Smart home business models proliferate despite need to consolidate

19 January 2014 by Steve Blum
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Smart homes need a platform, not a box.

Google’s purchase of Nest, a smart thermostat maker, adds one more contender for king of the home automation business models. The prospect – and it’s only that – of a free, ad-supported smart home web portal is attractive, because the growth of home automation products and services depends on an easy and easily understood selling proposition.

It was clear at CES that the home automation market is still fragmented beyond consumer comprehension. There were plenty of programmable, remotely controllable devices on display, but nothing like consensus on the methods and business models for managing those products. The options included…

  • Retailer’s manufacturer-neutral platforms. Lowes is by far the most prominent example. One on one conversations between shoppers and sales people are the most effective, if not the most efficient, way of educating consumers. If Lowes is successful and consumers understand they can buy devices anywhere and still connect them to the Iris platform, this model has the best chance of going head to head with Google.
  • White label platforms sold to manufacturers who bundle the service with their product. Arrayent is a leading example, with Whirlpool, Chamberlain and Mattel amongst its clients. It claims to have more than 100,000 user accounts, but probably has fewer actual users since accounts come bundled with individual products and a given user might have more than one or ignore automation capabilities completely. For what it’s worth, Whirlpool wasn’t showcasing networked appliances like it did at last year’s CES.
  • White label platforms for security system and home theater dealers. sells through installers and alarm companies and claims 1 million users, spread over three continents. Nice, but the industry doesn’t need a bigger walled garden.
  • Independent hub makers like MiCasaVerde or Nexia. Sorry, requires too much thinking. Great for hobbyists but too geeky for mass market shoppers who don’t care how it’s done.
  • Vertical products. Doorbot, Piper and Goji are just three examples of an endless list of companies that make a product controlled via a stovepiped web service or smart phone app. This approach solves the “just works” problem, but there will be a limit to how many discrete apps consumers will want to juggle.
  • Vertical service providers. Telecoms companies and big security companies like ADT offer the comfort factor of well known brands and existing customer relationships, but familiarity can also breed contempt: low consumer satisfaction ratings for, say, phone or television service will carry over into home automation purchase decisions.

My prediction is that by the time CES rolls around next year, smaller product makers will be largely orbiting the platforms offered by Google, Lowes or telecoms companies, and the bigger manufacturers will be figuring out how to accommodate all three business models. We won’t have a winner, but we can hope the nature of the game will be clear.