Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
The take-up of smart home services is currently being driven by fundamental market trends, such as the aging of society, the dramatic increase in the penetration of portable devices and a strong push by leading market players (see Fig. 1). Market players that are driving to move toward smart homes include over-the-top players, telecom and utility service providers and manufacturers of smart home devices. The smart home offers a wide array of new applications such as home automation, home cloud and e-health services.
Based on various projects, Arthur D. Little estimates that smart home revenues will grow by 12% per year until 2020 in Europe. This revenue sizing includes both direct revenues, such as home automation services/products, and indirect revenues, such as the maintenance of the new devices/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 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 telecommunication technologies in the health sector, which offers a unique cost control lever for health stakeholders by dematerializing some healthcare components.
Telecom operators have key assets to capture a significant part of the smart home value …
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 into a highly innovative platform connecting various devices. In addition to that, 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 their sales force, shop network and support capacity, as well as network management capabilities.
… and need to place their bets now and promote open platforms
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 in order to mitigate the risk of being circumvented, telecom operators should form alliances when available and should also promote hybrid smart home platforms with applications close to their core business and also open to third parties.
–The smart home market grows strongly, 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 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.
Conclusion
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 needs also 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 telecom operators the opportunity to strengthen their central position as the integrator of smart home services. It will be up to them to define to what extent.
In their new report “Catching the Smart Home opportunity: Room for growth for telecom operators,” Arthur D. Little reviews the key trends driving the potential for smart home solutions, presents an overview of four main segments and provides recommendations for telecom operators in the launch of smart home services. Arthur D. Little’s full report is available at www.adl.com/SmartHome.
