the keys to unlocking smart home ecosystems and catalyzing adoption
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New open communications standards supported by the likes of Amazon, Google and Apple have the potential to drive collaboration and growth in the smart home arena but today’s platforms and systems are still a kludgy collection of yesterday’s architectures. The keys to unlocking value lie in open data, innovative business and revenue models and collaborative ecosystems.
The “Smart Home” has always had the potential to unleash unprecedented value for comfort and convenience as well as safety and security. The sheer volume of manufacturers, service providers and tech companies addressing the residential arena is a testament to its potential.
However, today’s smart home market remains fragmented with competing networking standards, a myriad of hubs that claim to control just about everything you can imagine in a home, and legacy entrenched technology focused on narrow function applications such as home security, energy, media and well, you name it.
Today, the platforms that are intended to inform ecosystems for the Smart Home are still a kludgy collection of yesterday’s architectures that do not address the most basic development challenges. Even though many companies are telling fantastic connected home marketing stories, you wouldn’t know it from today’s fragmented collection of incomplete platforms, narrow point-solutions, and software incompatibility.
Smart Hubs Dominate The Home
source: Harbor Research
Smart Home Ecosystem Evolution
Over the last few years, the smart home has become utterly dominated by hubs such as Amazon Alexa, Google Home and Apple HomeKit with other technology suppliers trying to either break up or break into these partnerships and ecosystems. However, in order for the smart home opportunity to reach its full potential, there must be a shift from these “hub and spoke” ecosystems with new devices randomly proliferating from these hubs to a more logical and orderly smarter residential experience organized around specific domains, applications and use cases such as safety and security, infotainment, or food and cooking.
In a rare show of unity, Amazon, Google, Apple, Comcast and Samsung teamed up with the Connectivity Standards Alliance (CSA), formerly known as the Zigbee Alliance, to announce the “CHIP” alliance (CHIP stands for Connected Home over IP). This new alliance is promoting the easy integration of smart home devices that work across multiple platforms. CHIP was recently re-named “Matter” and is focused on creating and delivering an open, interoperable, secure connectivity standard for the Internet of Things (IoT) and smart home technologies.
The Matter standard is backed by many big players in the smart home arena who collectively are trying to make sure that devices from disparate companies using differing technologies (like Wi-Fi or Zigbee) could reliably work together utilizing a royalty-free standard that makes it compatible with Amazon’s Alexa, Apple’s HomeKit, and Google’s Weave protocols. The final feature set and supported use cases (including smart light bulbs, video doorbells, door locks, smart speakers and more) have been ratified by the Matter Working Group with software development kits expected in the market in early 2022.
However, connectivity alone will not drive the overall evolution and adoption of smart home technologies or address improving user and customer experience.
As the arms race for the smart home continues to heat up between the tech giants, there are several implications that will impact how fast and how effective smart home technologies are likely to evolve. For the connected home to reach a mature state, multiple collaborative technology developments will be required, many of which will be focused on very specific use cases that enable unique device interactions, such as elderly home care. Do we expect the competitive giants who are obsessed with large scale adoption of horizontal tech to care about vertically focused applications, experiences and domains?
History of Smart Home Technology
source: Harbor Research
Moving From Walled Gardens to Open Collaboration
Smart home platform vendors that provide the connectivity and backend systems to enable consumer-facing applications are in a unique position to facilitate collaboration. While consumers continue to patiently wait for suppliers to deliver deeper smart home value, device fatigue is signaling a demand for better experiences. Given the diversity of players and the complexities of integrating the software, services and support required to deliver improved user experiences, moving away from today’s “command and control” alliances towards more open collaboration represents the best available path forward to create real and tangible user and customer value.
Application focused “mesh ecosystems” that enable new device-to-device use cases within their app domain – such as unique device interactions across the kitchen and laundry use cases – and enable system-to-system communications across smart home app domains (such as security and entertainment), unlock new application values currently inhibited by the “hub and spoke” players. New more open and collaborative ecosystems have the potential to drive many values, including:
- Uniqueness. The central “tension” in technology markets is revenue growth requires collaboration, but sustained profits require uniqueness. Collaboration requires that knowledge be shared. Participation speeds the flow of information and knowledge (driving growth) without foreclosing all opportunities to achieve unique advantage (driving profit).
- Scale and Scope. Collaboration communities “fast-track” the development of new markets when the network of players acts as the “market” before such a market exists, keeping all interested parties effectively linked as the whole opportunity takes shape.
- Coordination in Under-Developed Markets. The heart of any not-yet-existent market is a changed view of how people might use that technology to achieve desired goals. Ecosystems bring together diverse expertise and provide coordination so that each “strand” of the community can work on a distinct piece of the solution.
- See the Future. Plotting an effective course in emergent markets like the smart home requires acute peripheral vision. A collaborative community connects many participants and knowledge, some of which may have no direct impact on their business today, but any of which may be keys to success tomorrow. Efficient management of these informational links and relationships is critical to success.
Rather than owning declining-profit commodity products, OEMs in the smart home arena will own their distinct innovations, whether in technology, product features or services. Smart home OEMs will drive value when they leverage the data streams coming from their connected devices in the home.
Smart Home Use Cases
source: Harbor Research
Innovative Revenue Models for Smart Home Solutions
As smart home adoption continues, the number of connections in the home will begin to inform new strategic revenue models informed by the data coming from these connections. While these models will not work for every company, it is important to consider the full extent of possible configurations enabled by connected products and services.
- Pay-Per-Use. Connected devices enable companies to track how often and how long products are used. This ability can allow these companies to charge users for only what they use, when they use it, while the company retains ownership of the product. This model is best deployed with large appliances with discrete use scenarios, such as washers, dryers and dishwashers that may otherwise have restrictive upfront costs to consumers.
- Little To No Upfront Cost. This model is based on the principle that the value of the software or services provided on top of a connected product will be worth more over the lifecycle of the product than the hardware. In this model, companies may give the product away for free, or charge a relatively low price up front while recouping losses and generating profit on the recurring charges for software or services.
- Higher Upfront Cost, Little To No Recurring Costs. Interestingly, a Continental Automated Buildings Association survey suggests consumers would be more willing to pay a higher upfront cost with little to no monthly charge as opposed to little to no upfront cost with a monthly charge. This model facilitates the use of a warranty-based servicing program in which the customer pays upfront for a certain number or length of services.
Priorities for Evolving Smart Home Ecosystems
As manufacturers and service providers think about their role, differentiators, and roadmap to capture and create value in the smart home, they must consider the importance of interoperability from the consumer perspective. Harbor Research finds the following best practices a valuable starting point in developing successful Smart Home strategies:
- Future-Proof Products. Many manufacturers do not realize the bristling pace at which the Internet develops and changes. In the past, manufacturers have been forced to design products that may last a decade or longer with the same functionality, due to the static nature of the home environment and users’ interaction with the products.Because the Internet and smart systems technologies change so quickly, connected products face rapid obsolescence unless designed to be upgradable. Not only will users expect connected devices to have lifespans similar to their non-connected counterparts, but they will also come to expect increased functionality and security measures as they become available. Manufacturers must future-proof their products to the best of their ability by enabling over-the-air upgrades and updates to a product’s software to keep customers engaged and secure.
- Design For Unique User Experiences. If connected products only work when connected to the Internet, or need to always be plugged into the wall, what happens when the power goes out or Internet connection fails? Does that mean my smart lock is now useless and I cannot get into my house? Or worse, can someone else get in?Manufacturers rarely have a user experience team with a technology focus. As manufacturers offer devices with significant embedded technology, they must consider and understand the lifecycle of the persona interacting with the device, and its connections to other devices in the home. Consider power source and lifecycle, connected and unconnected control, troubleshooting and other technology-related issues when designing connected products. Design for usability, not spectacle.
- Embrace Transformation, But Do What You Do Well. There is significant value in smart home technologies and a myriad of opportunities to capture that value. Manufacturers must embrace the transformation of the market to survive, but need not rush to the party with overly extravagant use cases or solutions. It is important at this early stage of the market to put in the time and effort to make sure the product works and the company can handle the ongoing customer support requirements.Move now, but start slow. Yes, the fact that your toothbrush may be able to recite the morning’s biggest news stories as you’re brushing your teeth may seem cool and innovative, but is that really necessary? With connected products, it is important to design for functionality first and foremost. Learn from the failures of others; understand the extended value of products and related services in the lives of consumers. Design for usability, not spectacle.
- Security & Privacy Are Top Concerns Just as enhanced physical security can be a driver of adoption, increased cybersecurity and privacy concerns, if unmet, are a barrier. Connecting home devices like appliances, lights and locks introduces cybersecurity risks that were hitherto entirely absent. For example, a connected garage door opener collects data about my comings and goings, which can translate into a vulnerability if the data were to land in the wrong hands. Baby monitoring hacking incidents are another example of the many events that put security and privacy in the spotlight for consumers.
But it isn’t just misuse by hackers and cybercriminals. Smart home devices also raise the issue of the collection and handling of highly personal and private information by companies. As these devices collect data on our whereabouts, habits and lifestyle, consumers have questions about how companies might use that data in less than benevolent ways. Examples go beyond creepy advertising and could potentially include predatory data sales, targeting and segmenting without consent, even disenfranchisement of demographics based on forces beyond their control.
Obviously, companies will tend to prosper in more open and connected domains, but they will do so in different ways—some of them variations on old models, some entirely new. But at the end of the day, choosing an ecosystem will be a minimum requirement for success because they offer decisive advantages to developers who want to exploit the vast potential of smart home technologies. ◆
This essay is supported by our Market Insight, “Smart Home Ecosystem Growth Opportunities.”
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