Market trends and emerging eco-systems for smart homes

Emerging smart home eco-systems are at the centre of a struggle to control the smart homes of tomorrow. By building home platforms and bundling connected products and services, companies hope to boost revenue and secure customer loyalty.

Implications for the energy markets

Connected heating controls account for 85 % of the smart home products sold in the energy market today. 1.5 million European homes are equipped every year with such devices, with growth forecast at 50% per year! Utility companies in Germany, Netherlands and the UK are leading the way in offering new services to compensate for declining energy revenues. Centrica, for instance, is investing half a billion pounds over the next five years in smart home products, such as plugs, lighting, sensors, smoke detectors and cameras. They will connect together to form smart home eco-systems.

Being part of an eco-system will be crucial, particularly for smaller companies. When a products approach failed, RWE, one of Germany’s leading energy and production enterprises, rebuilt their platform as an entire eco-system. Complete with services it allows them to not only generate further revenue from customers after initial sales, but also to build customer loyalty.

Security bundles: Smart devices and professional monitoring services

Almost one million devices connected to smart home security are sold annually in Europe through professional and retail channels, with more growth expected. Companies offering services around security are already replacing traditional equipment with smart devices in customer’s homes.

Verisure, a leading European professional security company now offer a range of connected smart locks, motion sensors, alarms, cameras, etc. The system is expandable and can be bundled with a professional monitoring service for under €50/m. The companies that establish and package ecosystems of connected devices to secure customer loyalty today will have the market power tomorrow.

Struggles in the telecommunications market

The telecom industry has also experienced shrinking profits. They are too are seeking to ensure future customer loyalty by finding ways to help the customer use their devices better. Dixons Carphone in the UK now offer product, services and maintenance packages, based on the customer’s need to understand and look after their smart home devices. They also bought a switching company. Customers can switch TV, phone and energy providers directly, bypassing other service providers because their homes are connected. This is quite disruptive to the market, but Dixons Carphone are managing to make it happen.

Attempts by Swisscom to package telecommunications with self-monitored security have failed twice. O2 in the UK, recently launched a home platform of connected devices, but for £30/m and no service behind it, the venture also seems unlikely to succeed. Contrast this with Comcast and AT&T in the US, who have installed smart home security devices for significant numbers of customers, with sales rising – probably because their systems come with a professional monitoring service.

Tech giants and opportunities for insurance companies

The key to the smart home landscape for insurers is partnership and packages. British Gas for instance bundled boiler cover insurance through Axa Assistance and Allianz partnered with Panasonic in testing Nest water leak detection devices. Meanwhile John Lewis in the UK is offering/discounting Nest smoke detectors with premium insurance.

With the arrival of tech giants, such as Amazon Echo and Google Home on the European smart home landscape, insurance companies have the opportunity, not only to be a part of the market, but to really influence it. Tech giants are already establishing their own large ecosystems that include entertainment devices and services. With the potential of adding multiple appliances, such as TV, plugs, thermostats, lights or voice controlled music to a given smart home ecosystem, the battle is now about the gateway – i.e. who will control the access or be the centre of the smart home.

Closing words: it's already here

The trend towards smart homes is not coming. It is already here. Tech giants are shaking markets. As ecosystems are established and industries continue to find ways to package smart products and services, insurers have the opportunity to significantly influence this dynamic market.

“The key to understanding the smart home market today is making the connection between who has market power now and therefore, who will have it in the future”

About the speaker

Arthur Jouannic is Senior Analyst at Delta Energy and Environment, a European research and consultancy firm, focusing on distributed and digitalized energy markets. Arthur is a regular speaker and moderator at European smart home events.

Summary by David M. Taylor. This article is based on the "Risk Talk on Smart Homes" which took place on 21 November 2016 at the Swiss Re Centre for Global Dialogue.