Home services and the internet of things… winners take all
August 17, 2020
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By F. Javier Bustos Ugarte
The omnipresence of IoT represents a significant opportunity for home service providers. The question is: who will come out on top?
IoT is here to stay
The internet of things (IoT) represents the latest phase of modern computing infiltration in our society. The concept of enabling device interconnectivity through mobile or satellite networks, or over the internet, has been in existence since the early 90s. However, the rapid development of cellular networks through the maturity of 4G and the rise of 5G is catapulting IoT into a new realm of ubiquity.
Consumer wireless connectivity is not only becoming more widely embedded in larger machinery such as vehicles, household appliances and security monitors, it is also being trialled with more unorthodox items, including mirrors, tables and hairbrushes. Whilst our lives become ever simpler with the helping hand of consumer IoT, a complex challenge arises for many players within the home services market. As they grapple with market fragmentation and commercialization challenges, there is no doubt that the opportunity to emerge dominant remains for those with the right strategic approach.
To connectivity and beyond
GSMA Intelligence, the research arm of a mobile-industry trade body, estimates that smart homes will represent the largest category of consumer IoT, with smart home IoT connections growing at a CAGR of 14% between 2018 and 2025 (1). This presents a significant growth opportunity for well-poised mobile network operators (MNOs), particularly in the wake of diminishing average revenue per user (ARPU) returns from traditional mobile revenue streams. There is ample scope for MNOs to capitalize on the connected home market, starting by moving “beyond the pipe” as they step away from the sole provision of mobile connectivity.
The IoT ecosystem involves several players, including the connectivity service provider (the traditional role for MNOs), device manufacturers, platform providers, and IoT service providers. However, the connectivity service itself accounts for a relatively low proportion of the overall revenue generated within this value chain. This explains why MNOs are in hot pursuit of innovative strategies to move vertically across this chain and why they have since started to dip their toes in software development, device manufacturing, application provision and added-value services.
At the more advanced end of the scale, MNOs have already begun to establish themselves as IoT service providers in the smart home market. For instance, Deutsche Telekom, one of the world’s leading integrated telecommunications companies (2), formed the alliance QIVICON to establish an open smart home platform. By forming partnerships with a wide range of manufacturers including Bosch, Sonos and Netatmo, Deutsche Telekom have increased the ease of device connectivity for their consumers, including the ability to operate multiple devices through a single application.
They are also increasing the extent of consumer control even further with the introduction of CarConnect, allowing consumers to control their smart home from their car. Just imagine the everyday ease of energy-sapping devices being automatically set to standby when your car turns out of the drive, and then conveniently returning home to an already cosy, well-lit house in the evening. This is customer convenience at its best.
As Deutsche Telekom advance a strategy to white-label their smart home solution for other service operators to access, other MNOs are beginning to adopt different strategies of their own. For example, the Swedish-Finnish MNO, Telia Company, have recently partnered with an existing IoT platform provider Datek to deliver smart home services in the Nordics (3). This mutually beneficial partnership allows Datek access to Telia’s broadband customers whilst enabling Telia to offer a multitude of smart home services that are seamlessly integrated and simple to control.
Other MNOs, such as Orange Spain, have focused their strategic efforts on the commercialization of smart home solutions by recently launching four smart home device packs (4). Each pack is controlled via Google’s smart speaker and are available with an interest-free, pay-in-instalments option. The reduced cost barriers for consumers and plug-and-play package approach is well positioned to stimulate greater smart home adoption.
Fragmentation, feasibility and formidable players
There is evidently no one-size-fits-all strategy for MNOs operating in the smart home space and many are progressing at varying rates. Even though MNOs are addressing the device interoperability challenges within their own solutions, the wider smart home market is becoming increasingly fragmented and consumer confusion is rife. How do they even begin to compare offerings based on the connectivity of specific devices and avoid the perceived risk of being locked-in by any one service provider?
The AI Assistant market is pivotal in addressing this fragmentation issue. Smart speakers are rapidly becoming the new central smart home hub, as consumers bask in the ease of using voice assistants within the comfort of their own homes. The duopolistic dominance of Google and Amazon in this space is palpable—together they represented 61.1% of the global smart speaker market in 2018 (5) This intense rivalry has created an additional layer of market fragmentation due to the compatibility of other smart home devices with either Amazon’s Alexa or Google Home. However, a new alliance formed between Apple, Amazon and Google at the end of 2019 seeks to address this issue. Their launch of Project Connected Home aims to build a common standard so all connected devices can be operated by any of their voice assistants (6).
So, what does this mean for MNOs? The cemented popularity of Google and Amazon’s smart speakers in the home, coupled with the potential eradication of device interoperability issues, leaves little room for MNOs to shine in areas of device or application innovation. MNOs are instead arguably best positioned to provide smart home solutions that serve as a natural extension to their existing mobile and broadband services. It is the commercialization of such solutions that should therefore take strategic precedence. MNOs can maximize this opportunity by focusing on smart home service bundling, pricing, distribution channels and customer services.
What’s that coming over the hill…
MNOs, to some extent, can leverage the expertise of these powerful tech competitors by integrating their technology within their own smart home service solutions. However, just over the horizon lies another competing giant which, this time, encapsulates an entire industry: energy utilities.
It is fair to say that energy utilities have not had an easy ride in recent years. Falling demand, lower prices and high investment levels (largely due to the strong regulatory push for more efficient energy solutions) have all contributed to their struggle. However, they too have started to turn their attention toward the smart home market and are beginning their own quest for the hidden treasure that lies within.
Smart home solutions offered by energy utilities naturally revolve around energy efficiency and demand-response services. This captures a consumer’s ability to control their heating remotely and realize savings through improved consumption monitoring. Energy and monetary savings are, in fact, one of the key consumer motives behind smart home adoption. In PwC’s second connected home survey, the pre-purchase financial value that consumers placed on smart energy meters was markedly high at 56% (7). It would therefore appear that consumers are already perfectly primed for energy utilities entering the smart home market via their smart energy services. This creates a powerful competitive advantage for them, particularly when they already have access to a myriad of existing customers and their energy consumption data.
Strategically smart and savvy
Energy utilities’ and MNOs’ smart home strategic approaches are shaping up in unmistakably similar ways. Both are looking to leverage their household consumer base and integrate the most sophisticated and widely-used smart devices. Their abundance of consumer behaviour knowledge and established sales and support networks will also allow them both to flex their corporate muscles to maximum effect in advancing their smart home services. However, the opposing angles at which both utilities and MNOs are targeting the market, one from energy and the other from connectivity, will create further market fragmentation.
The overriding challenge facing both industries is achieving single end-to-end platform integration across all aspects of the smart home. Perhaps now is the time to introduce a new concept of “strategically smart” MNOs and energy utilities who can carefully assess the viability of such an aspiration. It is fair to say that the tech giants have already made great strides in the realm of total smart home integration. Therefore, should MNOs and energy utilities now consider the possibility of cross-industry partnerships to tackle these tech giants head-on, or should they concoct more subtle ways of maximizing their profitability within this market by focusing on the exploitation of their own unique strengths?
The strategic speculation surrounding smart homes clearly indicates a market that is still in its infancy. With this in mind and despite the intensely competitive backdrop, there is still ample opportunity for all participants to take their slice of the smart home pie, the size of which will depend on the strategy they adopt.
A strategic approach that capitalizes on consumer expertise, commercial savviness, and the vast sales and distribution channels of industry participants is likely to be the most effective. However, the full potential of consumer IoT will only be unlocked by those who look at home services as whole. It is not just the provision of energy, connectivity or technology that will build exceptional levels of loyalty among consumers, but the provision of solutions that cater for their everyday need in the home, which also includes insurance and home assistance services. These value-added services (VASs) should be an integral part of any long-term smart home strategy. Not only do they work wonders in terms of customer loyalty but also profitability, both of which energy utilities and MNOs have been struggling to maintain in recent years.
MNOs and energy utilities are not new to VASs, but they have done little to innovate in order to truly embed solutions that both enhance and protect consumers’ homes in a holistic way. Highly integrated VAS within smart home solutions is undoubtedly the next phase of providing the ultimate consumer experience. However, increased smart home adoption also brings about new risks, which presents a further opportunity for home service providers to protect their customers whilst also opening up an additional revenue stream.
MNOs and energy utilities have the advantage of their well-established brands within the home services sector which they must capitalize on when embedding VAS within their smart home solutions. This will include providing smart insurance and assistance services that fully integrate with all consumer devices connected under the smart home umbrella. An example of this could be where a smart sensor, having detected a water leak, immediately notifies the consumer, insurer and home services provider to not only prevent any further damage but also enable the prompt deployment of tradespeople to repair the existing damage.
With regard to insurance services, there is also the potential for MNOs and energy utilities to dramatically increase the personalization of their offerings based on the data they can collect within the smart home, as well as elsewhere within their business. This will enable more individual risk assessments to be conducted and the provision of more tailored insurance coverage with accurate premiums.
Additionally, the broad range of connectable home devices creates an array of connection points for hackers to enter IoT ecosystems and access customer information. The cyber risk that this poses for consumers is unprecedented and gives home service providers the opportunity to bring risk mitigation solutions to their customers. Combine this with home, white and brown goods insurance—as well as home assistance services—and you will start looking at a truly comprehensive home services package that will add unparalleled value to people’s homes and lives.
An extended integration is certainly the smart home of the future, leading us ever closer to effortlessly harmonized living. Industry players who fail to acknowledge this will struggle to remain relevant. Whoever is first to fully capitalize on the untapped potential of consumer IoT remains to be seen. However, those who do will undoubtedly become market leaders in a very promising, long-term game.
1. GSMA Intelligence, 2018. (Last accessed 28 January 2020).
2. Deutsche Telekom AG, 2020. (Last accessed 9 July 2020).
3. Telia Company, “Telia and Datek team up to bring smart home services in the Nordics”, 2019. (Last accessed 9 July 2020).
4. Orange, 2020. (Last accessed 9 July 2020).
5. Canalys, “Smart speaker market booms in 2018 driven by Google, Alibaba and Xiaomi”, 2019. (Last accessed 9 July 2020).
6. The Financial Times, “Apple, Amazon and Google form alliance for smart home devices”, 2019. (Last accessed 9 July 2020).
7. PwC, “Connected Home 2.0”, 2018. (Last accessed 09 July 2020).
F. Javier Bustos Ugarte is head of Affinity for Southern Europe. Willis Towers Watson Affinity consults with organizations to ensure their insurance programmes serve as a valuable and credible extension of their business whilst improving customer satisfaction and driving long-term customer retention. This article ©2020 Willis Towers Watson. Used with permission. Originally published here.