estimate that service providers in the UK have a £450 million opportunity this year growing to nearly £1 billion by 2020… stay tuned for an upcoming report on the service provider opportunity in the UK, other Western European countries and the US.

What’ the outlook for O2?
We think the outlook is good. O2 is hitting security, video monitoring and energy management value propositions attractive to British consumers based on our extensive end user research there. Monitored security systems are not prevalent in the UK, but there are some 8 million standalone alarms installed. Our research shows that more than 40% of online households in the UK are interested and willing to pay for security monitoring … at the right price. O2’s “View” package comes with cameras, a presence sensor and a door/window sensor and 30 days of video storage. We think the £30 per month may be on the high side, but the hardware worth £350 and installation are included and the company is offering a variety of kick-off incentives to ease the bite.
Another use case O2 is addressing competes directly with BG – the “Comfort” package, also for £30 per month with about £309 worth of hardware including a tadoo thermostat that the website says can save consumers about 30% on their heating bills.

Bottom Line
There is no question that the UK Smart Home market is heating up. We expect more entrants this year and into next. Stay tuned!
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