Home smart home: making living spaces come alive

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Tracing the beginnings of smart home technology takes us back to the introduction of electric power distribution in the 1900s, followed by the development of electric home appliances. In 1975, an early industry standard for communication between appliances using power lines and radio frequencies was introduced.

However, it was the development of information and communication technologies, sensor technologies, the Internet of Things (IoT), and data analytics that gave rise to the “smart home.” This comprises “intelligent” appliances, systems, and automation hubs that “talk” to each other using standard networking protocols.

Today, there is a wide spectrum of these intelligent devices that can be remotely controlled and monitored over the internet. Their promise of convenience, safety, and efficiency increases the appeal of smart homes.

What is a smart home?

A smart home is a residence that is outfitted with internet-enabled devices that are connected (often) to a home automation system. This allows homeowners to remotely monitor and control appliances and functions such as security, lighting, and temperature via a smartphone or other networked device. AI-enabled devices go beyond this—studying usage patterns and reacting accordingly.

Early smart home devices were aimed at entertainment but now, devices that offer control over comfort and environment are increasingly in demand. Having previously offered smart devices to high-end consumers as luxury goods, market players are now scaling up and offering the same quality and reliability to a wider audience.

The evolving smart home ecosystem comprises a range of devices and systems

Source: Compiled by SPEEDA Edge based on various sources

The smart home market is building up

The global smart home market was estimated at USD 100 billion in 2021. The US formed just under a third with a market value of USD 29 billion, which is expected to reach USD 47 billion by 2025 at a CAGR of nearly 13%.

According to one report, individuals and households in the US using smart home devices are estimated to record a steady increase over 2021–2025 (CAGRs of 13.7% and 4.5%, respectively), leading to nearly half of all US households and about 20% of the country’s population using smart home devices by 2025 (from ~42% and ~11% in 2021, respectively). Another source reported that half of US consumers already owned at least one smart home device in early 2021, up from 35% a year before.

Globally, the number of users is expected to increase at a CAGR of close to 30% over 2021–2025, resulting in household penetration rates more than doubling across each segment to range between 11% and 14%.

The composition of smart devices being used in homes is also changing. Globally, by 2025, “other” devices including lighting solutions and thermostats will form more than a third of total shipments, expanding at a CAGR of ~20% over 2020–2025 compared with ~6% for video entertainment devices currently dominating the market. However, video entertainment devices are still expected to command over half (57%) of the total global product value in 2025.

In the US, security cameras were the most purchased smart home device over the four years to 2020, forming nearly a quarter of purchases in 2020. Globally, home monitoring/security devices are expected to maintain a share of ~20% of shipment volume over 2020–2025.

Nearly half of all US households are expected to use smart home devices by 2025

Global smart home device penetration among households is forecast to range between 11% and 14% in 2025

Global smart home device shipment volume to expand at a CAGR of ~12% to reach nearly 1.5 billion units by 2025

What’s driving the market?

Consumers value security, comfort, and convenience. A 2020 study revealed that saving time and money, along with peace of mind, were the primary demand drivers for smart home devices, while the “cool” factor and energy savings were secondary considerations. In fact, according to a survey of about 4,000 Americans, 57% believed smart home devices saved them 30 minutes a day.

As mentioned before, security products still dominate US smart home device sales and are reportedly the first smart home devices acquired. This is supported by consumer opinion where personal and family security is considered the top benefit of a smart home. However, according to recent opinion, convenience, energy savings, and ambience are driving higher sales of smart power and lighting solutions.

The Covid-19 pandemic has also driven demand for smarter homes—households shifted their spending away from vacations, dining out, and going to the movies, to adding more comfort, conveniences, and entertainment at home. In a survey of US adults by smart device manufacturer Xiaomi, more than half (51%) reported buying at least one smart home device over March–December 2020 as a result of spending more time at home during the pandemic. The trend in pandemic-driven home improvement appears to be continuing, with consulting firm ABI Research expecting a 15% YoY growth in consumer spending on smart home devices in 2022.

Potential energy (and cost) savings. Increasing awareness of climate protection and energy efficiency among consumers should encourage investment in smart home tech. Smart home devices allow consumers to control, schedule, and automate their energy usage, allowing them to plan and achieve energy savings. They can also monitor water leaks and regulate consumption, aiding conservation. With Americans reportedly spending USD 130 billion a year on wasted energy and wasting nearly 900 billion gallons of water annually, the potential savings are tremendous. If real-time energy consumption alone yields 8%–9% energy savings as reported, adding smart thermostats, smart window coverings, and smart plugs can yield additional savings, while smart electric vehicle (EV) charging and smart water heating can improve load shifting and demand management.

A push for smart cities. The UN expects the global urban population to reach 68% by 2050 from 55% in 2018. Since urbanization increases demand for sustainable living and work spaces, several governments are considering—and have begun implementing—smart city projects to which smart homes and buildings are integral.

Who are the main players?

The smart home device market is dominated by several incumbents from the utility, technology, electronics, and telecom sectors who have launched their own smart home products or acquired disruptive new companies. Some of these smart home tech business units were later spun off to operate as independent players, with several continuing to use their former parents’ brand names; for example, Redideo (spun-off from Honeywell) and Signify (spun-off from Philips Lighting). Others were acquired by new players, such as Savant Systems’ acquisition of GE Lighting. Incumbents have also used M&A to enter the smart home tech market or expand their smart home offering; Generac acquiring ecobee, Google acquiring Nest Labs, and Amazon acquiring Alexa are some examples.

Some of the key startups we have identified include tado° (thermostats and energy management), Buddy Technologies (LIFX smart lighting solutions), Savant Systems (security, entertainment, comfort, and lighting), and SimpliSafe and Wyze Labs (security systems).

What challenges do players face?

Utility giants waking up to take on the smart home market. After being drivers of innovation during the electrification era of the 20th Century, electric utilities are now basic service providers battling narrowing margins. However, they possess key competitive advantages: whole-home, real-time consumption data; established customer relationships and communication channels; customer trust; and device agnosticism. As the smart home market continues to expand, utilities can remain commodity providers, facing the loss of a new revenue stream and the erosion of customer relationships, or they can,

Team up with smart home tech providers. Smart home tech providers benefit from the trust placed in the utility by their consumers. Research revealed that 42% of consumers are more likely to adopt smart home tech if their utility is involved or endorses it, but are wary of big tech companies, given their history of data privacy and cybersecurity breaches. However, by sharing customer data with their partner, utilities risk losing a primary competitive edge and an opportunity to increase customer engagement.

Enter the smart home market with their own range of products and solutions. This allows them to reach customers in new ways and increase engagement while taking on the challenge of ensuring product quality and maintenance. For example, Centrica, the holding company of British Gas, entered the market as early as 2013 with the launch of the Hive smart thermostat for heating and hot water control. Since then, the company has made several acquisitions and investments, offering a range of smart home products and services.

Longstanding concerns with interoperability. Smart home devices may use one or more networking standards—Zigbee, Z-Wave, Bluetooth, Wi-Fi, or Thread—to connect with other brands and a central hub. In 2021, Matter, a new home and building connectivity standard based on the Internet Protocol was launched. Backed by several well-known companies including Amazon, Apple, Google, Comcast, and Samsung, Matter is compatible with Wi-Fi, Bluetooth, and Thread, making it easier for manufacturers to develop products that will work with various ecosystems and voice assistants. Thus, Matter is expected to overcome the barriers to interoperability and help connect and build reliable and secure IoT ecosystems, acting as an assurance that devices built on this standard are reliable, secure, and compatible.

Consumer concerns over pricing, benefits, and data privacy. In one survey, about 50% of consumers cited high prices, perceived lack of benefits, and data and privacy concerns as their top reasons for not owning or considering a smart home device. In response to concerns over price, market players are working to introduce lower-priced products or even make the first device a loss leader to promote the adoption of more devices. Moreover, offering plug-and-play devices, as opposed to those requiring complicated setup, will aid the delivery of promised value.

Data privacy concerns stem from smart home devices’ reliance on cloud and internet connectivity, which makes them vulnerable to hacking. Home owners can protect themselves by selecting devices that have inbuilt security and privacy controls, being aware of potential privacy invasions, and taking necessary precautions. A more effective solution could be the development of devices that incorporate intelligence and processing power; this allows data to be processed locally without needing to be transferred, reducing the risk of exploitation.

The proliferation of smart home devices and homeowners’ desire for comfort, convenience, safety, and energy management are gradually converting homes into smarter living spaces. Incumbent market players have established a strong presence in the market and are promoting the use of a low-power, wireless networking protocol to improve interoperability among devices from different manufacturers. As the number of households embracing smart home technology increases, smart homes may become the norm sooner than we think.

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