41 million smart home devices will ship in 2017 globally, representing a retail value of $7.9 billion. Revenues are expected to triple by 2021, making this category one of the strongest growth categories within consumer electronics. This will be helped by added store space dedicated to smart home, the bundling of smart home devices with services and continued good performance of custom installations.
Across hubs & control devices, security and monitoring systems, climate control, lighting, and other disparate smart home categories prices are expected to decline across all categories as smart home devices make their journey into more homes.
North America continues to account for just over 60% of shipments worldwide, but is expected to decline to 44% by 2021 as parts of Europe and also China, where penetration rates are currently on low single digits, are expected to be the fastest growing markets.
Security and monitoring generates both the largest volume and value in the smart home. However, lighting is the fastest growing category. Smart lighting systems have comparatively low unit prices, and there is a wide range of DIY, easy-to-install options. Growing sales of smart lighting is being witnessed beyond high street stores, as custom installers also report fast growing demand in smart lighting.
Penetration rates of climate control are currently higher in North America than anywhere else in the world. However, Western Europe is expected to overtake North America in climate control before 2021. Energy costs are lower in the US than in Europe where consumers have a high appetite for devices that can help them manage energy use more efficiently.
Service providers such as utility companies, telcos and paid-TV providers are betting on smart home to increase the loyalty of their customers. By offering smart home packages, they aim at reducing churn. However, with margins that are higher than other consumer electronics (eg smartphones), smart home is also a strategy to increase revenue per customer. Whereas smart home seems to be an adequate strategy to meet the first goal, service providers struggle to meet the second. Despite relative high margins per device, smart home services mean cost increases in areas such as customer and technical support. Moreover, and unlike what Amazon has done with Alexa enabled devices, most service providers have yet to invest in marketing their smart home offer in a meaningful way.
Less than 20% of all smart home devices currently in use are brought in by the custom installer industry. In volume terms, the smart home is growing by stealth through easy-to-install DIY devices acquired through retail. Custom installation continues to punch above its weight in value terms. Though, retailers and service providers are better placed than custom installers to bring about connectivity and automation to households of all income levels.
Chip manufacturers are experiencing a boost in orders caused by the increase in demand for smart home, as some connected devices require multiple chips and sensors. The Z-Wave standard protocol, produced by Sigma, has an edge in the smart home. Nevertheless, Bluetooth is enjoying momentum due to the release of Bluetooth Mesh, which is lighter and allows for devices to use each other’s connection to reach the central hub or the control device, hence increasing the usually short range of Bluetooth.
The proliferation of different protocols is seen as an obstacle to smart home adoption as it impedes interoperability. Yet, as each protocol has advantages and strengths in particular use cases, multiple standards are bound to co-exist in the medium term. As chips become more powerful and increasingly become able to carry more than one protocol, multiple protocols might not necessarily mean less interoperability in the future.