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Monday, October 29, 2018

The Consumer Intelligent IoT Problem – Quis custodiet Ipsos custodes?

In the US alone, nearly 40 million homes currently have some sort of intelligent device installed, something from the security and safety category such as a smoke or CO2 detector; or utility management like a connected thermostat or light; or wellness like baby or elderly monitoring; or even smart entertainment like connected speakers. While on its own merit that is an impressive number, it is not the complete story of the billion-dollar trojan horse being wheeled in. The vast majority of these consumers are reporting they are moderate-to-pleased with their purchase, but also growing increasingly frustrated in how hard it is to add a second or third device. 

I want to point at that there are two categories of consumers in the market, the service buyer and the device buyer. For the service buyer, customers or subscribers choose a monthly fee in exchange for a managed home that comes with a constrained set of devices and sensors with a known interoperability. More often than not, these devices are not best of breed or even a recognized brand name, instead they are white box components that bear the brand of the provider (Xfinity, Digital Life, Spectrum, Vivent, ADT, etc). The service provider may be the customer’s cable, Internet, home security provider, or even contracted through a local electronics retailer like Best Buy. For as little as $30 or as much as $70 a month, consumers get bundled home automation, home security and a video camera with a single app and a single bill. These are the ARPU consumers that represent 40% of the installed market but a fraction of the potential. 
On the other side is the device buyer. Those consumers are typically at the higher end of the income scale and might spend more on a single device than many service customers spend in a whole year. The first step for most device buyers in the progression of their intelligent home is the direct purchase of an anchor device; a purpose chosen component that is often expensive but deemed a worthwhile spend.  Frustratingly, for too many consumers, what seems like a simple, single purchase of a smart piece of tech turns into a battle for brand loyalty versus interoperability when it comes time for the second device. 

By 2025, consumers in the US and Canada will have installed over 100M of these devices in their home, with the EU right behind them. But as many home owners are finding out, the research and purchase is not the end of the story, but just the beginning. As more and more consumers look to add additional devices, they might look at a smart lock or camera system, or many chose a smart speaker like a voice activated personal device (such as the Amazon Echo or Google Home). For many of these consumers, this is where the interoperability frustration can begin; fueled too often behind the scenes by the battle for their data. Once a consumer buys that first smart device, they have an anchor or foundation that they can build upon, or a brand loyalty they might adhere to. This is a foray into an ecosystem, and often unbeknownst to the consumer, is going to lead to frustration.

Let's look at my parents for an example. My mom, following a surgery, needed a new doorbell she could hear while recuperating. So that she did not need to get out of bed, I purchased a popular smart doorbell that included real time video and audio, so she could talk to the visitor. Quickly she realized she also wanted a smart lock that she could unlock and lock from her bed. Here is where the intelligent bus can run off the rails for the average consumer. The video doorbell OEM does not sell their own smart lock, but they do partner. Partnering in IoT often means little more than co-branding, or they both participate in a neutral loose consortium offering interoperability.  What they don’t tell you in the marketing pitch on the box is they both require their products to use their respective smart phone app and control system in separate Internet platforms for usage. Translation – there is no simple flow for mom to answer the video call from the doorbell app, and then hit a button on the same doorbell app and have the smart lock unlock. She would have to then remember to open the door lock app and click unlock and then go back to the video app to tell the visitor the door is unlocked or come in. 

I can hear the savvy IoTphiles out there reading this and verbalizing that this problem has been solved. But has it, based on the use case of my mother and her technical expertise? The IoTphiles are technically correct, there are an impressive number of companies trying to enter the intelligent home integration business to solve this very scenario, but they require a Masters in technical patience and understanding of a language called IFTTT. None of which my mother, who is in her 70’s, has any desire to learn. Which of course is the real tragedy. The aging and retired boomers are the demographic most in need of what intelligent home and IOT has to offer. The independent companies providing the integration or hardware “hub” solutions, are not the big tech firms offering the anchor devices. These well-intentioned companies are spending 1/1000 of what Nest (Google), Netgear, Ring (Amazon), Apple, have already invested and they are chasing the market from retail locations like Home Depot and Lowes. Those same big tech companies – ala Google and Amazon – have no motivation in their business model to offer a solution to this problem, and they have no apparent intention of selling the complete suite under a single brand of smart devices to offer a turn key ecosystem for consumers. Consumers are faced with top shelf devices that come with killer apps and brilliant UX, but underwhelming interoperability, or clever interoperability with subpar apps and hardware devices. 

Market forecasters and economists have been saying the intelligent home market could reach $20B+ by 2020, and yet we are not tracking there. In 2018 the total anticipated smart home spend in the US is expected $6B, with the average home spending $158 in 2018 on intelligent home control and lighting devices. By 2022 those numbers are expected to double to $12B, but still a long way from $20B. Something is deterring consumers. Confidence and discretionary spending are at an all-time high, with US GDP tracking at $20T for 2018. The CTA forecasts smart TV sales in the US in 2018 to be more than $16B, and smartphone sales to top $75B. It feels like the intelligent home market is still stuck in the tepid category. 
Why doesn’t Google or Amazon or Apple offer an all-in-one plug and play ecosystem themselves, or even outsource the heavy integration work but still sell it with their brand? Simple really: their business models are to sell adds, books, and smartphones, not smart homes. They are each happy to offer some kind of voice activated hub— implying that it’s easy to let their voice assistant bring all the disparate devices together— but consumers are left to make shrewd purchases, many unaware of the dependency on whether their chosen device needs to work with Nest, Alexa, or HomeKit. Let me say, a voice assistant is not the same as an intelligent home. These smart speakers are there to collect our data, and the list of real and fake or inadvertent hacks and consumer embarrassments are growing, eroding confidence in the voice assistant as the ubiquitous ambient intelligent home hub. As consumers’ data is being collected, who is watching the watchers? The EU and the GDPR and its cousin that will inevitably make it to the US and Canada are doing their best bulwark against the data collection invasion, but that still leaves my mom and the other 70 million boomers scratching their heads at IFTTT. 

There are other potential solutions to the problem with the gravitas of Google or Amazon, but so far, the cable and fiber service providers appear to be paralyzed rather than really attack this market. They would need to address something more than ARPU consumers with new business models. There is the energy provider and their unique residential consumer relationship; they are a known quantity, with an average NPS (net promoter score) higher than cable or fiber and they have the skills to offer high voltage device installs, something cable doesn’t offer in-house. But I think the real sea-change is going to come from 5G. No longer will devices require a hub to bridge the network, enable the communication in the home. With 5G enabled devices, with both low power and high bandwidth, management platforms can truly reside in the cloud and IFTTT will be replaced with ML and AI and we can see plug and play devices from any OEM. This is still a few years off, but nothing seems to say that current solutions are going to break the $20B annual revenue anytime soon. There remains a lot to unpack on the 5G solution, but I for one am looking forward to the work and the results for my mom and my family.