Where next for the Smart Home?

Article by

Leon Barrett
Product Director

Leon Barrett

Leon Barrett

Product Director

There’s a war going on to control your home between Amazon, Google, Apple and a whole host of other brands and platforms. Today however, the smart home scene is the domain of the interested and the enabled.

Interested in the sense that the barrier to entry is still too high. Understanding the range of devices, platforms and how to get everything working together is still in the domain of the geek and the hardcore gadget freak.

Enabled in the sense that kitting out a typical 4 bedroom house can cost over £3,000 (I know this first hand) and unless you have enough disposable income to treat buying smart devices like a hobby, justifying that level of spend for the average consumer is unjustifiable.

I read a lot about smart home brands needing to ‘nail their proposition’ and ‘sell the experience and not the device’. The truth is, regardless of how much more convenient a Philips Hue bulb is over a standard LED, the biggest barrier for a consumer is price. Is the convenience of automating a single bulb really worth £45 more than manually controlling it? When you don’t have the luxury of that disposable income, the answer is no.

Smart Home

So, how do smart home brands set themselves up for truly mass adoption then?

In my opinion they look across at the mobile phone sector for the answer, which comes in two forms; lower upfront costs and tighter integration with other systems.

Let me explain:

The iPhone 7 costs £599 if you purchased directly from Apple. You’d then need to arrange a tariff ontop of that. So that’s £599 upfront on day one and based on the Advanced Plan from Three (with 30GB of data) an additional £26/month. Or, you can pay £99 upfront and £45/month for the same plan if you sign up to a 2 year contract.

  • Without contract over two years is £1,223
  • With contract over two years is £1,179
Smart Home
There’s been no tangible transfer of cash, so our brains perceive the value exchange as being lower.

Perception of value

The overall difference is negligible, but the latter to the consumer feels more valuable. Why? Because the initial outlay is much lower. Psychology plays a huge role in how we perceive value. Rory Sutherland talks about this in this talk. It’s the same reason that shopping on Amazon feels less expensive than going into a shop and handing over cash.

As consumers, we’ve been conditioned to not only accept, but expect to change our phones every couple of years as the cost to do so each time is now relatively low.

Subscription or lower cost models may seem the obvious solution. But what about when all smart manufacturers start doing the same thing? All of a sudden, I have lots of subscriptions per month and am back at the start; having to consciously decide which device I want to pay for.

We shouldn’t, however, write off the subscription model altogether. On average we change a thermostat every 10 to 15 years. Over that period of time, subscription costs could be made low enough to almost be forgotten about, but still provide a return (when there’s mass adoption) for the manufacturer.

Not just about price

So putting price to one side, what about some of the other barriers?

  • Product Knowledge
  • Installation
  • Setup and configuration
  • Management/support

There’s a gap in the market for service providers to become the layer that helps the average consumer to make sense of the bewildering array of devices and then setup and install all of this stuff for them and then look after it when something inevitably goes wrong. Package all of that up into an affordable (and crucially forgettable) monthly cost so the upfront expense to kit out an entire home is less than £200 and you’re on to a winner.

Google Home

We see this model elsewhere in the home; broadband, phone and TV. We pay a connection charge and then don’t give a second thought to paying at least £30 a month, not just for 2 years like our phones, but forever.

For the smart home to really become mass market, a few things need to happen:

  • Manufacturers within each segment (i.e lighting, heating, security) need to integrate better with each other, removing the barrier of interoperability. Take Philips Hue, they have Google Home, Alexa, HomeKit, SmartThings and IFFT integration meaning that they become the default choice for the lighting aspect.
  • Manufacturers need to work with service providers (i.e energy suppliers and home assistant companies) to co-create entirely new business models that look much more to the long term; that not only look at the total cost of ownership for the hardware, but for associated services too (such as cloud video recording).
  • Service providers need to do a better job of removing the confusion (especially around product choice and install) and packaging that up into a really compelling and affordable service.

o2 Home has been set up to try and answer these needs by creating packages of devices for a monthly fee. They’re not quite there yet and it won’t be long until more companies adopt this model.

Once more companies do start to adopt this model, the differentiator will come down to product selection, flexibility of tariffs and the ‘other’ things that can be bundled in.