smart home: technologies with a standard battle

Digital Transformation Monitor

Smart Home:Technologies with astandard battle

September 2017

Internal Market,Industry,Entrepreneurshipand SMEs

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Smart Home:

Technologies with a

standard battle

The Smart Home market is characterised by the presence of a multitude of players, and new companies keepdeveloping products. In this crowded space, few standards exist, and the interconnection is becoming a toughchallenge for consumers, slowing down adoption. Nonetheless, some players are developing on the market notnecessarily for their products themselves but largely for their ability to provide the interconnection between theirdevices, and devices from other brands.

2. Saving Energy

The energy management allowed by newtechnologies helps in reducingelectricity consumption withinhouseholds. The idea is to control theenergy use by activating/deactivatinglights, HVAC (heating, ventilation and airconditioning) systems and anyappliances based on an occupancyindicator or, if needed, remotely.Actually, the main major motivation fromhomeowners to implement smartsolutions remains the reduction ofelectricity bills, ahead of anyenvironmental concerns.

The concept of “Smart Home” refers to aset of communication technologiesallowing the connection betweendifferent appliances and objects presentin the home, which can be remotelymanaged, controlled and automated.This concept is applied on a multitude ofproducts as it encompasses everything ina household that can be connected,including non-native IT devices.

The Smart Home has its roots in theolder concept of “home automation”,which never reached mass adoption byconsumers. Smart Home mainly differsfrom home automation by its reliance onwireless networks and the possibility toconnect objects to internet, opening newpossibilities.

The Smart Home has three majorexpectations from the occupants'perspective:

1. Improving safety and security.

This was the initial factor drivingmotivation of implementing smartsystems in a home. There is a cleargrowing trend in the need to secureaccess control, in order to authenticateauthorised persons, detect any irregularintrusion and alert an emergency centreif needed, but also in a monitoringservice warning if something abnormalhappens such as a fire. More and more,consumers and businesses are ready topay for more security and peace of mind.

A market still in itsinfancy

1According to smarthome.com, up to onethird of the 2000 USD energy bill1 couldbe cut in atypical household using energyefficient systems.

3. Providing greater convenience,comfort and wellness.

Beyond the energy efficiency allowed bysmart solutions, they improve occupants'lives by providing thermal comfort or bymonitoring indicators such as air qualityor humidity, highly critical in some cases.Also, the Smart Home is starting to gaintraction with consumers because of itsability to access and control systemsremotely including lights, appliances,multimedia, heating and cooling systemswhile being away.

Source: Verisure

Figure 1: Scope of the Smart Home

© NicoElNino/Shutterstock.com

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Smart Home : Technologies with a standard battle

Smart Home revenue in the US isexpected to grow over three-foldbetween 2016 and 2021, exceeding 32billion USD.

China is also innovating a lot with itsown solutions, and revenue could exceed13 billion USD in 2021, compared to only1.2 billion in 2016. More generally, Asia-Pacific will become one of the leadingzones in the coming years.

Europe is lagging behind, but is expectedto represent a 19 billion USD market in2021, benefiting from massive marketsin the United Kingdom and Germany.

Market forecasts

Not surprisingly, North America andespecially the United States will lead theSmart Home market in the world.

Key innovations and products arecurrently coming from the US andservices are firstly deployed in thiscountry.

Consumer adoption

When including the connected consumerelectronics segment, the penetration rateof Smart Home devices in households isquite important in mature markets, suchas the United Kingdom or the UnitedStates. For instance in the UK, 52% of allhouseholds surveyed2 have at least oneconnected device in their Smart Home.However, if we consider any specificsegment (home appliances, home energy,safety, security), and exclude consumerelectronics, the ownership of aconnected object remains very low, withpenetration rates between 2 % and 3%.

Demand for Smart Home products

Demand for Smart Home products is stilllimited, with 70% of householdssurveyed not intending to buy aconnected product in the next 12months. Excluding connected consumerelectronics, some segments are expectedto fare better than others:

• Thermostats: 6% of purchaseintentions in the next 12 months

• Security devices: 5% of purchaseintentions in the next 12 months

• Smart lighting: 4% of purchaseintentions in the next 12 months

Source: Statista Digital Market Outlook 2016

Figure 3 : Global Smart Home Revenue, by country (million USD)

Many players, butno clear leadersyet

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Source: Deloitte Switch on to the connected home, July 2016

Figure 2 : Intent to purchase within 12 months

The Smart Home market is characterisedby the presence of a multitude of playersdue to the variety of companies alreadyin interaction with home occupants.

Indeed, the competition between playersremains fierce in the field with themultitude of potential categoriesinvolved. Two applications especiallykeep attracting players: energymanagement and security.

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Traditional home automation providers

Traditional home automation providershave clearly adapted their products toaddress the current market leveragingsmartphone, mobile apps and voicecontrol. Despite a modernisation of theirofferings, they suffer from less visibilitythan Internet giants, which areaggressive, also benefitting from theirreputation and brand.

The arrival of Internet giants

Indeed, the Internet giants' war hasintensified in recent years with the movefrom Smart Home platforms (SamsungSmartThings, Apple Homekit) to thedevelopment of voice processingplatforms (Amazon Alexa and GoogleAssistant). In a few months only, Alexahas been a real success as more andmore key players already active in thefield have increasingly integrated thevoice to control their Smart Homeproducts. Contrary to other platforms, nohub is required for the offers of Googleand Amazon.

Telcos strategies

Regarding telcos, the approaches ofSmart Home differ from one player to

sector, encompassing lighting, water,remote control, HVAC, videosurveillance, fire alarm... Within thismarket, equipment and mainstakeholders are coming from differentindustries, which are dominated by silos.Most of the products are provided withtheir own technology and work instandalone, with a dedicated application,implying that the different devicescannot work together easily (or not atall).

And yet, the benefit of Smart Homeincreases when connected devices worktogether. As a result, a transversalapproach is required in the future: thedevelopment of the market requires thatobjects are able to communicate witheach other. One of the main issues is theinteroperability; the questions ofstandards' fragmentation need to besolved as lots of initiatives have beenlaunched.

Signs of move to standardsconsolidation?

Progress in standards consolidationremain very slow. As technologiescontinue developing in each area, theycontribute to reinforcing the silo effect asthey are often non-interoperable.

Today, a multitude of initiatives havebeen developed to make the wholeecosystem interoperable – between thelarge variety of connected products andacross the different product makers.

There were first signs of consolidation instandards and unification of interfaces asdescribed below.

Open Interconnect Foundation (OCF)

OCF is the largest cross-industryconsortium in the Smart Home space andis the result of the merger, whichoccurred in 2016, of two main initiativesfor interoperability: OCF itself, sponsorof IoTivity, and Allseen Alliance behindAllJoyn. Actually, OCF being backed byIntel, Samsung and Dell has merged withAllseen, a Linux Foundation supportedby 23 consumer electronics and softwareapplications including LG, Panasonic,Sharp and Qualcomm. The merger is thecombination of the two open sourceframeworks as they both decide tomutualise their efforts to promote theinteroperability between thetechnologies used in the IoT. The newlyentity is also working on a unified IoTstandard supporting OCF specifications.In the meantime, IoTivity and AllJoyn areinteroperable and backward compatible.

another as part of their digitaldiversification strategy. For instance,AT&T is trying to implement aconvergence between different verticals:connected car, connected home andconnected health/wellness. For otherslike Deutsche Telekom, Smart Home isan additional service (“fifth play”).

Other players

Recently, even the furniture retailer Ikeahas launched its Smart Home offeringswith a Zigbee-based hub and associatedbulbs and sensors.


Source: IDATE

Figure 4 : Categories of players involved in Smart Home

This large ecosystem and the multitudeof technologies used result in thefragmentation of the communicationprotocols in the Smart Home, a majorbarrier for the development of themarket. Indeed, numerous systems,devices and equipment compose the

Technologyfragmentation

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Open APIs

Some companies have developedplatforms to make devices interact witheach other like Apple's HomeKit or

Samsung's SmartThings. As a result,developers of connected products canimplement Homekit and/or SmartThingscompatibility, with a software, or insome cases a hardware, developement.The latest challenger is Amazon with itsintelligent voice assistant Alexa (Echodevice), which offers a new, simple wayto make products interact. The companyhas released the Smart Home Skill API aspart of Alexa Skills Kit (ASK) that enablesdevelopers to add capabilities, or skills,to Alexa and make Alexa communicatewith their connected products.

In the end, these platforms could becomede facto standards, as device makersbenefit from an increased visibility whileconsumers can both connect and usethem easily.

Source: Apple

1. SmartHome, Save Energy The Smarthome Way, Available at:http://www.smarthome.com/sc-save-energy-the-smarthome-way2. Deloitte, 2016, Switch on to the connected home, AvailableAt:https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/consumer-business/deloitte-uk-consumer-review-16.pdf3. Amazon website, Available At :https://www.amazon.com/Amazon-Echo-Bluetooth-Speaker-with-WiFi-Alexa/dp/B00X4WHP5E4. Morning Consult, 2017, Available at :https://morningconsult.com/wp-content/uploads/2017/06/170603_crosstabs_Brands_v3_TB-1.pdf

References

Zigbee Alliance

Largely integrated in Smart Homesystems, Zigbee technology has beenadopted by world-leading serviceproviders, installers and retailers.Backed by over 400 members, ZigbeeAlliance has developed the ZigBee HomeAutomation standard dedicated to theinteroperability between the variety ofthe products regardless of themanufacturer.

During the CES 2017, the alliance hasmade a significant move towards furtherinteroperability with the announcementof Dotdot, expected to be a universallanguage for IoT. Dotdot is based on thedevelopment of a common applicativeupper layer allowing the interconnectionbetween Zigbee products and otherproducts using protocols like WiFi orBluetooth. Dotdot will work with Threadnetworks and will be available for end2017.

The other major initiatives include :

• Wireless IoT Forum founded by Ciscofocused on interoperability in anincreasingly connected world.

• Thread group, backed by Google andfocusing on low-power devicesaround homes in partnerships withARM, Samsung and Nest Labs.

IFTTT

IFTTT that stands for "If This Then That"is a web tool enabling to unite multiplelanguages and hardware platformsthanks to the use of "recipes" to createconditional scenes. In the Smart Homearea, it allows devices to talk to eachother directly, not acting as a hub but asa channel. An example of a recipe wouldbe "If thermostat X's temperaturereaches 90 degrees, then the system Yshould trigger the alarm".

IFTTT has been adopted and used bynumerous significant players in theSmart Home. For instance, IFTTT workswith Google Home, Samsung'sSmartThings, Nest thermostat or LIFXlight bulbs.

Figure 5: Apple HomeKit products' categories

Source: derived from CANIT, South Korea, June 2014

Figure 6: Standards initiatives relevant to the Smart Home

$179.99Price of an Amazon Echo3

18.8 millionNumber of Echo devices sold4

About the Digital Transformation MonitorThe Digital Transformation Monitor aims to foster the knowledge base on the state of play and evolution of digital transformation inEurope. The site provides a monitoring mechanism to examine key trends in digital transformation. It offers a unique insight intostatistics and initiatives to support digital transformation, as well as reports on key industrial and technological opportunities,challenges and policy initiatives related to digital transformation.

Web page: https://ec.europa.eu/growth/tools-databases/dem/

This report was prepared for the European Commission, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs;Directorate F: Innovation and Advanced Manufacturing; Unit F/3 KETs, Digital Manufacturing and Interoperability by the consortiumcomposed of PwC, CARSA, IDATE and ESN, under the contract Digital Entrepreneurship Monitor (EASME/COSME/2014/004)

Authors: Vincent Bonneau & Bertrand Copigneaux, IDATE; Laurent Probst & Bertrand Pedersen, PwC

DISCLAIMER – The information and views set out in this publication are those of the author(s) and should not be considered as theofficial opinions or statements of the European Commission. The Commission does not guarantee the accuracy of the data included inthis publication. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use whichmight be made of the information contained in this publication. © 2017 – European Union. All rights reserved.