Each year in December, the prognostication industry goes into overdrive and the flood of prediction posts overwhelm our inboxes and browsers. The timing makes sense, but I still prefer to publish my predictions in January (ok, late January) since it’s less noisy and it also allows me to factor in what we’ve seen at CES.
So here goes. Below is a look at the top trends I see defining the smart home and, to a certain extent, consumer IoT markets.
Smart Home Service Models Will Mature in 2016
One thing has become clear in smart home: everyone wants to transition from one-time hardware sales to recurring revenue models. The only problem is that there's not a lot of innovation today around smart home service offerings, with the bulk of offerings in the DIY space consisting of freemium storage offerings for products like connected cameras and, more recently, monitored security offerings.
Most of the smart camera players offer a freemium upgrade path to more video storage. This is basically no different than the Dropbox business model, only without the referral bonuses. Most give offer hour access to archives, with an upgrade to a week or even 30 days for $10 a month.
It's not that this is a bad idea - I just think that it's likely a race to the bottom, and chances are more consumers will be willing to pay for video storage if its part of a larger package of home security.
Speaking of DIY home security, a more recent trend has DIY smart home players like SmartThings, Lowes and others offering their customers a paid monitored offering (more on this later with a discussion of ADT's Canopy security as a service service).
So, beyond more storage and security, are there other service models to explore for the smart home? As I'll explain later, I think much of the future around smart home (and services) lies in vertical focused, defined use-case driven offerings using smart home technology. Whether that's a focused service on eldercare, children, concierge services like lawncare or housecleaning, I think there's a lot more the industry can do to expand the concept of "service" when it comes to smart home beyond a Dropbox clone service.
The Blurring of DIY Security With Traditional Home Security
If there’s been one success story in smart home over the past few years, its DIY home security.
The reason why its been so successful is simple? Easy: DIY smart security addresses an underserved market, one that conventional security models has long ignored. it's no secret that traditional home security ignores the majority of the market, the 75% that make up apartment renters, young folks and highly mobile people. These folks find the heavy install, high up front cost and long term contracts of traditional security a non-starter.
With smart home technology, consumers can add some level of home awareness that fits their needs and budget, from basic DIY home cams all the way to monitored security from players like Comcast and AT&T.
LG's Smart Security Device Will Be First To Use ADT's Canopy Service
What's most fascinating has been the willingness of traditional security companies such as ADT to embrace change. For its part, ADT launched a new service called Canopy, a "Security as a Service" for third party devices. With Canopy comes an open API, which will help new Canopy customers such as LG, SmartThings (who also just announced a deal with Scout), Wink, Ring, August, Kidde and Roost adopt the service.
Canopy exists because ADT realized that being the home monitoring security layer for the new wave of connected devices was probably a much better idea than trying to convince everyone these new products were not safe (they showed some early tendencies in that direction with an ad campaign).
This convergence of DIY and professional monitoring means that future home security customers and products will look very different, and increasingly we'll likely see a blending of these two previously separate worlds as the security industry tries to ride smart home as a way to broaden the market.
Analytics Becoming Requirement For Platform Providers
I recently wrote a report (complimentary - get here) that looked at the maturation of the B2B smart home platform market, where companies such as Zonoff, Icontrol and Ayla have built businesses by providing turnkey offerings built around providing around hardware design, cloud and technology integration expertise. Just as in the cloud computing market where much of the platform value was ultimately derived from insights and analytics about what’s running in the cloud, consumer IoT platform companies have started to add value beyond core functions beyond their core services in the form of analytics.
Nearly every one of the companies in this space is building out its analytics capabilities. Some, like Zonoff, are offering basic analytics functionality to their customers and offering richer capabilities as an upsell. Icontrol has partnered with Mnubo, who provides big data analytics for IoT devices and applications.
Alejandro Pena, the President of Jarden North America, talked about their early efforts with the connected Crockpot at the Smart Kitchen Summit and said they were not only shocked with the amount of data they received from their connected kitchen products, they also had no idea what to do with it. Pena basically said what the vast majority of early entrants into IoT and smart home were thinking, and now I think the next wave of products will be built with data insights one of the main objectives, and to do that companies need to employ robust analytics packages, either from specialists like Splunk or Mnubo, through packages from IoT platform players or by building their own.
A Maturing DIY Market And A Flight To Stability For Starter Offerings
The market for smart home is entering a new phase, one where “four sensors and a hub” in a box offerings will have an increasingly difficult time finding a market. A handful of existing DIY smart home ‘platforms’ such as SmartThings, Nest and others that have proven to have staying power will get continue to get stocked by brick and mortar retailers as well as online, while older brands like INSTEON and Vera will continue to do ok in servicing their existing markets with add-on nodes and do the bulk of their volume online.
However, newer platforms that come to market will find it increasingly to find a retailer willing to stock them. The well publicized troubles of Wink, the disappearance of other hub offerings such as Revolv combined with often slower than anticipated sales for network starter kits have meant a ‘flight to stability’ in the form of those that have staying power. At the same time, as Apple, Amazon and Google continue to ratchet up attention on this market, investors have started to wonder why fun another B2C startup looking to be the whole smart home ‘shebang’.
The end result is that startups will have less ability to become the central platform for the smart home, and will likely have a better shot either with a hero point product or going after a specific vertical.
Verticals and Point Products Is Where It’s At
Because of market maturation, consolidation and resultant drying up of investment dollars for those startups with smart home world domination plans, it will be increasingly important for companies creating either point solution devices, complete systems or horizontal offerings to find specific specific use cases that consumers recognize.
The Eight Smart Mattress Cover Is Definitely Not An Old School Smart Home Product
What does this mean? Basically it means you need to create products that are focused on a few specific areas of a consumers life, or tailor products for very specific life situations, and then build market recognition. This could mean a hero product in a category like smoke detectors (like Halo) or mattresses (like Eight) or a suite of products targeted towards a specific demographic (eldercare) or a part of the home (August with the front door or Smarter with Kitchen).
Concierge and Commerce Layers Enter Smart Home
While Amazon was the biggest disruptor in the smart home in 2015, I've written before that August's Access platform may have been the most intriguing new effort. The main reason I'm so interested in this model is it's the first effort I've seen from a smart home technology provider to create a horizontal services layer for third party concierge services. This is not only directionally in tune with the way consumers are beginning to manage their lives and their homes, notionally it's a step above and beyond most smart home company business models, and I expect others will learn from it.
August Access Enables Concierge Service Providers Access To Your Home
All this is to say I think 2016 will be an interesting year for smart home and IoT business model innovation, as companies start ceding the framework and connectivity battles and look more towards the bigger revenue pies of commerce and concierge services.
Amazon Is A Player in Smart Home
I wrote a really long piece about this, so really, if you want to understand why Amazon matters, read this. But for your TLDR types, to sum it up quickly Amazon is basically attacking the smart home from multiple angles, and generally doing it in a smarter and in a less crowded market space than Apple or Google. They’re basically saying: 'you can fight for the lower tier space where dollars are less and pain is more, while we’ll fight for the part of the market where there’s lots of money to be made.'
Beyond differentiated platform approaches, they're also just a very important company right now to the broader smart home ecosystem since they are such a dominant channel for nearly everyone's products, save for pure high-end professional install products and service provider managed offerings. Beyond that, nearly every company selling connected products to consumers likely sells a significant percentage of their total volume through Amazon. We don't see that changing in 2016.
Smart Home Framework Maturation
2016 will likely be the year that HomeKit hits its stride, as CES showed that companies are quietly bringing products to market nearly two years after the initial announcement of the effort. Google hopefully will start to create a bit more coherence and cohesion around its efforts, which may make sense in pure technology terms, but outwardly they are all over the map with Nest, Google Weave, Nest Weave, Brillo, Thread, OnHub, etc. While I actually appreciate how Google/Alphabet's internal culture encourages innovation and competition and avoids the type of internal bureaucratic infighting that has long stifled companies like Microsoft, outwardly the results can be messy. In a longer post I could explain to you where most of these efforts fit, but I think from a consumer-facing and even industry facing perspective, there is likely a lot of confusion.
All of this said, it's clear now that HomeKit, Alphabet/Google/Nest, SmartThings and maybe one or two others are becoming the de facto players in DIY smart home from a central platform perspective and others are ready to fight other battles. OIC/Iotivity and Allseen/Alljoyn are also in the menu and not going away, but my worry is without the strong drive of a a profit motive that's behind efforts like HomeKit or Nest these efforts could stagnate. Bottom line, 2016 could be a make or break year for the open-source smart home framework efforts.
Smart Home and IoT Retail
I wrote a lot at the end of 2015 about B8ta and their interesting new approach to selling IoT products. I believe we're at the stage where traditional brick and mortar companies have realized that to sell in the era of IoT, they need to completely reinvent their approach. B8ta was able to do so because they had a completely white sheet of paper to work with, but big retailers with thousand store footprints will need to figure out how to also sell to consumers in an era of persistent and connected relationships and upended business models that IoT brings to the table. I think 2016 could be a breakthrough year where one or two big retailers create some radically different approaches to the connected home and IoT more broadly, and this could be one of the most interesting spaces within smart home to watch over the next 12 months.
Smart Home Product Categories To Watch for 2016
I think there are a variety of interesting categories for 2016.
Here are my picks:
There's no doubt that smart locks have emerged as one of the most popular categories for smart home, in part because the concept and value proposition are so straightforward. What's interesting is how we've seen the market move from just a couple years ago mainly being a professional install/high-end offering using Z-Wave or Zigbee to one where Bluetooth has emerged as the most popular new interface. That said, we continue to see popularity for smartlocks across all interconnect technologies, and a few pockets of market demand that are really feeding strong growth (sharing economy/vacation home rental and home security managed offerings.
A few new companies I'm interested in watching here:
Friday Labs - they have a lock with Wi-Fi, Bluetooth and Thread (that's three radios in one lock!) folks. If they pull it off and get any sort of battery performance, that's intriguing.
Danalock - the original dual radio smart lock started shipping its second generation in fall of 2015, with a new form factor that means easier installs for US centric locks.
Schlage Sense - As many know, I'm a fan of integrated touchscreens for smart locks, and so with the availability of the Schlage Sense smart lock, which is Bluetooth-enabled and also is one of the first locks in the market to work with HomeKit, I think we may have a pretty interesting new addition to the market. While upstarts like August and (through Kwikset's Kevo) Unikey have been getting lots of the early press, I think Schlage and Yale may finally ready to do some significant volume in the Bluetooth lock business.
August - August has the biggest vision in this space, seeing themselves not only as a lock company, but really a company that wants to completely own the modern, technology powered front door. This includes not only a fuller platform, including a smart doorbell and add-on keypad, but also a new concierge service platform that has opened the eyes of other smart home companies about how to innovate around connected home business models.
While 2014 was the year where people wondered if we needed a video powered doorbell, 2015 was the year everyone decided they were a great idea. I expect 2016 will be the year we see some significant volume in this category, led by the early entrants such as Skybell and Ring, as well as more recent entrants such as August and Vivint. Vivint is interesting in that they're a fast growing managed home security and automation provider that is doing significant technology product innovation, and I think this gives them a bit of an advantage, but only if their products are good. The Vivint doorbell is pretty good (I've test most of them), and it integrates well with their Vivint Sky service offering.
Ok, to say I'm a little excited about the smart kitchen is a bit of an understatement since I created an event about it, but CES had plenty of evidence this is an interesting area to watch. I'm excited about what's happening in drinks and technology right now, as everything from to Keurig Kold to the emergence of interesting new ways to make coffee in our home are on top for this year. I also think the emergence of food data and analytics will be huge this year, with companies like Innit leading the way. Food commerce should be interesting to watch, and I'm not just talking about Amazon Dash as companies like Blue Apron increasingly embrace technology and startups like Teforia experiment with subscription models. Lastly, it will be interesting to watch what the big tech players do here. Apple has a whole lot of kitchen IP it is sitting on, while Amazon has been apparently working on a "kitchen computer" called Project Kabinet that may make some sort of appearance in 2016.
Our appliances, those white goods that often cost thousands of dollars and are replaced every 7-10 years, are slowly becoming smarter as big companies like GE, Whirlpool and LG begin to offer connectivity and smart offerings. Whether its the washing machine, dishwasher, refrigerator or air conditioner, there are a new wave of retrofit and new products, many of which may not offer much today beyond Wi-Fi integration, but over time I expect new layered service offerings will make these connected appliances actually worth the upgrade.
Virtual Control Layer and Instruction Engines
The Stringify App
One of the interesting things to watch in smart home has been companies like Amazon employ a wedge strategy, moving in above the stack with approaches like Alexa and Dash that don't require the messy slog work of trying to great a true smart home and IoT framework like HomeKit or Weave. At the same time, other companies like IFTTT have been playing with interesting approaches that build around connectivity and framework agnostic integration layer that adds value to connected products but don't require them to invest down-stack. Other companies are coming to market like Stringify with their "Flow" ideas concept that is preconfigured integrations that connect hardware and web services (sound familiar?). Keep an eye on this space for 2016.
When Nest announced the Nest Protect, many presumed that Nest would own the category much like it seemed to, at least from a news and buzz perspective, the thermostat. But with a high profile misstep or two and some interesting new entrants, I think the smoke alarm is fast becoming an interesting category. Halo was the first smart smoke alarm with dual sensors (ionization and photoelectric) and also has a bunch of interesting features around weather alerts, carbon monoxide alerts and more. Roost Smart created a retrofit approach with its smart battery, while Leeo enabled a notification alerting system built around sound analytics.
While moisture sensors have long been a staple among smart home sensor technologies, I think a fairly underserved category in the smart home has been the water network. That's beginning to change as companies start to embed sensors into devices like hot water heaters, but I think there's a significant amount of interest new consumer product innovation that remains to be had at the intersection of computing intelligence and water. Delta is starting conservatively with their own water sensor, but the company is beginning to invest much of its R&D resources into the smart home category and I expect other large plumbing, fixtures and water-centric appliance companies may follow suit in 2016.
When Mark Zuckerberg wrote his new year's resolution was to build his own artificial intelligence powered smart home, it made me realize how strategically important owning the AI layer will be for all of big tech. Sure, Zuckerberg's a nerd, but don't let his categorization of this new investigation into AI as a fun little "hobby" fool you: in the future, some form of AI as interaction layer/lever will likely be involved in almost every concievable use of computing power in our lives.
What form that takes, who owns it, and the actual interface (voice, touch, cognitive, anticipatory) is up in the air (likely all of the above, though), but the fact that the tech hegemony has been rolling up AI patents and people over the past year should be a good indicator of where the think things are going.
That's it for now. The truth is, I have lots of pictures, interviews and other info I gathered at CES that I will use over the coming months. But first I wanted to get some thoughts down about where this industry is going before January is over!
I have a couple free reports that lay out some of my thinking in this space. One is for B2C companies looking to build smart home and IoT products and things they need to think about. The other is about how to monetize the smart home and IoT with services. You can download each for free, or just sign up for my newsletter and you'll get download links for each in the confirmation email.
I will be creating a podcast about my 2016 outlook, so if you haven't subscribed to the Smart Home Show, please do so now on iTunes or at Technology.FM.
Lastly, follow me on Twitter and give me feedback, ask me questions, or give me a head's up about what you think the next big trend is in smart home or IoT.