The entry of Apple, Google and Amazon into the Internet of Things and smart home space created huge interest, particularly when Google paid $3 billion for Nest after four years trading. With Microsoft quietly building its presence in IoT, it seems the market is really starting to take off and analysts' multi-trillion-dollar growth forecasts are realistic. However, skeptics are sharpening their knives after hearing the recent news that Google is unhappy with Nest's financial results.
When Nest first came to market it showed how IoT and connectivity could reinvent an everyday device, and this piqued Google’s interest. Nest transformed the traditional thermostat into a super-cool product with an exciting service supported by a very slick app user interface that commanded premium pricing.
However, Nest made the mistake of thinking a smart device was a smart home. It believed that by slowly reinventing other household devices it could draw in consumers. Its failure to accept the need for a hub to create and manage the ecosystem was a fatal flaw in their strategy.
Other companies did less marketing and more thinking. Samsung saw what SmartThings had done by building a hub and ecosystem of devices with an open architecture that supported a broad ecosystem of devices. Lowe's, with its Iris platform, and Home Depot, with Wink, have similar strategies for the smart home.
The IoT Market: Land of Service Opportunity
(Source: BI Intelligence)
All the main service providers -- AT&T, TWC, Comcast et al -- developed their own smart home solutions with hubs that gave consumers the breadth of choice with what are commonly termed "curated" solutions. Clearly, service providers have not made the same strategic mistakes, but could they learn lessons from the shortcomings of Nest's business model?
Nest entered the market by reinventing the thermostat and argued they were delivering smart energy. However, they charged a premium price for a simple service and tried to make revenue from the utilities with demand-response services.
Most service providers entered the smart home space by offering what they saw as the reinvention of home security with smart security. In actuality, service providers simply added a range of smart devices to the traditional burglar alarm and hoped to dramatically grow the number of consumers paying high monthly premiums.
In reality, like the thermostat, there are a limited number of consumers willing to pay $30 to $50 per month for what is essentially the same home security system with a few extras. For this reason, the market has stubbornly resisted growth over the last 30 years.
The smart home and IoT is a huge growth area, but reinventing one device or service will not truly help growth. IoT provides a great opportunity for service providers to reinvent business models rather than remodel them. Service providers should look at how they can take their smart home services to the mass consumer with open IoT platforms that support DIY products and services. There may be smaller incremental revenue streams from consumers, but margins and volumes are likely to be better for bottom-line growth, and future growth options are significantly better.
— Kevin Meagher is Senior Vice President of Business Development for ROC-Connect. Special to The New IP