The following post comes from Kagan, a media research group within S&P Global Market Intelligence. To learn more about this research, please request a call.
Despite the growing popularity of several smart home applications and products, the majority of U.S. homes still aren’t “smart.”
Kagan, a media research group within S&P Global Market Intelligence, reports that the number of U.S. smart homes grew to over 15 million at the end of 2016. While this total equates to just 12.5% of total U.S. households, that percentage is forecasted to grow to 28% by 2021.
Smart homes have long existed on the edge of reality, something of a futuristic idea that appears to be close, but is always “two years away” from becoming big. However, with smart/connected products filling the shelves of both online and brick-and-mortar stores, the smart home has become real.
The smart home is also rapidly becoming a key component in the technology industry’s vision of the emerging Internet of Things, or IoT.
The current industry vision of an IoT-enabled world is one that creates a more convenient, secure, intelligent, and personalized experience. While this seems to be an achievable vision, the reality of IoT is sometimes different.
For example, in order to create real value, IoT has to solve real problems, not just connect a bunch of devices. Enter the smart home, which can meet the goal of creating real value for the user. At its best, the smart home can solve problems, create new efficiencies, and even save a consumer some money.
Market challenges and drivers
The drivers supporting the growth of the smart home market are broadly based on growing consumer awareness about the value of connected devices. More specifically, these drivers are:
- An increasing consumer focus on home security. While home security concerns certainly aren’t new, many current security products and services weren’t possible without a broadband service or a mobile electronic device. Products and services such as IP security cameras, smart locks, and automatic notifications sent directly to your mobile phone are becoming integral parts of the smart home.
- There is growing consumer awareness of the utility of smart hub products. Led by the explosive growth of Amazon’s Echo, smart hub devices such as Google Home and Samsung’s SmartThings Hub have moved beyond simply being smart speaker systems. These devices can now control other smart home products and are increasingly becoming the centerpiece of “do it yourself,” or DIY, smart home systems.
- Connected energy management devices now offer greater functionality. Demand for devices such as smart thermostats and smart lighting systems has increased markedly over the past two years, driven by both their money-saving capabilities and their easy-to-use reputation.
On the other hand, the concept of the smart home is still viewed with a healthy dose of skepticism. Challenges that are holding back the smart home market include:
- Defining the value proposition of the smart home remains problematic. Consumer surveys routinely show the skepticism of some homeowners about the real value of connected devices in the home. Frequently heard comments such as, “If I need to adjust the temperature in my home, I’ll do it manually,” and “Why would I ever need a smart doorbell?” underline the challenge of moving the smart home past the early adopter phase.
- The price of both smart home service packages and some leading smart home devices are often viewed as too high for mass adoption. On the service provider side, support for smart home services usually requires an existing subscription to either a security service or a broadband service. Examples include Comcast charging $30 per month for its Xfinity Home service, while ADT pricing starts at $59 per month for its Pulse + Home Control package.
On the device side, many products used in the smart home are generally perceived to be more reasonable than a smart home monthly service fee. Examples of leading product prices include the Amazon Echo at $50, the Nest Learning Thermostat at $250 and the SkyBell HD video doorbell at $199. Still, for many consumers, these prices can seem high for products often viewed as unnecessary.
- One of the toughest problems faced by smart home advocates is security. Unlike the market driver that focuses on improving the physical security of the home, this challenge has to do with keeping the access to the home, personal information and data secure from illegal or unauthorized access.
- With online access to everything from door locks to security cameras, many consumers are rightfully concerned about the vulnerability of these products to hackers. In September 2016, hackers managed to take control of over one million home video security cameras. This hack, which was generally limited to security cameras from a single vendor, received worldwide attention and publicity. It also served to highlight how challenging it is to convince many potential smart home adoptees that their connected devices will truly be secure.
- On the physical security side, a common fear is that smart locks or smart alarm systems can be bypassed or hacked. A leading security service executive recently mentioned that this issue was the second most common reason they hear as to why consumers refuse to sign up for an online security system (number one was price).
- Another significant market challenge to the smart home is the overall usability and interoperability of connected devices in the smart home. This is especially true in a smart home not supported by a service provider, where a consumer might want to integrate a standalone smart thermostat from one vendor into to a smart home hub from a different vendor. It’s important to point out that just because a device is an internet-connected device, that doesn’t mean it will communicate with, or even work with, a different connected device.
The future of the smart home
At year-end 2016, we estimated there were just over 15 million households in the U.S. that met our definition of a smart home. By the end of 2017, we are projecting that total to increase to more than 20 million households.
Over the next several years, we are forecasting solid, but not meteoric, growth in the number of U.S. smart homes. Fueled by an expanding number of connected devices in the home, coupled with the desire to allow these devices to communicate and interoperate, we are projecting U.S. smart homes to exceed 35 million by 2021.
Some notable elements of our smart home shipment forecast are:
- The current base of smart homes in the U.S. falls into two categories: service provider-supported smart homes and DIY smart homes. The service provider category consists of homes supported by pay TV/telecommunications service providers, home security companies, and some home improvement retailers (i.e. Lowe’s, Home Depot) that offer or promote proprietary smart home platforms. The DIY category includes homes with multiple connected devices, meeting our definition of a smart home, but they do not rely on a service or platform provided by one of the companies in our service provider category.
- In the U.S., the DIY smart home category is significantly larger than the service provider smart home category. Currently, the segmentation stands at approximately 70% DIY smart homes, 30% service provider smart homes. Much of this split is based on the cost, or perceived cost, of the smart home. A majority of consumers with smart homes seem to view the monthly subscription fees charged by service providers as being too expensive. This pushed them into relying on the DIY model for their smart homes.
- There is some churn in the smart home market. Although the annual percentage is quite small, estimated in the 1% to 2% range, there are some consumers who either end their smart home service provider subscription or effectively “disconnect” their home.
Virtually all of the anecdotal stories we hear about these homes “going dumb” are based on three issues:
- Security concerns
- Service pricing
- Unfulfilled expectations of the smart home
While we are projecting the number of smart homes in the U.S. to increase significantly over the next few years, it is important to point out that they will still be a minority of total U.S. homes. In fact, in 2021 the number of “dumb” homes will still outnumber the number of smart homes by more than a two-to-one margin.