The smart home market has seen significant growth since 2010. Specifically, less than 0.5% of homes in the American region had connected home devices such as thermostats, lighting, security and entertainment in 2010; by the end of 2017, nearly 12% of households in the region will have connected home devices, an average of six devices per home.

The success of smart homes started with professional security providers offering bundled packages, focused mostly on security monitoring. However, due to the cost of professional contracts, consumers began to embrace the do-it-yourself (DIY) approach. Despite the challenges and opportunities that come with professional and DIY approaches, the momentum of smart home growth depends on these two approaches working symbiotically.

Smart Home Technology Partnerships

A few recent examples include the relationship with Vivint and Best Buy and Vivint with Sprint. In most cases, Best Buy is a competitor to Vivint because a consumer can buy point devices and ecosystem and install it themselves or enlist the help of the Geek Squad. Even more recently, Nest announced optional professional monitoring with its Nest Secure products in partnership with MONI.

Although this approach isn’t new, Scout Alarm, LiveWatch and SimpliSafe already have similar approaches, it continues to stress the need to combine multiple channels and approaches to the smart home market. Moreover, these are examples of symbiotic partnerships that will help the total market.

In 2017, there were about 122 million smart home devices shipped globally. The retail channel represented about 62 percent of all device shipments in 2017 and will represent about 70 percent in 2021. Despite the increased demand for professional installation, the do-it-for me approach, most the volume remains with ad-hoc purchases. This includes a consumer video camera or a smart thermostat purchase from a retailer or when a consumer wants to add devices to an existing professionally installed system, they often will buy products from retail.

Furthermore, the multiple-system operator (MSO) and professional security provider channels will be evenly split in 2017; however, by 2021, the MSO channel is expected to be double the market size of the security provider channel.

The primary reason for this rapid change over five years is the lack of professional security providers in EMEA and APAC; as a result, MSOs will dominate the professional channels in these regions, while across North America, security providers will maintain a strong market presence.

Top Trends In Smart Homes

A few of the top trends in smart homes to watch out for over the next 12-24 months include user interface, flexible services, cyber security and adjacent markets. The user interface trend continues to evolve for the smart home. Although voice commands are trending towards becoming the new user interface beyond 2017, the voice will not be the only means to control and interact with the smart home. Mobile phones or tablets will still be required to configure most devices.

This means that although the Amazon Echo can control a WeMo plug, the consumer will still be required to download the WeMo app and configure the device. However, after the device is added to the same network as the Echo, the app is no longer needed on a day-to-day basis. Displays will also become increasingly popular throughout homes because the smart home is becoming increasingly isolating.

DIY ecosystems such as Wink or SmartThings or Philips Hue lighting are often limited to one person with one mobile device
Mobile phones or tablets will still be required to configure most devices in future smart homes

DIY ecosystems such as Wink or SmartThings or Philips Hue lighting are often limited to one person with one mobile device. As a result, other members of the household would need access to that mobile device or would need access on their own device after being authorized by the primary user (all assuming a smart speaker is not being used).

This is very limiting and the user experience is negatively affected. (Voice assistants like Google Home have added a feature to allow multiple accounts using voice recognition, which will help personalize smart homes.) However, displays in the home are a way to access all devices for anyone in the home.

Smart Home Equipment Cost

Flexible service offerings and pricing is already taking shape across smart home offerings. DIY installed smart home systems such as Scout Alarm already offer no contract monitoring. Professional monitoring companies are already offering no contract pricing and providers such as Comcast are looking to pilot programs for just video monitoring bundled with Internet for a low monthly fee.

Options for financing are also going to become commonplace. Smart home equipment is expensive, especially when attempting out outfit a modest size home (2,500 square feet +). Immediate access to services is becoming more critical. This means consumers should be able to access on-demand service options directly from a mobile device to activate or deactivate professional monitoring. Lastly, pricing still needs to come down for many smart home devices but there is a threshold.

Since many smart home devices today do not have a recurring monthly fee, the cost of maintaining mobile apps, platforms and support services must be propped up by higher device prices. However, companies can look to offset some cost by sourcing different material. According to the IHS Markit Teardowns Team, the cost of the metal ring on the Nest 3rd Generation thermostat is $10, which is more expensive than the LCD display which comes in at $9. In comparison, the Ecobee3’s most expensive part is the LCD screen at about $4.00. As a result, the Ecobee3 costs nearly $20 less to manufacture compared with the Nest 3rd Generation thermostat.

Smart Home Security

Securing the smart home will be a hot topic over the next 12 months. One method of change will be manufacturers requiring consumers to change default passwords. Manufacturers need to start requiring consumers to change passwords before a product can be used. Home routers, for example, often use ‘admin’ as the username and ‘password’ as the password and most users never change these.

New smart home technology will improve care for the elderly
For elder care, door/window sensors and motion sensors could be used in combination with software to monitor routine

The challenge that many consumers and suppliers face today is that many passwords are built directly into the firmware and the consumer has no way of making changes. As a result, the integrity of the device comes down to the supplier. As threats become more severe with ransomware and other botnet attacks, manufacturers will need to implement additional thresholds of threat assessments to keep consumers safe.

One method involves two-factor authentication. IHS Markit expects the monetization of cyber-security for residential customers to start appearing in 2018. This means that security service providers would monitor network traffic for the consumer. The software would not be monitored or implemented directly by the consumer; instead, the service provider will take care of all the monitoring of network traffic. What this means is that the software or router would monitor network traffic for patterns and manage which servers are pinged by IoT devices such as consumer video cameras.

Care Homes And Insurance Companies

Although the compound annual growth rate (CAGR) for smart home device revenue is set to exceed 50% through 2021, the growth could be much higher with support from adjacent markets such as elder care, construction/developers and insurance companies.

For elder care, door/window sensors and motion sensors could be used in combination with the software to monitor routine. If an elderly person suddenly changes their routine, this would alert caregivers. This same premise can be used in professional elderly care settings to help staff prioritize patient needs.

IHS Markit expects the monetization of cyber-security for residential customers to start
appearing in 2018

Working with insurance companies is another method of reaching the customer with smart home devices; however, the use of insurance is highly fragmented across regions. As a result, North America is the best opportunity as of 2017 to partner with insurance companies. Furthermore, insurance companies are mostly interested in managing the entire ecosystem.

Blending Professional And DIY Smart Homes

While offering subsidized equipment (smoke detectors and water leak detection) can reduce claims, insurance companies need to have full access to the data – as a result, they are more interested in creating their own platform from scratch or working with a provider to support data analysis. Working closely with builders will also continue to gain traction, especially across EMEA and APAC. By working closely with builders, this reduces the challenges associated with B2C channels and the overall cost of the system can be masked by the mortgage payment, resulting in more system installations with less distribution expense.

Overall, the line between professional and DIY smart home is blending. CEDIA and Amazon recently announced a collaboration and Netgear Arlo announced the first wire-free and battery-operated ONVIF compliant camera.

With the combination of voice-control, consultations from Amazon and Best Buy, the reduction in the pile of smart home hubs in the basement as more protocols are embedded in gateways/routers, and no further need for the special Apple chip for HomeKit compliance after iOS 11, smart homes are becoming easier to achieve both for consumers and professionals.

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Blake Kozak Principal Analyst, IHS Inc

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