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The Coming Smart Home Shakeout

Mike Wolf HomeKit Insteon Iris Nest Quirky Vera Weave WeMo Wink

 

I hate to be the bearer of bad news, but I think we're in for a little turbulence in the smart home market.

Not because the market isn't growing. It is. It's just not growing in a way that can make every investor, startup and big tech company happy. 

This isn't completely unexpected. Markets - especially new consumer technology markets as they are searching for defining use-cases, form factors and hero products - take time to figure themselves out.

The smart home industry is trying to figure itself out.

In the meantime, some investing in the space are disappointed in their early results. Companies like Best Buy, Lowe's and others that have jumped into this market with gusto aren't always seeing the type of demand they want for the products given the amount of shelf space they've allocated.

The early success has come in a few product categories like cameras, thermostats, maybe a few door locks. In other words, product categories consumers get immediately. Sales of smart home "systems" that include hubs and multiple devices have been selling more tepidly.This is a market education and messaging issue, as consumers still don't fully get the concept of the smart home and certainly aren't convinced they need to plop down hard earned cash for one.

But let's not blame the consumer. They can't be expected to understand the smart home while the smart home industry is still trying to figure itself out.

It reminds me of the prehistoric days of the video streaming market in 2004 when we in the industry knew at some point consumers would stream video and other great content to their TVs and around the home, but the consumers didn't yet know it. Startups were taking early stabs at creating new categories like the media adapter (nostalgia link: here's me writing about one for Network World), while others like Microsoft tried to build media streaming systems around their existing strengths and ultimately failed. 

But the comparison isn't perfect, because unlike whole-home video streaming, the smart home has been around in some form or another for 30-40 years.  This early market of X-10 and other tech led to a more modern generation of DIY smart home products, brands such as INSTEON and then Mi Casa Verde, businesses built upon the hard work of their founders, who through grit and determination managed to create a market and community around their products and ecosystems. Other companies like Belkin entered the market with WeMo, finding success with an approach built around Wi-Fi. And then we saw a rush of upstart efforts like SmartThings, Revolv, Wink, Iris and Staples Connect, each with different but similar approaches.

All the while, consumers weren't paying all that much attention. When they did decide to buy a product we in the industry consider a "smart home" system, the consumer thought they were buying a network camera to watch their dog or a connected thermostat to maybe save a little money. 

Disconnect.

In the meantime, we have new efforts like HomeKit and Google's Weave/Brillo that hold some promise. We have obvious demand for products like smart home security systems because, well, consumers understand home security.

In other words, the industry is slowly figuring itself out, doing the hard, grinding work it takes to develop underlying technology that can lead to new services that consumers eventually will "get" and maybe find indispensible someday. But in the meantime, you have companies like Wink, who we recently learned seems on the brink, beleaguered by a combination of near blinding audacity of its parent company Quirky, product recalls and softer than expected demand for things called hubs. And Wink is probably the tip of the iceberg. I think there may be other companies or divisions like Wink, wholly invested in product strategies that might not be the resonating with the market, that we'll likely learn about soon enough.

The good news is we'll get there. We have some hero products that are seeing strong demand, we have big service providers investing tens of millions of dollars in market creation, and Apple and Google are doing what they do. We have innovative startups still innovating, in horizontal categories like interfaces, cloud rules engines and more, while there are also some exciting stuff going on in product categories like water, yards, smart kitchen and more. 

Wikipedia defines a market shakeout as "a term used in business and economics to describe the consolidation of an industry or sector, in which businesses are eliminated or acquired through competition." 

It goes on to say that "shakeouts can often occur after an industry has experienced a period of rapid growth in demand followed by overexpansion by manufacturers."

I think we'll see more of both of these, rapid growth and consolidation. Rapid growth in hero categories and, eventually, fuller smart home "systems" as the market figures out what those should look like as the consumer tells them what they like. Consolidation too, as companies who have developed technology either don't find enough of a market themselves or need to fall into the hands of someone with deeper pockets who think they can develop the market. 

Either way, buckle up. It's going to be an exciting but bumpy ride.

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  • Steve Hirst on

    Thanks – a good take on the progress of smart home tech, and the comments allude to the potential success routes. Whereas there is no doubt consumer need is not sufficiently clear for a mass adoption of connected home technology, there is more to do than just clarify what people will use it for. Interconnectivity standards of devices is a big hurdle that needs surmounting, but I find the major issue is the low quality of devices, firmware or software that accompanies the gold rush of trying to be first to market with the killer product. The connected home has so much more technical AND ux complexity, so many moving parts, so many different technologies and industry approaches, and utter reliance on 3rd party broadband connectivity than any other internet product to date. High quality is paramount to get that MVP off the ground. The correct discipline of agile and continuous delivery with no compromise on quality or non-functionals, but compromise on feature scope will likely take a lead. Keep it simple, make sure it works.

  • Asher Friedman on

    Well summarized the current status. A fully equipped smart home will be accepted by the customers as soon as they will be able to install a fully integrated system, with a service provider that will take ownership on maintenance and it will be easy to operate. Hacking protection and easy to use will be key to make it accepted by the regular mass users.

  • William Johnson on

    Right, Adam, I see no compelling reason for connecting. Worse, stories like “Stuxnet” raise security fears. With processors so cheap, it’s unclear why smarter devices aren’t more common. I suspect consumers are put off by a cluster of related usability issues: weak interoperability, proprietary tech at the user side, multiple learning curves, low customizability.

    Beyond security, corporate-sold networking seems ever bundled with ceding previously-private data to corporate vendors. Re SocialNetworking, that already seems unavoidable. Why would I invite that into my home appliances?

    Q: How much does it cost to get timers on my cooking elements?
    … range burners, plug-in grills, etc?
    Where are the UX standards around time-based control?
    Is it possible to sell appliances with open APIs, IrDA, and a range of phone apps or remote controls to present different interfaces to different users?

  • Tim Schreier on

    Interesting and accurate analysis. One of the issues is demographics. The Baby Boomer + are driving the Home Building Market (Age in Place). If they are not building, they are refurbishing existing homes. They are also the most likely Second Home owners or builders (legacy with Grandchildren). The 50+ has a definitive need for Security, Safety and Energy Management. Add Caregivers to the mix (Baby Boomers/Sandwich Generation) and you have a clear market segment. Yet this market segment is being ignored by many in favor of “Native Digital” or Millennial…

    Add on the fact that the 50+ Market controls over 3/4ths of the Nation’s Wealth or $28 Trillion. The Baby Boomer out earns every other generation by 3:1 contributing $2.4 Trillion or 42% of US Taxable Income annually; it boggles the mind…

    As adoption of the Smart Phone grows exponentially greyer with each day, it is clear that the value propositions of the Connected or Smart Home will be absorbed by Home Owners where those value props resonate loudest.

  • Adam Wright on

    I’d say all valid points. The main issue is consumers like individual products for their core function, but to connect all of these together in a “smart home” isn’t yet something they’re convinced they need to do. That’s what the industry needs to work on – showing consumers why they need a “smart home” system in their homes.



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