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Smart Home Show #6 Transcript: INSTEON's Joe Dada

Mike Wolf

Guest: Joe Dada, Founder & CEO of INSTEON, SmartLabs & SmartHome.com

Host: Michael Wolf

Mike:  Hey, I want to welcome Joe Dada, the CEO of Insteon. How are you doing, Joe?

Joe:  Great, Michael, thanks. Nice to meet you and thanks for having me.

Mike:  You are also the Founder and CEO of SmartLabs, which I think is the parent company for Insteon, as well as Smarthome.com, which is a retail storefront for all sorts of Smarthome products.

Joe:  That’s absolutely right. SmartLabs is the corporate entity; Smarthome is the consumer facing and dealer facing retailer and distributor and then Insteon is our technology division that has its own technology and a couple hundred products that do just about everything in the connected home space.

Mike:  You guys go back a long way. You were founded in 1992, that’s a long term for a home automation smart home company. Tell me a little bit of that back story.

Joe:  Yeah, well, it’s kind of a funny story actually. A friend of mine and I who are engineers and very technologically grounded were looking to start a company in a space where without large sums of money and thousands of shareholders to answer to that we could actually build something and hopefully grow either with an industry or actually grow the industry. We stumbled across a voice recognition product at the time called “Butler in a Box” from a former magician and I think he was good at making people’s money disappear 

What we learned through this product was that there were this array of very affordable plug-in or screw-in or light-switch installation products using a technology called X10 that was developed in the ‘70s that worked most of the time and in small applications. We found that the voice recognition of that era was nowhere near worth kind of building a business around but we found that the X10 products, they were good enough to build a business around.

At the time we started as a cataloger, in ’94, ’95, we went online as one of the world’s first ecommerce sites and had great success and expansion at that time, which led to building our own products just a couple years later. 

Mike:  Did you guy the Smarthome URL back in the ’94, ’95 time frame?

Joe:  We did.

Mike:  The advantages of being early and getting great URLs.

Joe:  Yeah, it was just available, as was the phone number 1-800-smarthome.

Mike:  Well, great. You guys did a pretty mean business, I would imagine. You guys became one of the, I guess, predominant online retailers for X10 products at that time. 

Joe:  Yeah, we very quickly became one of the two real players in the market so for brick and mortar, it was Radio Shack and for everything else online and catalog, it was us.

Mike:  Were you competing with X10.com though? Weren't they selling a lot of their own stuff before they went bankrupt and did a bunch of pop-up ads?

Joe:  Yeah. They absolutely came into the market and did compete. Their focus shifted so far away from home control and into the pop-up ads for their cameras that they didn’t end up being as much of a competitor as they might have.

Mike:  Yeah, I just remembered going to that site and getting bombarded with the pop-up ads. You guys were probably laughing at the time at what they were doing.

Joe:  What was interesting is at one time they were the internet’s largest advertiser. It’s just amazing that you think about a small company making such an impact and some time over a beer we can talk about the antics in that organization.

Mike:  Yeah, we’ll leave that for the next podcast. 

Joe:  Yeah.

Mike:  In the ‘90s you guys grew, you were competing with Radio Shack at the brick and mortar level and you went both to direct to consumers but you also had an installer channel. Talk about the two different customer sets.

Joe:  Yeah, in the mid ‘90s we added SmarthomePro.com, which was a dealer-only site where the dealers would log in and receive special pricing information, support services. Our mix has always been about 3:1 or 80/20 retail to dealer and as the world has evolved and dealers really kind of exist on the same platform as consumers so much more now than they did back then, the line has blurred between the two. 

Mike:  When you were looking at what was selling, did it change over time? I want to get to when you guys decided to start your own technology or create your own technology, but how did X10 products change or did the mixes change over time? As you got into the mid 2000’s when you eventually launched your own stuff, how was that business shifting, if at all? 

Joe:  There wasn’t a lot of shifting back in those days, there really wasn’t a lot of shifting from application, from any one application to any other or even the sensibilities of consumers has stayed pretty stable over the years until the last few years where HVAC, the whole green push and movement, is definitely having an impact. 

Mike:  We’ll get to that, that’s more of the modern era, but in 2005, this is an interesting move because you don’t see oftentimes pure retail plays create their own technology.

Joe:  Right. 

Mike:  Unless you’re Amazon or something like that, but you guys decided at some point to create the Insteon protocol, which at first was power line and eventually went to wireless as well. What was the thinking there? Why did you guys decide to create your own protocol and technology?

Joe:  This story I love to tell because it’s really become kind of our life here. In the mid ‘90s we started developing products exclusively with engineering firms for our customers where we couldn’t get our current manufacturers to build the product that the consumers really wanted and because of our large and frequent interactions with these customers, we just had visibility that nobody else had. We ended up being so successful with that, we acquired a couple of these little engineering companies and rolling them up into what has now become Insteon the manufacturer. 

In the late ‘90s we had reached a point where we had enough products to really outfit a home and we went out in hopes of signing some deals with some builders and some brick and mortar retailers. It became quickly clear that X10 was not going to be acceptable in the broader market, so in the ‘90s we were much more focused on the DIY kind of technology leader and customers that were willing to put up with the vulnerabilities of that technology.

In 2000 we actually started development of our own technology, always with a view toward dual band, always with a view toward a full mesh, dual mesh network.

In 2005, May of 2005, we started shipping products and over the course of just a few years, converted, I think, probably 80% of the X10 user install base over. With the first generation we worked hard to make sure that the products could talk either Insteon or X10 and that’s pretty much now a faded memory, where our current products are Insteon only. 

Mike:  That’s really interesting, so you really developed your own X10 hardware and you developed that expertise and then sounds like when you went to the retail channel, there was always like a hobbyist that was interested in the X10 product, but were you hearing from the retailers and their feelings about consumers, that that was not an acceptable level of reliability? Like the X10, somewhat reliable, kind of famous for being, like you said, like 80-90% reliable, that just wasn’t going to work as you try to go into the broader market?

Joe:  That’s right. Both the retailers and the builders, in very different ways, made it clear, maybe not even on purpose, but it became clear to me that that dog was not going to hunt. At the time there wasn’t anything else out there. Now we had already seen CE Bus [phonetic] come and go.

One of the things that’s been very interesting in this space over the decades is watching how in some cases perception becomes reality, in our space it’s been much more common for the vision that the market has of how things are going to play out to not actually ever take place. I don’t know if you’re familiar with CE Bus, but it was an open standard effort that in the mid ‘90s, everyone was sure was going to be the next technology.

Mike:  Yeah. CE Bus, I’m familiar with Lawnworks [phonetic] and Echelon and all the other kind of ones that kind of went to the graveyard, I guess. 

Joe:  Nowadays there’s ZigBees. ZigBees started development in the mid to late ‘90s under different brands and they’ve changed their name and their branding and to some extent their kind of vision over the years. We have felt that it’s likely to take the same path.

Mike:  You guys do sell other third-party products. When you look at your company, SmartLabs, you have your retail arm, which is the genesis really, what you guys did, then you have Insteon. You guys have on the website, Smarthome.com, you sell third-party products that are around Z-Wave, or do you guys manufacture your products, all the products on there?

Joe:  No. No, we don’t.

Mike:  I know you have Smart Walks, [phonetic] for example, so you don’t.

Joe:  That’s right. We will sell products that we believe fill consumers’ desires. Consumers are smart. We believe one of our advantages of being a good product and technology company comes from our roots in listening to the customers, interacting with the customers. 

Nowadays, ours is not the only good technology out there. I’d say in 2005 we might have been. Z-Wave is a good technology, I think that they’re the only real competitor in terms of technologies. If you want to talk about a smart home, a connected home where it goes beyond one or two or three nodes, they’re the only other one that’s out there that’s a player. 

Mike:  I want to talk a little bit about those battles because I think there’s a lot of folks who think the future might be WiFi or something, but I did want to ask, I mean, Insteon grew and it became accepted, because like you said, it was like a new generation technology. We’re to the point now where it’s one of the accepted protocols, so if you look at the marketplace out there, from products like Mi Casa Verde, you look at products from like the new generation of hubs, some of the new smart home hubs, they actually feature Insteon radios in there.

How does that feel in terms of seeing your product from your company being accepted as like a pretty widely-accepted protocol?

Joe:  Well, it feels good, of course.

Mike:  That was a softball question assessment. I’m interested in evolution there. 

Joe:  Thanks for that, Mike. In the early 2000s, we, like Z-Wave, were out there trying to push and sell our chips into manufacturers and we both struggled and about the same time that we kind of re-trenched and focused on our products more than chips, they ran out of funding and a white knight came in to keep them alive, which I think is probably one of the greatest things for our industry to ever happen.

Long story short, we feel very confident that in the long run, we will get the market share that we want because we have a technology—and I would love to talk endlessly with you about how and why this all happens, but we have a technology that is less expensive, more reliable, and has significantly greater reach in terms of its wireless ability to go from point A to point Z. That is a very, very powerful set of benefits and as this industry goes from a couple of nodes being installed with a security system or a light bulb or two off a shelf at Apple or a thermostat off the shelf from wherever, to where we’ve always played, which is, “Well, of course some day you’re going to get to every light switch in your house and half the outlets and most rooms will have a motion sensor and several doors will have door sensors, don’t forget the leak sensors,” and the list goes on and on and on.

The reason that a lot of those technologies can’t hunt in that space is they can’t scale or at least they don’t scale well enough for a consumer. Just like X10, they might have theoretically in some cases be able to get to dozens and dozens of nodes, but in a very practical sense, the experience breaks down.

Mike:  I don’t know if this is obviously politicking or the entrenchment from WiFi community, but when I look at kind of the new wave of smart home start-ups, there’s some bias toward WiFi, in particular low power WiFi. Clearly I believe WiFi is a powerful technology, it’s got a great brand and I think over time you’d start to see the radios get there in terms of like power consumption. Clearly we’re not there today. 

What are your thoughts about low power WiFi as a radio technology that becomes entrenched in the smart home over time? Do you think that you start to see some displacement for Z-Wave, ZigBee, and even for you guys, do you think that’s a threat or do you think you guys coexist with that?

Joe:  I think that it’s about winning the race and in the early years, I think most of the players and I fell prey to it. We worried and focused a little bit too much on each other. The whole focus has to be on the consumer and there’s no reason that these technologies can’t coexist. I think that they necessarily will coexist and it’s why I think that a player like Revolve is wise to do what they’re doing.

In the end, the technology that either offers the best value proposition—and reliability is a part of that—or just swathes the industry aside with its spend to somehow convince everybody of something that might not be true, it’s going to be one of those two stories that wins the race. With all of the applications and all of the brands, I just don’t think it can be the latter. I think the best technologies will end up being the survivors in the end. 

You know, you look at the phone that we hold in our hand, how many radios are in that darn thing? GPS, Bluetooth, cell, WiFi, different technologies are appropriate for different applications and so I think in our space, there won’t be that many in the end after the industry consolidates, but I’d be surprised if it’s only one.

There’s been a lot of noise about ZigBee, there’s precious little stuff out there and I’m not aware of much that interoperates. I think, like you said, WiFi is a great brand, it’s a great technology, and we didn’t invent Insteon because we didn’t think WiFi was good, it’s just, even today, as you mentioned, they’ve got energy consumption, networking protocol issues. On a WiFi network, these devices have to wake up, if they want to do something, they’ve got to wake up, reestablish a network connection, then try to get their business done and then come off the network. That’s a lot of overhead and it leads to expenses and delays.

Insteon is a radically different network design, unlike all of the other networks that route their signals, Insteon is an unrouted network that uses a simulcasting technique that scares most engineers at first blush, our engineers included, after they really understand what we’re doing, they see the elegance and the simplicity of how these signals propagate. What that allows us to do is to require a lot less silicon, so our technology just ends up being a lot less expensive and a lot more scalable because these routing tables get big and expensive to build, maintain, and repair. Those networks talk about self-healing characteristics and we like to kid around that Insteon never gets sick, there’s nothing to heal, there is no routing table that can break.

Mike:  I’d be interested to ask you about the idea of the hub because I’ve written for some articles that over time you start to see smart home intelligence move into recognizable categories of devices. I think Linksys has tried it in the past, I think Belkin is thinking about it now, you see some start-ups that are trying to integrate, for example, Z-Wave, I’d be interested if that’s something you’re exploring potential deals with, for example, router manufacturers are putting Insteon into even something that’s a central-recognized category like a thermostat or even a TV. What’s your idea of the hub in terms of its place going forward in the smart home and are you working on other potential integration opportunities?

Joe:  We absolutely are and I’m excited that it won’t be too long before some of those announcements come out. That’s right, there are several always-on devices in the home that are connected and I don’t think the thermostat is the ideal place, certainly not for dual-band technology, because it’s not connected to the power lines. Routers, set-top boxes, just devices that are already in the communication business and already sitting there alive, the hubs that we’re making today, like the Insteon hub, they’re going to disappear. They’re a means to an end and until, like your laptop, we used to have to have a WiFi dongle to plug in if you wanted to put your—right?

It’ll go through an evolution. Right now we’ve got the little WiFi thing that you plug into the wall and plug into your computer, then it’ll become a dongle that plugs into the USB jack on the back of these boxes and then eventually it’ll get engineered right into their cases.

Mike:  Yeah, it’s just the inevitable market evolution of technologies, discreet devices eventually become a feature or a key part of functionality in like kind of a more unified box over time, but you can’t get there initially just because the volumes aren’t there.

Joe:  That’s right, that’s exactly right.

Mike:  You obviously are looking at trying to widen the market, you’ve been through one wave from going from true hard core X10 DIY enthusiast to, I think a broader market. I would certainly think you probably characterize your customers today as probably being less of a hard core home automation enthusiast than they were in the past. Getting to even the next wave, I mean, I think that’s what a lot of the new companies getting in this market are betting on. What do you see happening there? What are you doing as a company and how do you see that unfolding?

Joe:  Well, I believe it already is happening for us and others. I think the key is making it simple and making things simple is hard, but it can be done. Steve Jobs proved that to us and he proved how valuable that is. In our space, it’s even more challenging, I think, than what’s been done in the past and a lot of new entrants will come to find that out the hard way, just like we did. But when you’re talking to dispirit devices in an asynchronous fashion from different manufacturers performing different tasks, there’s just a lot going on. 

Insteon is now, we sell a lot more through channeled partners than through our own channel. The majority of our customers now are off the street, walk in the front door of Best Buy, Costco, Home Depot, etc., customers. I feel like we’re mid-way, we certainly don’t feel like we’re done. We’ve got a next generation hub coming out very soon that is going to have some just fantastic features to make it easier for an even broader audience to easily get up and running, less time for the consumer, less technical requirements, less intimidating for that matter. That’s been one of our advantages over the years, is you don’t need a central controller, there has never been a networking kind of feel to the way our network sets up. If you want to control a module with a remote, you press and hold the button on a remote, you press and hold the button on the module, it’s like setting a station in your car radio.

Now with the web services, or what everybody calls a cloud side of the business being part of it and remote access through these hubs, we’ve been stuck and we’ve ended up sticking our customers with some of that networking layer. We’re in the process of hopefully abstracting it completely away from them. This mode of communication that we’re using right now, Michael, Skype, they did a fantastic job doing that and I think that that was part of their success and so that would be a good algorithm for us to follow. 

Mike:  You ruined the illusion of us sitting in a room in leather chairs having like a talk show.

Joe:  Sorry. Would you pass me another cigar please?

[Laughter]

Mike:  It’s interesting in that it’s always been a hard sell, I think, to a broader audience. My parents, my wife and kind of people who are not at all involved in technology, trying to sell them on the idea of the smart home. What’s different now, how do we get that bigger addressable market into the folks who don’t care about anything, any sort of technology, sort of protocols, and are you selling them kind of the life benefits? Is it always going to be harder to sell what is a smart home versus like a very tangible idea of something like home security or like a telecommunication service or something like that? Is that always going to be more of an uphill battle?

Joe:  I think that the natural progression or the curve of how difficult it is to sell to somebody definitely follows, or has followed, earlier adopter to late adopter kind of scenario. I think that for the bulk of the market, almost regardless of what the product category is, I mean, go completely outside of electronics if you want.

I remember listening to my parents argue about whether they wanted or needed a dishwasher. Once my mom had a dishwasher, there was no argument, but when you have a sink that works, you don’t think you need anything else. 

 Our job is to make products and services that are such a pleasure and such a surprise to how easy they are to work with and enjoy that you can’t help but tell your friends about it. I think it’s that firsthand—well, it starts with secondhand through a friend—but when you hear that, your mind begins to open and when you see it firsthand or interact with it firsthand and it really is that simple, it’s not just a Power Point slide, that’s when you really get traction. That’s what we’ve had to have been about for the last 20 years because you can’t do 40 rounds of funding. 

We’ve been making progress up that hill for a long, long time and I think we enjoy a healthy lead.

Mike:  Hey, well, Joe Dada, you’ve been in the space for a long time and I love hearing and talking about the history as this market has unfolded because you’ve been there for a lot of it and I think you’re looking forward toward the future. I appreciate you spending time with me, man. 

Joe:  Thank you, Michael.

[End of Audio]



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