After decades of talk of about smart homes, it seems that the technology is finally breaking into the mass market. Today’s popular applications range from security to smart household appliances and smart speakers. In order for the home to be genuinely smart, it’s imperative that all these applications either operate themselves or can be managed easily by the user. It is, however, still undecided which types of devices, companies and user interfaces will come to integrate, and hence dominate, the home of the future.

Our observations

  • Statista estimates the global market for smart home devices and services will grow at a CAGR of 28% to $122 bn in 2022. Smart appliances are, and will be, the biggest subsegment (about one-third of the total market), followed by control devices (e.g. gateways, smart speakers, switches) and security. Currently, it’s mostly higher-income groups among Millennials and Gen-X’ers that have adopted smart devices.
  • Security appears the most value-adding application; consumers are most willing to pay for technology that makes their home safer. Applications range from integrated alarm systems with cameras and burglary alarms, to smoke detectors and smart doorbells and electronic door locks that can be operated remotely.
  • Smart appliances dominate the smart home market, but this is mostly because appliances in general are relatively expensive. Being smart does not add a lot of direct value in general (e.g. a refrigerator with a WiFi-enabled camera on the inside).
  • Smart energy applications (e.g. intelligent thermostats, automatic windows or smart air conditioners) offer potential cost savings, but these are not among the most popular applications.
  • The smart speaker market is dominated by Amazon and Google, but Alibaba, JD and Apple are also significant players. Currently, smart speakers are mostly used to listen to music and to ask for information (e.g. some trivia, weather or traffic), but they also integrate other smart home devices (e.g. lighting). About 11% of smart speaker owners regularly buy through voice control (i.e. v-commerce), but this number is bound to grow. While the market has grown rapidly (especially driven by the holiday season), sales may level off soon, when the market of likely users for this limited scope of functionality is saturated.
  • Consumers favor tech companies (incl. phone manufacturer and ISPs) to provide smart home solutions, even though they don’t always trust them. The security sector and car manufacturers (e.g. using electric cars for energy storage) are also favored, insurers are not.
  • Several smart home (network technology) standards are competing (e.g. ZigBee, Z-Wave, 6LoWPAN/Thread). These are mostly relevant for small and battery-powered devices that require low energy connections and, hence, cannot work with WiFi or Bluetooth. These devices nevertheless need some kind of hub or gateway to connect them to a home’s WiFi network and a local user interface (e.g. a smartphone hub).

Connecting the dots

Ideas about smart homes date back at least as far as the early 20th century. To promote electric appliances (e.g. washing machines and vacuum cleaners), demonstration homes were filled with every available electric appliance to showcase the ways in which technology could make our lives better. From the 1980s onward, digital technology took center stage (e.g. in the Dutch “house of the future”) and the ideal of the fully integrated smart home emerged with it. In such a home, everything was to be connected with everything and thus provide unprecedented levels of comfort, without us having to operate each and every device. While this is not reality yet, we have started to adopt more and more smart devices (e.g. televisions, thermostats) and businesses are striving to integrate as many applications as possible and to have them “talk” to each other and offer a single user interface through which consumers can manage their home. The question, however, still is who will offer the best solution and through which device this will take place.
So far, many smart devices are controlled through (separate) smartphone apps and this may be perfectly fine for now; users tend to only adopt a limited number of devices (to satisfy their individual needs) and the smartphone offers an easy interface without adding costs. At the same time, suppliers of bundles of smart devices (e.g. full-blown alarm systems or control systems for lights, curtains and the likes) offer proprietary solutions to integrate their own products (e.g. a single interface for the alarm system). And, many of them aspire to integrate devices from other manufacturers as well and, eventually, to become the single interface through which consumers manage their homes and hence (a big part of) their lives. The idea, here, is that whoever owns the gateway has a direct means of selling more hardware and developing additional revenue streams on the basis of user data. To do so, these actors, e.g. electronics or energy

companies, need to add an additional layer over their own system to connect with other standards and provide a single interface on the smartphone or other device. The question is whether they will be able to do so.
On the other end of the smart home spectrum are the tech companies that don’t necessarily offer smart home solutions themselves. Especially Apple and Google are well positioned to become dominant; not only do they have the technological capabilities to integrate (and make smarter) a great number of standards (and hence devices and services), they also have the key (i.e. the operating system) to today’s most ubiquitous digital interface: the smartphone. All tech companies have also developed smart speakers as a means to control the smart home and for many applications, this may suffice. For Amazon, for instance, the smart speaker is an attempt to battle the smartphone dominance in the home, as it currently lacks such a ubiquitous interface. Smart speakers, although they are also equipped with screens (e.g. Facebook’s and Google), are unlikely to fulfil all communication needs with a smart home (e.g. they do not allow for scrolling through a playlist easily, nor can they show who’s at the front door) and adjacent apps will continue to be necessary. All in all, it is difficult to imagine how any other company than one of the major tech players could win the battle over the smart home. That is, a wide range of suppliers will be able to sell smart devices and middleware to connect them to a central interface, but that all-important access point for the consumer will be supplied by a tech company. This also means that the most valuable data, detailing our everyday lives and in-home practices, will be at the disposal of tech companies first and foremost.

Implications

  • Suppliers of specific smart devices are unlikely to become the ultimate integrators of smart home technology. Tech companies are more suited for this role and profit most from user data. Big tech’s (AI-based) solutions will lower the threshold for consumers to adopt additional devices for a host of suppliers, even when they work with a different networking protocol.
  • On the technological end, different standards co-exist at this point and this will most certainly remain the case in the future as well. New kinds of devices will set new requirements that may not always be possible with existing standards (cf. changing USB standards).
  • So far, smart home devices (in general) are most popular among higher-educated millennials. For older generations, smart home technology may become much more of a necessity when it allows them to continue to live in their own homes. 71% of consumers older than 50 would be willing to adopt such smart home tech, such as health monitoring devices or smart kitchen tools.