Moving the smart home from price to value

What smart home manufacturers can learn from mobile providers to evolve their propositions.

Sebastian Scholz, Unsplash

There’s a war going on to control your home. Amazon, Google, Apple and a whole host of other brands and platforms are competing to win over early adopters, but the smart home scene is still 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 four 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’ve 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.

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

Taking inspiration

In my opinion, smart home brands need to look across at the mobile phone sector for inspiration. The answer to the above question 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 then arrange a tariff on top of that. So that’s £599 upfront on day one and, based on the a 30GB data plan from Three, 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 a contract, over two years, the total is £1,223.

With a contract, the cost over two years is £1,179. However, there’s been a much lower 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 I’m back to 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 ten to fifteen 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 and support

There’s a gap in the market for service providers to become the layer that helps the average consumer make sense of the bewildering array of devices, 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.

We see this model elsewhere in the home with broadband, phone and TV packages. We pay a connection charge and then don’t give a second thought to paying at least £30 a month – not just for a fixed two years term, like with our mobiles, but on an ongoing basis.

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  as an example – they support Google Home, Alexa, HomeKit, SmartThings and IFFT integration, meaning that they become the default choice for smart lighting.
  • 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, considering not only the total cost of ownership for the hardware, but associated services too.
  • Service providers need to do a better job of removing confusion, especially around product choice and installation, packaging that up into a really compelling and affordable service.

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.


Want to ideate, build and validate new propositions at speed? Read about our rapid prototyping framework.

Read next

Like what you see? We’ve got more where that came from.


Newsletter sign up

Hot off the press

Want to be updated when we've got new stuff to talk about? Get a regular snapshot of what's happening at 383, straight to your inbox, once a month.