By Michael Philpott

2018 will be an inflection point for smart home technology For many years, smart home technology languished at less than 5 percent household penetration, failing to attract consumers beyond early technology adopters. In 2016–17, the market saw the first real signs of growth as telcos, utilities and security companies, as well as heavyweight technology companies including Samsung, Google, Amazon and Apple all ramped up their investments. This year will continue to see rapid growth, and by the end of the year there will be more smart home devices installed than there are tablet PCs. Over the next four years, the market will continue to grow to an installed base of more than 4 billion devices by the end of 2021, representing one of the biggest growth opportunities in the consumer technology industry.

Marketing Focus Will Shift Toward Use Cases

Before the industry can truly reach the mass market, several barriers need to be overcome – the biggest of which is the lack of understanding among consumers about the value smart home technology can bring.

Drawing on Ovum’s Digital Consumer Insights 2017 survey data, Figure 2 shows why consumers may choose not to purchase a smart home assistant device such as the Amazon Echo. By far the most popular answer (given by 44 percent of respondents) was that they believed the device would not be useful, but 20 percent of respondents did not even know what such a device did. A further 32 percent of respondents thought smart home assistant devices were too expensive, which again may have reflected a lack of understanding about the technology’s value.

Although Figure 2 shows opinions on home assistant devices, consumers often express similar feelings for other forms of smart home tech, which all tend to come at a premium price over non-smart, unconnected products. A single Philips Hue lightbulb can cost as much as $50. In order to show the value of such products, in 2018 there will be a significant increase in marketing for consumer-facing smart home technology, particularly around introducing different use cases and greater functionality for smart devices in the home. That $50 lightbulb, for example, could be used as part of a burglary deterrent system, which for some customers may actually be a small price to pay for greater peace of mind. Getting these messages across to the right consumer segment is key.

To increase the marketing complexity, the potential uses of a single device can be varied, and there is an element of personal taste or circumstances involved – what is considered valuable to one customer could be completely different for another. Therefore, Ovum expects social media to play a big part in capturing, and then promoting, real-life stories of how smart home technology has changed the lives of ordinary people. The inclusion of more smart home technology in retail store demonstration areas (such as those in Ikea, for example) will also help to educate consumers on how new technology can be used in their own homes.

All Players Need to Take a Long-Term View

Consumers do not just go out and buy a “smart home.” Rather, the home environment will evolve gradually over time as consumers gradually add more and more connected devices to their home. Therefore, the performance of those initial devices is important. A good early experience will encourage consumers to quickly invest further in smart home technology, while a bad experience will deter them.

Consumer apathy is dangerous; and as much so for smart home device vendors as for service providers. Vendors may rely more heavily on retail sales of their smart home devices to drive revenue, but if consumers do not remain engaged beyond the initial “honeymoon period” after purchasing their first product, vendors will struggle to find further upsell opportunities and will be less likely to benefit from word-of-mouth marketing. The latter is badly needed in the smart home industry, because it enforces the value marketing message with consumers.

Therefore, vendors need to continue to innovate and evolve their technology, as well as quickly fixing defects. This will ensure better customer engagement with their products. Service providers may be more experienced with supporting an ongoing relationship with the consumer, but are not necessarily agile enough to continue developing their smart home propositions at the speed that consumers expect; some may find an enabling role a more comfortable fit.

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Michael Philpott is senior practice leader of Ovum’s Consumer Services research practice and a principal analyst specializing in broadband access, broadband content and connected/smart home strategy

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