Forecast: smart homes and the internet of things

1Executive Summary

The promise of the internet of things (IoT) is currently one of the most-hyped trends in technology circles. Back in 2010, Hans Vestberg, CEO of telecom giant Ericsson, boldly predicted that by 2020, 50 billion devices would be connected to the internet. The growing proliferation of connected consumer electronics, the falling costs of cellular-embedded modules and airtime, shrinking chip prices, and the emergence of wireless technologies such as Wi-Fi, ZigBee, and Z-Wave drove this optimism.

The IoT is regularly associated with home automation; however, the market for home energy management systems and smart appliances, which many expected to track the rollout of smart meters and to give rise to truly connected homes, have both failed to take off. Today, many of these products are still involved in small pilot programs. The arrival of a number of glitzy cloud-enabled gadgets like Belkin’s WeMo line and the Nest Learning Thermostat could accelerate things rapidly. These devices, however, aren’t truly IoT; they are connected to the internet but remain isolated from one another.

For the smart home to ignite the IoT, home automation software platform vendors must provide open APIs. SmartThings and future open-API platforms could be the disruptive players that encourage a tidal wave of interconnected things.

Key findings from our analysis include:

  • Do-it-yourself (DIY) kits and high-end luxury installations are creating competition across previously separated home automation sectors. This, coupled with cloud-based services and general-purpose controllers built on apps, is driving much growth. Meanwhile, service providers like telecommunications companies (telcos) and utilities are raising category awareness with low-cost offerings.

  • Extensible software platforms from the likes of Alarm.com, iControl, and AlertMe mean that service providers can introduce new services to end customers over time. A home security-focused solution, like Comcast’s XFINITY Home package, easily can be extended to incorporate home energy management or home health capabilities. Open-API platforms would accelerate this extensibility and enable even more competition.

  • Currently the largest segment, custom-designed smart home systems will grow at only a 7-percent rate, compounded annually, to $2.2 billion in 2017. DIY kits will grow much faster but still only reach $200 million in annual sales by then. In contrast, connected home systems will explode from a $300-million base to $1.5 billion in 2017.

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