Smart Home Adoption in Europe

Learning the Adoption and Drivers There Could Help Find the Path to an International Roadmap

As we examine the wave of new smart home product offerings that will surely arrive in 2016, we must ask 3 questions:
1. Do these products solve a tangible consumer need?
2. Are they delighting those that use them?
3. Will they interoperate with other smart home products and services?

This article addresses the adoption of smart home products and services in Europe, the value propositions that most resonate with consumers, examples of innovation and new business models, and recommendations for key stakeholders to move ahead.

The Latest Adoption Numbers
Parks Associates research finds that adoption of smart home products has risen to 19% in the US. The U.K., Germany, Spain, and France have roughly the same penetration among broadband households. However, over 50% of broadband households in the U.K., Germany, and Spain are "not at all familiar" with smart home products or services.

Key differences between the US and Europe contribute to their disparate smart home growth rates. First, houses in Western Europe average just over 100 square meters; houses in the US average more than 200 square meters. Therefore, demand for automation is, literally, larger in the US. Second, Western Europe has a much higher percentage of multifamily housing than the estimated 35% in the US. This higher percentage decreases the need for in-unit home security systems; security systems within these buildings often fulfill the need for individual systems.

Awareness of smart home products is still low, hovering around 10% for products and services. Technology and interoperability issues need to be resolved. Value propositions and marketing efforts need to be clearer to help drive the adoption of smart home products.

Still, the growth rate for smart home product adoption in Western Europe is very good, especially considering that smart home products have only begun to address consumer needs.

Adoption Drivers in Europe
In every country that Parks Associates surveys, safety and security are the top priorities for consumers considering home security.

U.K. home security provider Myfox suggests that self-installed, self-monitored systems will serve this need well by providing faster responses to break-ins through alerts on personal social media networks. CEO Jean-Marc Prunet claims that DIY systems will double the penetration of security systems in 10 years.

For smart energy solutions, the EU regulatory framework could help drive wider adoption. Two factors raise the importance of energy management relative to the North American market: European Union mandates for reduced energy consumption, and greater use of renewables combined with relatively high energy prices in some European countries.

Munich’s Allianz, the world’s largest insurance company, seeks to leverage smart home technologies to help reduce claims from burglaries and damage from fire, smoke, and water. Realigning insurance premiums based on the use of home monitoring equipment will be a reality, given the availability of data generated by the connected home. Subsidies and discounts for smart home systems offered by energy and insurance providers will accelerate adoption in all markets.

In many cases, the smart home industry is focused on providing systems that can be expanded to provide added features and functionality while also protecting consumer privacy. This is the right approach. However, until vendors provide elegant solutions to solve actual consumer needs, little demand (pull) exists for smart home systems.

The steps to consumer adoption must follow a clear set of guidelines:

Focus on a consumer need, not on a system — Nest provides a simple example of a path from single use to system. The company’s product line expanded from a single consumer use case — ceasing to heat or cool a home when it is not occupied, without the complexity of programming — to a system solution that now includes a camera and a smoke detector. Parks Associates believes that offering a point solution that successfully addresses a consumer need is a critical step that many systems providers have skipped.

Embrace industry standards — Often, Parks Associates is asked to identify the winner of the smart home interoperability challenge. Multiple standards will continue to co-exist. Wi-Fi, Bluetooth, and LTE will continue to connect millions of devices. Specialized radio frequencies, which effectively address specific device applications, will face increasing competition from improved versions of these common standards. New alliances, including Thread Group and AllSeen offer a number of paths to interoperability without mandating a winning radio standard.

Create an emotional attachment to a product — Entertainment, convenience, and control are, arguably, stronger motivators than cost savings. British Gas found that their Hive temperature control product is used more frequently from the couch or the bed than from outside of the home. Financial savings are important when rationalizing the purchase of a product, but "not getting out of bed to change room temperature" proved far more engaging than saving a few pounds on the heating bill.

A successful smart home product aligns consumer needs with vendor needs — As U.K. energy controls company geo, makers of the Cosy remote boiler control device, states, convenience and simplicity inspire consumer confidence. Additionally, Scottish Power and its control device partner, climate of Ireland, satisfy consumers and suppliers. It combines customer convenience and energy savings with the utility’s need to conform to government conservation mandates while lowering churn.

Offer alternative business models — Parks Associates’ European surveys confirm that consumers prefer a one-time purchase model over a recurring monthly fee. However, consumers who are convinced of the value of their smart home solutions are willing to purchase add-ons.

Signs of Success
Simple solutions sell.

eQ-3, a German controls manufacturer, has sold several hundred thousand wireless boiler control apps and modules since June of 2015. The company offers a plethora of connected devices as part of its proprietary ecosystem and the option to connect to other networks; however, its emphasis is on building products that are simple and affordable.

RWE is another example of a retail energy provider with a vision for smart home. RWE has developed a smart home platform that includes security and energy-related products and has over 50,000 subscribers.

Dixons Carphone, the combination of 2 of the U.K.’s largest retailers, stocks multiple smart home products in its stores despite low consumer awareness. European retailers John Lewis and Euronics have also committed to the smart home category, acknowledging that an emphasis on building awareness will precede strong sales.

Deutsche Telekom is currently embracing and integrating third-party solutions and standards into its solutions. The company says that multiple business models must be offered to generate significant interest in smart home products.

New smart home providers such as Croatia-based Zipato, Austria/Silicon Valley’s ROC-Connect, and Finland’s Cozify have entered the race, joining established European security offerings from players such as Verisure Securitas Direct.

CES® 2016 was crowded with new, low-cost smart home solutions. All will not survive, but each will help raise consumer awareness of the possibilities available today.

A Good Start But a Long Way to Go
The European smart home market is well on its way to steady growth. Lower demand for professionally-monitored home security means that energy providers, insurance companies, telcos, and retailers will have to share the load of driving awareness and interest and in creating new business models that lower barriers to adoption. They will also have to counter consumer security concerns regarding the smart home. One-third to one-fourth of broadband households in Western Europe are "very concerned" about unauthorized access to smart home solutions.

In these early days, formation of key partnerships and alliances may protect current market participants from future disruptions. As Wouter van der Beek, VP of UPnP Forum, states, now is the time for existing players to work together and show some strength before the giants come to the market.

Endnote
1. Source: www.demographia.com
2. Source: White paper The Demographic Shift from Single-Family to Multifamily Housing, The Federal Reserve of Kansas City, by Jordan Rappaport (http://www.kansascityfed/) and (https://www.kansascityfed.org/publicat/econrev/pdf/13q4Rappaport.pdf)
3. Source: Parks Associates Tablet and Smartphone NUMBERS™, 2015
4. Source: Bernd Grohman, company CTO