“Alexa, what’s happening in the battle for the connected home?”

The smart home concept isn’t new, from Bill Gates’ 1997 connected home to the perennial yawn around smart appliances. The number of potentially connected devices within the home are numerous; products like security cameras, alarm systems, door locks, light bulbs, thermostats and screens, to slower replacement cycle products like washing machines, fridges, air conditioning units and ovens. According to McKinsey, connected home device sales in the US have been increasing at 31% CAGR. However, there remains a question about how many appliances need to be inter-connected and which are actually useful? Does anyone need a voice activated toaster? Will these products connect through a single hub or will they live independently at multiple user end points.

A confluence of factors is opening up new commercial paradigms in the home — connected sensors provide a means for data collection, new revenue streams and the encoding of new user behaviors. A number of important structural changes have occurred:

1. The diminishing price of connected sensors and hardware
2. New ambient and immersive technologies such as computer vision, voice and spatial computing
3. Saturation of smartphones, which act as ‘the control panel’ to many home interfaces. Also, the myopia of the smartphone era has led to the search for the next wide scale growth platform

Installation phase: hub v end-points

Google’s $3.2bn acquisition of smart thermostat maker Nest was an early and important foray into the current connected home battle. The synergies were evident; Google is a data company, with Nest providing an additional and differentiated data stream whilst placing Android and Google Voice (search) in the home. A number of strategic missteps hindered Nest’s ability to execute. The ensuing tension between parent and Nest, led to the development of Google Home as a totally separate product ecosystem to Nest.

Google chose to use atomized parts of the home hardware stack, looking to access the home through single end points devices, such as thermostats and security cameras. It’s difficult to build new platforms with products or technologies which are marginal improvements on the existing. New ecosystems often need a product or technology that provides a perceived paradigm shift in order to appropriately incentivize developers and early adopters to participate and build — further leverage is gained when a large user base is applied.

Apple have tip-toed into this space, with the perpetual stops and starts of Apple’s rumored TV. Apple’s home strategy relies in part on Home, a device-agnostic app which looks to control both Apple and third-party home devices — all of which can be controlled by their struggling voice assistant Siri. The company has struggled with software offerings. The release of their smart speaker, the Homepod, is Apple’s most deliberate physical foray into the home. The expensive price point evidences more of a desire to sell a high fidelity speaker then being a strategic chess move for Siri. It’s worth remembering that Apple’s business model is predicated on locking users into its ecosystem and selling them premium hardware.

To dismiss Apple is foolish, there’s a likelihood you’re reading this from an iOS, macOS or even WatchOS device, showing the effective immediate reach of Apple hardware. A further point to note is the power of Apple’s pre-installs on devices, evidenced by the growth of Apple Music versus Spotify (36m v 71m paying subscribers, growing at 5% a month v 2% a month respectively, at time of writing). Arguably, the success of the Homepod will be two-fold; Apple Music’s continued growth making Homepod the only viable smart speaker and/or proliferation of Siri through Airpods .

Amazon decided not to replace any legacy hardware, but instead build a new UI in Echo — foregoing any strategic angst about entering an existing market late (Fire smartphone anyone?), in turn creating a focal point to its platform. Critically, Echo is priced low to encourage adoption, it’s cross-platform, has incentivised its developer ecosystem, harnesses AWS and produces incentives which benefit the product in Prime subscription. One of the key changes lead by Amazon, has been the retraining of user behaviour. From ‘pocketable’ mobile computing power to having using an immersive voice UI for at home querying and commands. Importantly to Amazon, they want to own the customer relationship without the need for an Apple handset or Google software layer. Samsung have also been active in the space, leveraging their manufacturing capabilities, by targeting home appliances such as the fridge, oven and washing machine, powered by their voice assistant, Bixby.

The strategies discussed have been about combining hardware with AI/NLP software in order to put ambient voice search and querying around the home user. The thesis being that the dominant home platform will allow companies to leverage their position to further sell consumers hardware or services.

Bridging the installation and deployment phases — I can’t comment who, if anyone, will win this platform battle, with the evidence pointing to a likely fragmented market of smart hubs, much like smartphones. However, I can hypothesize that the digitization of the home will open up new commercial opportunities.

Deployment phase: new applications and possibilities

The aforementioned companies aren’t the only ones battling for your home. There are numerous new startups waiting to capitalize on new user behaviors within certain high value home segments, such as: consumer goods delivery, home renovation, repairs, real estate finance, insurance, among others. A better connected home combined with new technologies such as AR and spatial computing may allow for dramatic reduction in high cost friction among services and predictive data. Let’s dig in.

Consumer goods delivery — be it groceries or consumer goods. The connected home has some direct inroads to new retail channels in logistics, automation and personalization.

• In home delivery: One of the key logistical points of friction for e-commerce has been last mile delivery. Amazon recently acquired Ring for ≈$1.2bn which provides subscription-based connected home security cameras and video-enabled door bells. This is Amazon’s second home security acquisition (it also acquired Blink)and gives delivery drivers access to consumers front doors and opens the possibility of Ring being bundled with Prime
• Personalization: Amazon’s release of the video enabled Echo Show also allows consumers to personalize their outfits, a consumer behavior which is native to the home
• Automated purchases: have been the poster child for smart appliances “what if your fridge could know when you’ve run out of soy milk and automatically reorders it?”. Amazon launched Dash buttons a few years back, the wifi-enabled ordering buttons have had a lukewarm market reaction though are a clear sign of intent

Low NPS score home services — Currently home services such as domestic cleaning, repairs and renovations are generally stressful, fragmented and high friction:

• Managed services platform — Spatial computing allows us to automate much of the call-out process in estimating in-home job costs. Furthermore, AR is allowing consumers near limitless contextual data, positioning and recognition of objects in the home. Marketplaces using smart UIs are turning the homes into both an interface and content, whilst connecting consumers with agents and digital objects. Google have looked to place themselves top of funnel, by partnering Google Assistant/Home with home service lead-gen portals such as Porch and HomeAdvisor
• A level down, some UIs are already simplifying home processes such as furniture placement, ordering and delivery (Ikea, Target and Amazon)and home repairs (Streem)

Finance — Many of the new business models in real estate and finance, involve using new data aggregation methods to narrow the variance between price and value.

• Spatial computing — will remove some inefficiencies in valuations, appraisals, underwriting and claims processes whilst continually updating data models. This will effect industries such as insurance and real estate sales, who depend heavily on their assessment of data. Some interesting data-driven new models which could further benefit from these improvements would be Opendoor and Lemonade.

Energy — as we increasingly move to renewable and distributed energy sources, a significant gating factor will continue to be accurate connected forecasting of loads. Smart bulbs, thermostats and appliances allow more precise data analytics on home power usage. Better technologies will allow us technologies to unlock extra capacity from previously latent and passive resources, benefits consumers and suppliers whilst also providing opportunities for technology companies to build a new layer.

Though adoption is clearly accelerating, mass adaption will be slow due to a lack of inherent home-to-home network effect. Between now and the ‘mass adoption’ phase we can expect to see a number of interesting new applications, use cases and changes to consumer behaviors — some will stick, most will not.