Market Insight

The Unseen Revolution: LED Lighting

August 15, 2017

Paul Bremner Paul Bremner Senior Analyst, Video Surveillance
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Lighting the past

In the 21st century, light is one aspect which is ubiquitous. Artificial light sources have proliferated since oil lamp use in the late 1700’s. Demand for these artificial light sources exploded from the very start, with whales being hunted on an industrial scale for their whale oil to fuel lighthouses, street lamps, and lighting for public buildings.

Arguably, it was these artificial light sources that enabled the industrial revolution. Mines deep underground could now be lit and factories could work round-the-clock. The invention of the tungsten filament bulb, the now famous Edison bulb, in 1878, ushered in the beginning of using electricity to power lighting. Electricity which could be easily distributed from centralized generating stations was distributed to power - and light - our cities, towns and villages.

Since the emergence of the first Edison bulb in 1878, the industry that has grown up to supply that light has been a rather static affair, with only incremental technological progress from the tungsten filament bulb. The first step involved the commercialization of the fluorescent tube in 1938, then the halogen bulb in 1959, the compact fluorescent in 1985, and then a 30+ year wait until the LED lamp.

The rise of the LED

The LED lamp brought a step-change from traditional lighting technologies: large energy savings, long-lifetimes, and no poisonous mercury or breakable filaments. Ultimately, the LED lamp meant a lower total-cost of ownership with lower levels of environmental damage upon disposal.

One drawback, however, was the much higher price of these LED bulbs. The IHS Markit LED Lamp Retail Price Tracker has been running since 2012; in July 2012 the global average selling price for an LED lamp was $31.64. In July 2017, this has been more than halved, to $15.35.

Lower prices have brought the benefits of LED bulbs within reach of the average consumer. Indeed, some retailers have now switched to selling only LED bulbs as these prices have fallen, most notably IKEA. IKEA announced in August 2015 that from September 2015, they would begin selling only LED bulbs across all of their stores worldwide.

Despite the fall in prices witnessed over the last five years, LED lamps are estimated to have accounted for only 10.2 percent of global lamp shipments in 2016. However, IHS Markit estimates that by the end of 2022 LED lamps will make up more than 50 percent of global lamp shipments, and reach 70.1 percent of global lamp shipments by the end of 2024.

Shifting sands

The commercialization of the LED lamp in 2009 by Philips marked the beginning of a distinct change of pace within the lighting industry. The lighting industry had unwittingly entered into the era of solid-state lighting.

The solid-state lighting industry is unlike the traditional lighting industry that came before it. Previously, manufacturing scale was key to achieving economies of scale and, therefore, lower manufacturing costs. This was one factor which contributed to the dominance of Philips, GE, and Osram of the traditional lamp market. However, as manufacturing LED lamps is essentially an assembly operation involving semiconductors and other components, this previously established competitive landscape becomes irrelevant as new entrants are able to more easily compete against incumbent manufacturers.

At least, that was the theory behind many start-up LED companies founded in the 2009-2014 time period.

However, the three mentioned above are still the largest manufacturers for both non-LED and LED lamps; their combined market share for LED lamps is actually 5 percent higher than their combined market share for non-LED lamps. Data from the IHS Markit Lighting Intelligence Service from July 2017 shows that the combined revenue of Philips, GE and Osram of LED lamps in 2016 globally amounted to 32.5 percent of all LED lamp revenue; compared with a combined 27.5 percent of all non-LED lamp revenue globally in 2016.

This is significant in a global LED market estimated to be worth $9.9 billion in 2016, and growing at a CAGR of over 10 percent from 2016 to 2024. If these three companies were to continue to defend their almost one-third share of this LED lamp market as it grows, it would equate to a little over $1.0 billion additional revenue for each.

Increasing intelligence beyond illumination

The rise of the LED may not have changed the competitive landscape as drastically as initially thought, but it is laying the foundations for the next revolution in the lighting industry. Beyond illumination, the race to connected, intelligent lighting systems is on.

Smart, connected lighting systems have the potential to change the way we interact with buildings on a day-to-day basis. These systems bring a whole range of possibilities with them, including lights that change their color spectrum, from cool white to warm white over the course of the day, mimicking the day’s natural cycle; lights that have integrated Bluetooth beacons and other sensors allowing real-time, accurate indoor positioning and tracking; and even lights that can stream HD video direct to your mobile phone or tablet.

“Connected, intelligent lighting is thought to be the perfect backbone for the wider ‘Internet of Things’, with lighting being ubiquitous, providing dense network coverage, and with all of these sources having direct access to power,” commented Paul Bremner, senior analyst, lighting and LEDs group for IHS Markit. “These advantages make connected, intelligent lighting the perfect platform for the Internet of Things to become reality.”

Indeed, it may be this new era of connected lighting that does finally change the competitive landscape as drastically as the shift to LED was imagined. New competitors have appeared from almost every direction.

Specialized connected lighting vendors have emerged, such as Enlighted, Sensity Systems and Gooee. Consumer-facing tech giants such as Google, Apple and Amazon have their eye on residential smart lighting market adoption. Networking companies such as Cisco and Qualcomm look to the infrastructure potential of connected lighting systems. Building management system companies such as Siemens, Honeywell, Schneider and Johnson Controls look to the commercial adoption of connected lighting, ultimately leading to the “Intelligent Buildings” vision; and then the traditional lighting players already mentioned vie to position themselves to take advantage of this latest lighting shift.

The stakes are high. IHS Markit estimates the smart lighting and connected lighting controls market was worth $6.0 billion in 2015, and forecast that the market will grow to almost $16.0 billion by the end of 2020, at a CAGR of 11.2 percent from 2015 to 2020.

New winners will emerge in the world of intelligent lighting, as the industry undergoes its most significant transformative change since the invention of the Edison bulb itself. While the shift to LED seems to have not bought a fundamental shift in the competitive environment, it is clear that the story of the winners for intelligent, connected lighting is still to be written.

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