A number of fundamental trends have emerged that are driving take-up of smart homes. The aging of society is increasing demand for new services in the home while the dramatic increase in digital access through the increased penetration of portable devices is a major enabler for smart home applications. In addition, a wide range of players, including OTT, telecom and utility service providers, and appliance manufacturers are pushing out a wide range of smart home devices (see figure 1, next page).
Arthur D. Little, which recently released a report on the smart homes, estimates that smart home revenues will grow by 12% a year until 2020 in Europe. This revenue includes both direct revenues, such as home automation services/products, and indirect revenues, such as the maintenance of the new devices and services.
A smart home is a home or building that is equipped with a special connected platform enabling its occupants to remotely control and program an array of automated home electronic devices. The smart home offers a wide array of new applications such as home automation, home cloud and e-health services.
The smart home market is composed of four major segments:
- Home automation - The centralization of five main home systems on a unique user interface: home security, home energy and utility management, home motorization, lighting and entertainment. Arthur D. Little forecasts a 6% annual growth rate for these services until 2020.
- Smart home assistance - The configuration, maintenance, repair and support services available for digital home devices, such as PCs, TVs, game consoles and networks. This market is expected to grow at a pace of 5% per year until 2020.
- Home cloud - Services covering three main types of digital data: content, productivity and sensors. The market is expected to grow at a strong pace of 50% per year.
- E-health - An application of telecom technologies in the health sector, which offers a unique cost control lever for health stakeholders by dematerializing some healthcare components.
Thanks to their broadband internet gateways, telecom operators are the leading players in terms of penetration of households with smart home solutions. The broadband box has evolved from a mere internet connection device to a highly innovative platform connecting various devices. In addition, telecom operators offer interoperable solutions based on open models that can allow heterogeneous smart home solutions to interconnect, contrary to closed OTT ecosystems.
Another significant asset of telecom operators in the smart home environment is the central role they play in the customer relationship, which can enable them to capture a great value of future smart home services. Other key assets that telcos could leverage include sales force, retail networks and support capacity, as well as network management capabilities.
As the smart home market is still emerging, Arthur D. Little anticipates two possible market structures:
- The smart home market is captured and aggregated into large ecosystems driven by global players. This model is clearly favored by OTT players, which have already developed solutions that can bypass the operators. Arthur D. Little believes that to mitigate the risk of being circumvented, telecom operators should form alliances and should also promote hybrid smart home platforms with applications related to their core businesses and also open up to third parties
- The smart home market is growing rapidly, but with a patchwork of solutions and standards. In this scenario, the ecosystem will remain highly fragmented with numerous heterogeneous competitors trying to capture value from the smart home market. In this case, operators will be in a position to leverage not only their assets to offer their own solutions, but also to integrate external solutions and facilitate the digital life of their customers. By doing so, they would generate new revenue streams and also improve the stickiness of customers to their existing services.
Thanks to their strategic assets, telecom operators are well positioned to capture value from smart home services. Telecom operators should act now to promote hybrid platforms where they can offer their own solutions, as well as a myriad of external solutions and position themselves as digital life facilitators.
Finally, the future smart home also needs to be seen in a broader context as more locations are connected. This will broaden the type of actors in the ecosystem and will give the opportunity to telecom operators to strengthen their central position as the integrator of smart home services. It will be up to them to define to what extent.
Karim Taga is a managing partner, Didier Levy is a director and Omar Saadoun is a business analyst at Arthur D. Little. You can find the full report at www.adl.com/SmartHome