Not Smart Yet: What Will It Take for Consumers to Buy into Smart Home Products?

Studying the habits of early adopters can give insight into what is going to become mainstream. Following on from my study of media consumption and prediction that cable cord cutting will become mainstream in 2012, I decided to see where my fellow frogs stood on “smart home” or "connected home" products and services. Smart homes has been promised for so long that it has become something of an industry insider joke but in the past couple of years we have seen a revival in interest driven by lower cost sensors and increased connectivity.

Beyond the Lunatic Fringe?

Marketers think of a customer journey starting with awareness of a product or service. It then moves to consideration, where a customer can imagine the product or brand being something they might buy, then preference for a certain brand over another, and finally selection. To even begin the journey you need to have awareness. With that in mind I asked 80 frogs if they could explain what Zigbee is. ZigBee is one of the emerging protocols for wireless sensor networks used in smart home products that allow devices and sensors to talk to each other. It seemed a good proxy for general awareness of all things smart home related. Just 37% of frogs knew what Zigbee was, although there was some differences by their (self-selected) early-adopter-ness. 64% of early adopters could explain what ZigBee was, compared to 36% of the early majority, and just 9% of the late majority. So eveen at a firm like frog where we have designed and built ZigBee products, awareness is low. This does not bode well for adoption in the short to medium term.

What might jump start the smart home market?

Smart home offerings usually focus on some combination of the following five pillars - telemonitoring, home automation, media access and playback, home energy management and security.  Energy management and telemonitoring are the two most commonly cited applications so I thought it might be fun to test the frogs’ appetite for those products.

NEST – Energy management at its prettiest

The first product I tested was a smart thermostat from NEST. Launched to critical acclaim for its aesthetics last fall, it is priced at $249 + $99 installation fee. It comes with some computational smarts and sensors that allow it to learn the habits and preferences of a household and adjust the temperature accordingly. In frog's taxonomy of Smart Home products, we think of this as a "solitary" connected home product, as it contains its own sensors and data analytics, but not yet part of the community of connected home products and services. 

Given the products' aesthetic chops I expected an enthusiastic response, but just 14% of the 80 frogs participating in this study were ready to buy. Looking at just the early adopters, 24% were willing to buy. 

Those who were not interested broadly broke down into two camps. 

• Renters overall were no less likely to be interested than home owners, but some renters asked "why invest in someone else's property?" This touches on an interesting aspect of smart home, which is that many of the products and services use sensors and compute devices which become part of the home’s infrastructure. This reduces the pool of buyers to owner-occupiers and apartment owners who want to use smart home offerings to differentiate their properties.
• Others had some version of a return on investment argument - either the price was too high or the problem it solves is just not that important. Several people mentioned that if this was a wider home management computer, they would be willing to pay more. I have no insight into NEST's plans but given their company name, I suspect they have an eye on other uses beyond energy to increase the value of the offering.

Telemonitoring
In order to test the appeal of telemonitoring, I showed 80 frogs an offering based on the current product from Verizon Wireless. It allows a degree of remote home management using your cellphone - for example to turn on the heat as you drive home, or to unlock your front door to allow the deliveryman to put a package inside your door instead of the step. Security is another option if you place WiFi enabled digital cameras in strategic locations around your property. 

Similar to the smart thermostat offer, 16% claimed to either have cellphone based remote home management already, or were ready to buy. 54% were interested, and 29% gave a thumbs down to the idea. There is therefore a little more openness to this offer, but enthusiasm is low. Homeowners were marginally more likely to be interested than renters. 40% of early adopters either had this already or wanted it immediately, compared to 12% of the early majority and 0% of the late majority. 

The most common reason given for not being interested is that the cost was too high. The comments indicated some irritation with monthly recurring fees, which does not bode well for wireless carrier hoping to further monetize their network investments. Others just didn't feel the urge to control and monitor their homes remotely. Several of our technologists and engineers cited security concerns about the technology. For those who were interested, convenience and comfort coupled with peace of mind seemed to be the primary driver. Peace of mind is an interesting value driver as it tends to make people less sensitive to price - knowing that you turned your house off as you drive to the airport is well worth paying for if you are the worrying type.

The upshot for both products is that stated interest, revealed interest and knowledge is all rather low. The connected home market remains a possibility rather than a reality. What will it take to move this market into the early majority?

• Product makers need to provide more value than offering just one of the five pillars. Media access and playback or security are established markets that consumers pay money for today, so these may be a good place to anchor your offering. Home monitoring, home energy management and telemonitoring are either niche markets or less well understood by consumers, meaning that someone has to take on the expensive role of category evangelism - educating the public on why they should care.
• Offer a compelling experience. This sounds utterly obvious but is hard to do. For example, the charts and graphs that are common in many Home Energy Management tools excite data geeks (like me), but leave the rest of the world cold. For the tools to work, they need to be less like IT and more like consumer electronics.
• Make use of tablets, smartphones and computers to access and manage smart homes - we swap these devices every few years but connected home devices, especially those architected into the home, remain for many years. The sensing and computational capability can probably lie in the smart home device, whereas the display and control functions should probably be separated.
• Try to move from solitary to community experiences. Given the stage of market development, it makes sense to offer NEST like products that are complete - that offer value as standalone products. However, offering ways to make your product a sensor data stream in a wider ecosystem really compounds the value.

We continue to work in this space and track its development with interest.