Smart home business models need to change

Michael Philpott/Ovum
28 Jun 2016

At the 2016 Smart Home World event in London, Ovum ran an interactive roundtable session on potential business models for the smart home.

Currently the industry is largely focused on two business models: the retail model and the monthly subscription model. However, it is clear that although both business models require little investment to establish (especially from existing service providers), neither will be enough on its own to drive smart home uptake in the mass market.

Big questions around monetization still exist

Smart home technology is increasingly available via retail/online stores and service provider websites. In the telco space alone, Ovum is currently tracking 60 service providers around the world that offer some kind of smart home product to their customers. Not all products advertised will appeal to mass-market consumers – and many will fail. However, in some cases, it is the business model being deployed, rather than the product itself, hindering take-up.

The vast majority of players (device vendors and service providers alike) are focused on either selling hardware as a one-off deal or providing it as part of a monthly subscription service. Such business models work for desirable products such as, say, a smart speaker, or a professional home security service, but few people would either pay a one-off fee of $100 or a monthly fee of $5 for a flood sensor for their home – even though one day such a device could suddenly become invaluable. To stimulate greater interest in smart home technology, as much innovation needs to go into the business models as into the devices themselves.

At Smart Home World, Ovum asked delegates to rate a number of business model ideas against the potential size of its impact on the market and the size of investment their organization would have to make to enable such a model.

The results show that the two traditional business models (retail and monthly subscription) score well in terms of the low level of investment, but poorly in terms of market impact. Interestingly, the other traditional service provider model, “loyalty” (i.e. offering products/services at a discount or as part of a bundle to increase the stickiness of other services), was considered to have a much greater potential, but comes with a greater cost due to the level of discounting required.

The heavily service provider–focused audience chose the pay-as-you-go model as the winner of this exercise. This model scored reasonably well in terms of both impact and investment. Pay-as-you-go is certainly an interesting model for some smart home services, especially around security and home safety, because it only requires the consumer to pay for the service when they need it, thus reducing the overall cost barrier. There were concerns that in isolation the model is unlikely to be very profitable, but delegates agreed it could provide a good initial hook which, if positioned correctly, could stimulate new customer interest. Other options that scored well on market impact included “appliance-as-a-service” and providing discounts on insurance premiums.

The conference featured the usual discussions around B2B and B2C business models. A number of these business models could be used to supplement any B2C models already being deployed. For example, as part of a smart energy service, data gathered could be analyzed to predict when certain appliances in the home (such as the boiler) are in need of repair. Using such information, service options could be “suggested” to the customer in order to try and resolve these issues. Ovum would always encourage innovating around such models, but vendors and service providers must always be careful not to overstep the mark when it comes to costumer privacy and make sure they don’t put themselves in a position where trust in their brand could be broken.

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