The Global Smart Home Market Report
The rise of smart home technology gained the attention of both the tech world and home owners in 2014. Market adoption for smart device has been nothing short of a frenzy, and anticipation for improved innovation has carried this market beyond its hype. Intelligent assistants also known as "Chatbots" such as Amazon’s Alexa or Google Assistant have brought smart home technology into the lime light, but the benefits of this technology expand much further in appliance diagnostics, smart EV charging, energy demand load shedding and home security. Consumers are beginning to realize the direct benefits of adopting smart home technology such as energy savings and increasing home security. Once the major players in this space can manage to seamlessly interact with each other, the potential is endless.
Market Prime for Growth
The smart home market is categorized by integrated smart home systems that are operated using a central control hub and standalone smart home systems comprised of devices and products that are controlled directly through the internet or a mobile application. Smart home devices are further segmented by product type:
Security & Surveillance Systems
Entertainment Control (video/smart speaker)
The smart home market has seen significant growth over the past few years and will likely continue to grow due to advancements in IoT (internet of things) technology, increasing desire for convenience, rising demand for home surveillance and security, and consumers interest in the monetary benefits of energy saving solutions.
According to Strategy Analytics, global consumer spending on smart home devices reached $96B in 2018; at a CAGR of 10% from 2018-2023 global consumer spending is projected to reach $155B by 2023. The IDC smart home tracker recorded over 433M smart home devices shipped worldwide in 2017 which was a 27.6% increase from 2016. With the rapid adoption of smart assistant platforms such as Amazon’s Alexa and Google Assistant, this number is expected to increase to 939M devices shipped worldwide in 2022.
In 2016 the global smart home market was valued at $24B; growing at a CAGR of 14.5% between 2017 and 2022, the smart home market is expected to reach $53B by 2022. In the United States, the average revenue per installed smart home in 2018 was $146.54. Key players in the market have strategically cemented their position in the market by investing in innovation and R&D. For example, the most active investor in smart home technology since 2012 is Amazon’s very own Amazon Alexa Fund. This investment arm of Amazon was created specifically to invest in smart assistant technology and it has paid off so far.
Investment activity in the smart home space reached its deal count peak in 2015 with 111 unique deals and kept its momentum through 2016 hitting its upper limit in disclosed funding at $752M invested in smart home technology in 2016. This activity has recently slowed down overall, and investors have shifted their focus towards later stage deals.
The Footrace: Apple vs. Amazon & Google
Innovators are keeping a close eye on Google, Amazon and Apple to shape the future of smart home technology. The battle over smart assistant market share will ultimately have a huge influence on the infrastructure of universal smart home connectivity. One of the major pain points of smart home technology is the inability for individual devices to seamlessly interact with one another. Either Google, Amazon and Apple will need to cooperate to come up with a solution to the issue of universal connectivity or innovators will have to come up with solutions of their own; choosing the control center or smart hub with the largest market share will most likely be their best option.
Currently, Amazon Echo leads the market claiming 70% market share, followed by Google home at 24% and Apple HomePod, relatively far behind, at 6%. Additionally, Amazon supports more than 12,000 devices, Google supports about 5,000 devices and the Apple HomeKit, Apple’s smart home control platform, has only around 200 supported accessories. The Apple HomePod debuted Q1 of 2018 and lags far behind in market share, however there has been meaningful quarter over quarter growth.
At a price point of $349, the Apple HomePod may be too expensive to claim a major share of the market, but rumors are circulating suggesting a price drop to somewhere around $150. If the rumors are true, this price drop could either make or break Apple’s position in the market. The HomePod already trails behind both Amazon Echo and Google home in features and third-party app compatibility. If the HomePod achieves this lower price point at the expense of their feature-set they will have a very difficult time competing in the market. That being said, if Apple is able to maintain or improve their features-set and compatibility while reaching a more affordable price point, they will have a very competitive value proposition that could capture a more significant share of the market.
It is also important to note that cable providers, such as Verizon, AT&T and Comcast, could be a dark horse in the fight for market share. Comcast has been using Xfinity as a vehicle to penetrate the smart home market. Xfinity can now act as both a voice activated smart assistant and a central hub for certain smart home devices. Comcast recently partnered with Assure Lock Line from Yale Lock and Hardware to add remote security to their smart home suite.
The United States currently generates the most revenue in the smart home space and since it's energy markets are the most interconnected, devices like smart grid charging (Emotor Werks) and smart thermostats allow homes to modulate their energy demands. This is especially true if the home has renewable or solar generation assets. But the European markets have long been progressive energy consumers and APAC markets could see even more rapid growth in the near future do to the growth in population. In APAC an increase in the number of new residential projects and a desire to strengthen the building infrastructure has shifted APAC consumers attention toward smart home technology. This, along with a high demand for energy management technology and an established end-user base in advanced Asian economies, has fueled APAC market growth.
Europe is seeing a large shift in energy grid infrastructure due to updated energy policies. Germany plans to reduce its energy consumption by 20% through its Energiewende program by 2020, leading to an uptick in smart home energy management technology adoption. Through the UK’s government mandated smart meter roll-out, every home in England, Wales and Scotland (26M homes) will be offered smart meter devices by 2020. The smart meter roll-out, along with advancements in energy grid infrastructure and energy policy, has shifted consumers attitudes toward energy consumption and smart energy management technology; these factors have led to substantial growth in the European smart home market.
Motivators and Headwinds
Smart home technology that has led to clear dollar savings or obvious lifestyle improvements, such as energy management and security technology, will most likely see the most rapid growth. For example, the global smart lighting market grew 81% between Q2 2016 and Q2 2017, and the global smart security systems market grew 78% between Q2 2016 and Q2 2017. The clear consumer facing benefits of these technologies has led to rapid adoption.
The increasing threat of global climate change, rising energy prices and inefficient energy distribution has motivated innovators to develop smart energy management solutions that are capturing the attention of consumers. Consumers are beginning to understand the monetary and environmental benefit associated with energy management technology.
The evolving energy grid infrastructure has led to the convergence of telecom services and energy networks. This has made it easier to both monitor and control energy peaks and troughs and add key energy inputs to smart gird platforms such as electric vehicle charging stations. This will increase the global electric vehicle fleet and allow consumers to easily manage their energy usage and storage. We can expect that energy companies and car companies will both be competing for their spot in the smart home market.
Improvements in wireless internet and cloud-based services, along with the emergence of IoT technology, have made smart home integration possible. However, the industry has yet to adopt a mainstream standard for universal connectivity and seamless interaction between devices. Consumers across all industries tend to look for turn-key solutions; this issue of universal connectivity among smart home devices has made consumers hesitant. Product developers would be keen to have their IoT devices work seamlessly between Amazon, Google and Apple platforms.
Many people are also hesitant to adopt smart assistant technology because they are concerned about their personal privacy and the security of their personal data. According to a Deloitte survey, over 40% of respondents were concerned that smart home devices would expose too much about their daily lives. The feeling that technology is constantly listening and monitoring daily habits is a difficult notion for consumers to overcome. To reach full market potential, key smart home players will need to address these concerns and make it clear to consumers that privacy and security are their highest priority.
The smart home market is steadily growing and still has massive untapped potential. Once key players manage to tackle the issues of universal connectivity and personal privacy we will likely see a substantial increase in market growth rate. There is also a unique opportunity for innovators to find a niche in developing Apple compatible accessories. If Apple manages to reach a more reasonable price point and maintain their features it will undoubtedly capture a larger share of the smart home market. This will leave the playing field wide open for companies that want to add to Apple’s inferior list of compatible smart home accessories.
It would be wise for innovators to remain focused on energy management technology, specifically in European markets where governmental policies and programs are encouraging energy conservation and reductions in carbon emissions. Companies that can manage to leverage both the shifting environmental policies and developing energy infrastructure in Europe to create valuable products will have no trouble penetrating the smart home market regionally.