Despite the hype about connected homes, the market hasn’t taken off. Yet.

The focus to date has been on the basic, rational features – turning lights on. Turning the heating on. But what’s going to turn the customer on? Deutsche Telekom’s market analysis report, ‘How to create growth from the connected home’, states that connected entertainment, energy, appliance, security and healthcare systems were predicted to surpass 100 million in number worldwide by the end of 2015, and will triple in the next ten years’ time to over 300 million, more than breaking $100 billion in revenue on the way in 2020.

The opportunity is huge. But what’s key to connected homes success? We raised the challenge with industry experts as part of a series of roundtables events. We spoke with consumers. We bent our brains to the problem. And here are our three recommendations for success in the connected homes space.

#1: Solve a real problem in your customer’s life
Pick your target customer, and understand their needs. Customers are emotional about their home: the people, the design and the decoration. Their emotional needs must be addressed. Customers want to know their loved-ones, especially the elderly, are safe. This is a great example of a problem that can be solved with connected technology. And one for which customers are likely to pay a premium. Dolmio’s “Pepper Hacker” campaign aims to help improve interactions during family meal times. The wellbeing and safety of pets, plants, and family are all emotive.

Switching your lights on remotely and saving 10% on energy aren’t emotive. It’s not features or rational benefits that customers will buy into.

Design a simple and intuitive customer experience. Customers want instant gratification, not interference from technology. They want feedback from their devices. Consider how the experience can remove tasks and information. Consider how to ensure that the product or service can demonstrate that it is adding value, and has received a command, in an unobtrusive manner. The Nest thermostat does many of these things well (despite their recent promotional video focusing on saving money – a rational benefit).

Time it well. When designing your proposition, plan how and when a customer will be persuaded to buy your service. Are they more likely to purchase as part of a regular upgrade? When they move home? Or following a key event? Learn from the data you have at your disposal.

#2: Be brave with your business model
Be brave when designing and building your business. The connected homes market is still in its infancy, and the model that has worked in the past will not be that of the future. ADT took a bold step when they de-coupled their home monitoring service from their technical products to create their ADT Canopy subscription service, which supports smart devices that compete with their own.

Use data to drive benefits for your business. One example is to drive out cost through pro-actively identifying and resolving issues before they happen. Provide enhanced value to your customer, through understanding and serving them better. We see insurance companies providing bespoke policies based on customer data, and faster response times. Data will be a critical asset for any connected homes business. We’ll be watching to see how different organisations leverage that data to create unique and compelling business models.

Prepare for the next phase for the connected home, which we believe will be services. The media sector provides a good precedent in services such as Netflix or Spotify, which are product agnostic, and future home services will emerge to weave together the newly smart home devices.

#3: Build partnerships – you can’t do this on your own
Embrace collaboration. Combinations established to address customer needs will be stronger than the sum of their parts. No single organisation will be able to address customer problems in this space on their own. Companies will need to work together. We have seen Nest and Hue being co-promoted around solving customer problems. Audi and DHL have created a joint solution to allow parcels to be delivered to customers’ boots.

Inter-operability of the technology will be key to allow sought after services. Having just one or two common technology standards across the sector will allow different products and services to combine simply and easily. Standards are consolidating. The Allseen Alliance has driven one set of common standards, with Apple and Google driving their own ecosystems.

There are lots of tech savvy consumers who have combined devices to make their lives easier. We’re now ready for mainstream consumers, who will need simple, easy, and seamless solutions before they are persuaded to invest in the new technology. They will be impatient of barriers between products and services. As such collaboration and partnerships between businesses will be critical.

Conclusion
There’s exciting opportunity in the connected homes space. The market will continue to transform and grow rapidly. We see the first wave of products such as Sonos, Nest and Roomba being swept forward by a tide of products and services. They’ll need to simplify customers’ lives. And respond to emotional needs. And have the wonderful design needed to embed themselves in our homes.

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If you’d like to chat through challenges you’re facing or understand more about connected homes opportunities, get in touch with me.
toby.wood@marketgravity.com