Written: January 28, 2017
The smart home has been a hot topic for several years now, but appears to have cooled somewhat lately as standard bearer Nest has run into some trouble. Though some of that trouble can be ascribed to internal cultural tensions at Alphabet following the restructuring there, it’s actually symptomatic of broader problems facing the smart home market. The key issue is that the retail DIY model is only really suitable for certain early adopters, but it will take a services model to take the smart home into the mainstream.
Nest did well in the early going by selling a smarter thermostat to those who felt comfortable buying and installing their own device, with the wiring expertise (and risks) that entailed. In time, smoke and carbon monoxide detectors followed, along with the acquisition of Dropcam and its home cameras. But what seems to have happened since is that Nest has slowly maxed out the addressable markets for each of these products among early adopters, with minimal enhancements to the products and nothing entirely new for some time now. Other smart home vendors have targeted other segments, whether lighting, outlets, or smart appliances of one kind or another.
There are several fundamental challenges with this retail, DIY approach: it’s expensive up front, it often requires electrical and other expertise many don’t have, the resulting set of devices is often fragmented and hard to control, and network issues can often stop things from working at all or working with each other. That’s not a recipe for mainstream adoption. The solution to all this is a services model, where a single company works with a homeowner to identify needs, and then specs out, installs, and manages a system paid for through monthly fees rather than a big outlay at the beginning of the project. This model reduces cost and complexity and lays the responsibility for the whole thing at the feet of a single company with the power to manage all the elements of the system.
There are a number of companies out there pursuing this model, including AT&T (Digital Life), Comcast, Vivint, and the white label provider Alarm.com, which works with many alarm system companies. Each of these companies offers installation, a monthly fee model, and management through consoles and apps. The smarter of these are now taking this further and providing more intelligent management, with Vivint’s recent launch of its Sky assistant a great example of where this space can go next. This services model is typically centered on the alarm system market, because that’s an existing monthly subscription model people understand, and a smarter approach is often a significant upgrade to what people are used to. A handful of additional devices are usually installed at the same time, whether locks, lighting systems, or cameras.
None of this is to say that the services model will immediately lead to all homes being overhauled with smart gear – the services model works well for a handful of fairly superficial changes in the home – thermostats, locks, security systems and cameras – but wholesale changes to lighting and outlets require a much bigger investment and for relatively little payback. The best opportunity for the smart home over the long term is therefore new builds and major renovations, which will give current and prospective homeowners the opportunity to start from scratch with smart systems, rather than having to rip and replace systems that seem to be working fine.
We have a long way to go in the smart home market, but today’s retail DIY model isn’t going to get us there. The services model will get us further down the road to mainstreaming home automation, but even that will only scratch the surface. This is going to be a long slog, and the companies that do best will be those that embrace services, installation, management, and integrated systems, not those that sell piece parts at Best Buy.