The connected home concept is not new. It has been around ever since fixed broadband was first launched, and over the years numerous service providers have tried, largely without success, to launch connected home services into the mass market. And yet here we still are in 2011 still talking about the same services, same opportunities, and to a certain extent the same problems, as we were ten years ago.
So are connected home opportunities real, and is now the time to realize them, or will we be simply repeating this conversation in another ten years' time?
The connected home promise is not a myth, the opportunities are real and demand is growing. There are numerous reasons why connected home services failed in the past, but they largely come down to: unrealistic pricing, bad marketing and services aimed at the niche rather than the mass market.
The latter is the most important. It is difficult to sell a product or service when the customer doesn't see the need for it - the connected fridge is perhaps the best and most well-known example. But even when real mass-market opportunities such as content backup have sprung up, connected-home solutions have then been badly marketed and priced too high for customers to see or understand their real benefit over simpler and cheaper consumer electronic solutions.
There is currently a shift in the market, however - one that will prise open the mass market for cloud-based, connected home solutions. This shift is caused by the rapid adoption of portable, more personal connected devices, which is loosening our dependence on the desktop PC as our internet portal. As this shift takes place, connected home services increasingly start to make sense, as they suddenly start to meet a real need.
The need for media sharing and remote content access for example, only starts to become important when we own and regularly use a number of connected devices on which we would like to access the same content. According to Ovum's Consumer Insights data, the average number of connected devices we use on a regular basis in the developed world is 3.2.
As the mass market continues to become more "connected", a greater range of connected home services will start to also appeal. It is then down to service providers to get the pricing and marketing right.
Choosing a strategy
According to our Consumer Insights data, the biggest opportunities today are focused around advanced home monitoring and security, device security, advanced parental controls, and media sharing with automatic content back up. However, creating the right go-to-market strategy will be critical to maximize these, and other, connected home opportunities.
Trying to charge for each individual application separately, which is often what has been attempted in the past, is certainly unlikely to work. Consumers have become too used to value-added services coming for free or as part of a bundle to suddenly start paying for individual applications. However, giving everything away for free does little for ARPU growth, which must be a priority for service providers going forward.
Service providers will need to be canny enough to know which services to incorporate as a value-add to create stickiness with their customers and to identify those it can charge a premium in order to increase ARPU. Ovum warns service providers to look at their own market when developing this strategy though, as our data clearly shows that different markets are prepared to pay for different things, so simply copying thy neighbor will not work in all cases.
It is broadband service providers that have eyed the connected home market for the past ten years. However, as the connected world converges, broadband service providers are far from being the only consumer brand with presence in the connected home.
Although coming from completely different backgrounds, going forward it will become increasingly hard for the consumer to distinguish between a pay-TV operator, a broadband service provider, an online company, or even, in some cases, a consumer electronics vendor.
As some connected home services are related to a core product (just as media sharing may be linked to an online music offering, for example), it will seem natural for consumers to take such services from the suppliers of those core products. The more powerful brands in these core areas will have the advantage of either increasing their stickiness and/or ARPU. As offerings start to look similar, however, players will have to work harder to make sure they retain their position as one of these key brands.
Michael Philpott is practice leader the consumer segment at Ovum