Market Insight

Lack of Awareness and Fragmentation Hindering Smart Home Growth

August 09, 2016

Tim Hewitt Tim Hewitt Analyst, Smart Homes

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America is the most developed market for smart home systems, where providers of connected professional monitoring services led the market in 2015, with more than 5.5 million customers. As consumers tend to prefer professional installation -- a “do-it-for-me” approach to smart homes -- professional security providers are well placed to offer these services to the mass market.

Security providers and telecom companies are leading the North American market, in terms of the install base of smart home systems, and they have experienced strong growth in recent years, as early adopters and tech enthusiasts flocked to these smart solutions. However, maintaining a high level of growth is becoming more difficult, as these companies encounter barriers to the mass market.

The initial uptake of smart home systems by early adopters was in line with expectations, but existing market barriers became more significant, as companies tried to expand beyond early adopters. In response to primary research, IHS Markit revised its forecasts to account for the lack of broader consumer interest in smart-home products. According to the latest IHS Markit Remote Monitoring Report, the connected remote monitoring market in the Americas is expected to grow at a compound annual growth rate of 15.9 percent, from 5.5 million subscribers in 2015 to 11.5 million in 2020. While this growth in this segment is strong, the traditional side of remote monitoring is experiencing a decline, as consumers migrate toward connected products. For many service providers, the growth in connected systems is not providing substantial top-line subscriber growth, but it does help counter the decline in their traditional security business.

Following are some of the most significant barriers to mass-market adoption of smart home products:

  • Consumer awareness. While there has been some increased marketing activity in smart home over recent years, the effect of this increased exposure on smart-home products has been less than expected. However, progress has been made in overcoming this barrier, with research showing increased consumer awareness of smart-home technology. Telecom companies have been instrumental in increasing  this awareness. Apple’s entry into the consumer-facing side of the market will also serve to markedly increase awareness.
  • Fragmentation. Due to the many and various closed ecosystems and devices, the smart home industry is not very user friendly, which is inhibiting growth. Consolidation in the smart home market is happening slowly, as AllSeen, Z-Wave and Weave alliances work to create industry standards and promote interoperability. Recent news from Apple about an iOs10 app that will control all HomeKit-enabled devices is yet another step toward a unified smart-home consumer ecosystem. Apple Home is expected to stimulate the accessibility of do-it-yourself (DIY) systems and reduce the confusion caused by fragmentation within the industry.
  • Device and service reliability. It only takes a few reliability issues to tarnish the reputation of an entire industry. While strict guidelines and regulations within the security industry mean that the core function of professional security-based smart-home systems is reliable, many other systems and devices suffer from technical issues that adversely affect the consumer experience. It may be noted that these issues are not necessarily the result of particularly bad product design; instead, with so many moving parts, there are a lot of things that can go wrong in a smart-home system. Even when everything does work, sometimes a product may not deliver exactly the kind of experience the consumer needs or expects.

Still, consumer research reveals there is a lot of consumer desire and enthusiasm for smart-home devices and systems. In fact, surveys show that half of consumers in North America plan to purchase smart home devices within the next year, but these types of findings can also lead to overambitious projections for consumer adoption.

The reality is that most consumers have been hesitant to spend their hard-earned money in a market still striving for stability and reliability. Monitored security systems have been able to circumvent the high initial cost of smart-home solutions, using an ongoing fee-based business model to spread out costs over time, and attach smart home products to ongoing services consumers deem valuable.

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