Market Readiness and Strategies towards Connected Home

Since 2012, the surge in the number of smart appliances launched in the market has injected much optimism and excitement as it brings the idea of a connected home closer to reality. The concept of being able to control your home appliances with just an internet connection and a mobile device is particularly enticing. This market segment is becoming a hotbed for technological innovations as leading manufacturers from both the consumer electronics and consumer appliances industries are investing heavily in establishing themselves as market leaders. In the first of a two-part series, we will explore the factors driving the growth of smart devices and the numerous strategies adopted by key manufacturers in penetrating the connected home market.

Smartphones and internet connectivity as enablers

Smartphones have grown to become an integral part of consumers’ everyday lives, with global volume sales expected to hit 1.6 billion by 2020. In developed markets such as North America, one in two consumers is purchasing a new mobile phone every year. The adoption rate of mobile phones in emerging markets is also fast catching up with their developed counterparts, with consumers skipping the computer era and using smartphones as their only internet device. Improved network infrastructure will also push internet penetration rates to a projected 46% in 2020 and mobile penetration rates to more than 50% in the same year – with Australasia, North America and Western Europe leading the way. This is driving the next wave of consumers, known as hyperconnected consumers, who are heavy users of technology and are always connected while on the move.

Global Retail Volume of Mobile Phones

global-retail-volume-of-mobile-phones

Source: Euromonitor International

Percentage of Population Using the Internet

percentage-of-population-using-the-internet

Source: Euromonitor International

Consumers start to welcome connected home

With high levels of smartphone ownership as well as fixed and mobile internet penetration, smartphones are increasingly becoming the central control hub in the connected home. Euromonitor International’s hyper-connectivity consumer survey, conducted in December 2014 across 17 markets with 500 respondents in each market, reveals that 15% of respondents have used smartphones to control smart appliances. Although there is no current industry consensus on the functions that smart appliances of the connected home should have, many manufacturers consider the basic criteria of smart appliances as being internet connectivity and smartphone software application (apps) control capability, which also serve as the criteria for smart appliances of the connected home. Other advanced functions include human movement tracking capability, ambient environment sensing capability, independent and/or cloud analytics capability.

Distinct paths towards the connected home

Recognising the connected home as the future of consumer appliances, which presents enormous revenue opportunities, different firms have been exploring distinct paths towards the connected home.

One strategy was to explore synergies between consumer appliances and consumer electronics for conglomerates having both divisions. Samsung Corp and LG Corp are leaders in pioneering this collaboration, which has already resulted in fruitful innovations. Both firms have rolled out smart home packages in which different appliances can not only be controlled by smartphones but can also communicate with each other. They have also provided solutions to turn current non-smart appliances into smart appliances. For example, at IFA 2015, LG Corp unveiled its SmartThinQ Sensor, which can be attached to non-smart appliances and communicate those appliances’ parameters to LG Corp’s SmartThinQ app installed on smartphones. Its rival Samsung Corp also showcased the SmartThings Hub to support Samsung SmartThings app compatible appliances.

LG Corp’s SmartThinQ Sensor Unveiled at IFA 2015

LG-SmartThinQ-Sensor

Source: Euromonitor International

The other strategy for consumer appliances manufacturers without a consumer electronics division was to establish a collaboration with a consumer electronics manufacturer. It is a win-win strategy for both sides, considering the limited time frame for new product launches, since it is difficult to establish the counterpart division from scratch without the relevant expertise. The smart air conditioner co-developed by Midea Group Co Ltd and Xiaomi Inc is an excellent example of this.

In the third strategy, IT giant Google Inc and consumer electronics giant Apple Inc are providing common communication platforms for smart appliance manufacturers with Brillo and HomeKit, respectively, since Android and iOS are the two most pervasive smartphone operating systems, with a 94% volume share of the OS market. At IFA 2015, Haier Group unveiled its Jingbo air conditioner, which it claimed to be the world’s first air conditioner to support Apple HomeKit.

World’s First Air Conditioner to Support Apple HomeKit Claimed by Haier Group at IFA 2015

Haier-AC-Apple-Home-Kit

Source: Euromonitor International

We consider the third strategy in developing smart appliances – based on Google Inc or Apple Inc’s common platforms – to be more attractive to consumers, because of the convenience of controlling appliances through a centralised platform. The drawback of the first two paths towards the connected home is that appliances of different brands can hardly talk with each other. Rivals are unlikely to develop appliances that are compatible with LG Corp’s SmartThinQ app or Samsung Corp’s SmartThings app. Consumers are also unlikely to purchase their appliances from the same brand.

Other consumer electronics manufacturers are also eyeing a share of the pie. Wireless audio manufacturer Sonos Inc has found success by making it easy for consumers to sync up their computing devices with the Sonos Inc system by ensuring that its app can be downloaded across several operating systems and devices. Software manufacturers such as Google Inc are choosing the acquisition route to speed up entry into the connected home market. Nest Labs, which Google Inc acquired in January 2014, demonstrates the most potential in driving the success of the connected home. Third party smart devices and appliances, such as Aliphcom Inc’s Jawbone, Whirlpool Corp’s washer and dryer and Koninklijke Philips NV’s Hue, can be accessed through the Nest app, which simplifies the user experience. But the challenge going forward would be for manufacturers under the Nest developer programme to work together to drive greater synergies and integration, not just with Nest products, but also with its partners.

The second part of this series will cover the opportunities for growth and highlight the challenges which manufacturers need to address to gain a stronger foothold in the market.