1

RESEARCH REPORT

The State of Internet of Things in the HomePART II: OPPORTUNITIES AND CHALLENGES FOR BRANDS SELLING IOT PRODUCTS FOR THE HOME

AUGUST 2017

BY ED TERPENING

WITH AUBREY LITTLETON

INCLUDES INPUT FROM 18 BRANDS, VENDORS AND THOUGHT LEADERS

AND 6,339 GLOBAL SURVEY RESPONDENTS

PREVIEW ONLY

2

EXECUTIVE SUMMARY 3

KEY FINDINGS 4

WHAT IS THE SMART HOME? 5

WHAT DRIVES BRANDS TO CREATE SMART HOME PRODUCTS 6

CHALLENGES FACED BY SMART HOME BRANDS 15

MOVING FORWARD 24

END NOTES 27

METHODOLOGY 28

ACKNOWLEDGEMENTS 29

ABOUT US 29

Table ofContents

3

Executive SummaryAlthough some connected products for the home, such as home security systems, have been around for years, the market for smart home Internet of Things (IoT) products is early.

In Part I of our report on IoT for the home, we explored who is buying these products now and who will constitute the next wave of adoption. Understanding the priorities and perceived barriers of consumers is vital for brands to succeed — but so is understanding the internal struggles they face when entering this new market.

For brands who manufacture traditional products for the home, breaking into the consumer electronics space — one alien to them — can be a daunting task. The shift from creating disconnected products to smart, connected devices requires a significant internal transformation, including building new technological acumen and new business models, reconsidering product development approaches, creating more sales channels, and servicing more complex products. While this transformation can translate into new opportunities to grow, it’s not without weighty challenges.

For this report, we interviewed 16 leading companies in technology, such as Apple, Intel, and Samsung, as well as retailers, such as The Home Depot, Amazon, and b8ta, to explore consumer response, what drives brands to create these products, and what barriers they face.

3

4

Key Findings

• The market of IoT devices for the home is early, with brands from Original Equipment Manufacturers (OEMs), retailers, and technology competing for standards. Without adequate standards as a catalyst for widespread adoption, the current market is dominated by single use-case devices that may or may not work together to deliver true “smart home” automation. Early Adopters — consumers who are currently buying connected products — enamored by technology buy these products despite compatibility concerns. But the next generation of buyers — what we call Fast Followers — will require seamless orchestration of devices and ease of use.

• Retailers are in a unique position to educate consumers on home IoT product offerings and drive adoption. But they face further disintermediation by new commerce models built into smart devices (e.g., automatically re-ordering supplies). Just as e-commerce disintermediated retailers by offering almost unlimited product selection and lower prices, smart home OEMs continue this trend by selling replenishment products and services directly, bypassing retailers in ongoing transactions and customer relationships.

• Brands are driven to IoT for the home to grow and remain relevant. Brands are driven to make their home products connected to maintain relevance with consumers in an increasingly tech-savvy world. This push for relevance includes the shift from hardware sales alone to value-added connected services that help brands grow through “servitization” business models.

• Brands that enter this market face a growing list of challenges. These include ensuring home technology interoperability; absorbing increased costs; dealing with increased supply chain complexity required to design, build, sell, and service connected products; understanding connected customer experience; managing reputational brand risks that are possible if products are hacked or if owners’ personal data is disclosed; and, finally, marketing products that many consumers don’t understand or see as relevant to them.

• For “always on,” connected products, brands face new customer experience challenges. Most brands — especially those today that don’t make connected devices — focus on developing customer experiences that largely mirror the traditional sales/marketing funnel, which close the loop with support when things go wrong. In IoT for the home experiences, consumers expect minimal interaction and notifications and expect devices to learn their habits to deliver true automation1.

5

What Is the Smart Home?Home product manufacturers and consumers have wide-ranging perceptions of what defines a “smart home.” Some see a future in which any electrified home product could someday be smart and connected. For this report, we define the smart home as:

“A home of interconnected technology devices whose connection with a remote service provider adds value, customized to the homeowner’s unique use, habits and needs.”

This definition recognizes the need for products not to simply be connected, but to be truly smart by learning users’ habits and minimizing the need for interruptive notifications and interaction.

5

6

What Drives Brands to Create Smart Home Products

In our interviews with consumer electronics brands and retailers, we identified three reasons why they are investing in IoT for the home: to maintain relevancy, to grow, and to improve customer experience.

TO MAINTAIN RELEVANCY

TO GROW TO IMPROVE CUSTOMER EXPERIENCE

7

As technology continues its reach into more aspects of our lives and tech leaders like Apple, Google, Amazon, and Samsung redefine product categories in the home, brands that currently focus on traditional home products risk losing relevancy with their customers. The Nest thermostat is a great example of a product that has completely shifted consumers’ perception of how valuable a connected product can be over its traditional “dumb” counterpart, particularly when it comes to addressing their priorities of saving money and managing the home environment more easily and efficiently.

To Maintain Relevancy

7

Consumers ask, “Why do I need this? Relevency is the biggest barrier to adoption. At one point in time, people asked ‘Why do I need a computer in my home?’ As people start to understand use cases, they start to understand the value.” PHILLIP RAUB, FOUNDER/CMO, B8TA

This preview version of

“The State of Internet of Things in the Home, Part 2”

contains only the first seven pages of the report. To download the entire report, free of charge, please visit the link below:

http://bit.ly/altimeter-smart-home-2