Smart Home Report 2020 (PART 1)

Statista Digital Market Outlook – Market Report

The market outlook presents up-to-date figures and an in-depth analysis of the Smart Home market

- Introduction

Smart home and the Internet of Things (IoT) are irrevocably entwined and the IoT is one of the most disruptive trends at the moment,affecting a large number of traditional industries. The rising number of connected devices and sensors can be controlled via smart algorithms such as machine learning tools and together form the IoT. The use ofthe IoT in the context of private households defines a smart home. The possibilities to automate processes in a domestic context are almost 

unlimited. In Statista’s Digital Market Outlook we divide the Smart Home market into the segments Smart Appliances, Security, Control and Connectivity, Home Entertainment, Energy Management, and Comfort and Lighting.

With this report we provide a comprehensive overview of the current Smart Home market as well as a prognosis of developments withdetailed information. Besides all relevant market figures like total and average revenues and the number of smart homes for the years 2019 to 2025, we analyze current trends and give important background information on key players, start-ups and other deep-dive topics.

In continuation of the prior Smart Home Outlook Report we have also added new content. We now show user demographics, selected key market drivers as well as new company profiles and deep-dive topics. Furthermore, besides our known focus regions U.S., China and Europe, we now also provide detailed figures on the top 5 EU countries to enable more insights into the market.

The Smart Home market is divided into 6 segments primarily based on use cases

- Overview: Segments

They are:

1. Control and Connectivity

▪ Gateways/hubs that are capable of controlling devices of all segments

▪ Smart speakers with a primary focus on control, and digital assistants

▪ Control buttons and smart plugs/sockets

2. Smart Appliances

▪ Large appliances such as fridges, washing machines, dish washers, ovens

▪ Small appliances such as coffee

machines, vacuum and mowing robots, microwaves

3. Security

▪ Digitally connected and controlled devices for burglar prevention and other security issues

▪ Motion sensors, door locks, security cameras, Hazard prevention devices like water or smoke sensors

4. Home Entertainment

▪ Connected and controlled devices for entertainment purposes

▪ Multiroom entertainment systems with entertainment focus

▪ Entertainment remotes

5. Comfort and Lighting

▪ Digitally connected and controlled devices for living atmosphere improvement

▪ Smart lighting/bulbs ▪ Window/doorsensors, shading devices, garage door controls

6. Energy Management

▪ Digitally connected and controlled devices for energy conservation

▪ Included products: Thermostats, Radiator controls, Temperature/ wind/ humidity sensors,Air condition controls

The U.S. is the largest global Smart Home market with revenues of US$23.8 billion in 2019

- Overview: summary and key takeaways

Summary

The Internet of Things (IoT) is one of the hot topics when it comes to digitization and disruptive changes to traditional industries. The globally rising number of connected sensors leads to more and more data. With the use of smart algorithms such as machine learning tools, these data can be used to control actuators. These sensors and actuators are what we generally call IoT. Applying the IoT in the context of a private household is what is commonly known as a smart home. The 

possibilities to automate processes in the domestic context are almost countless.

The biggest Smart Home market in 2019 is the U.S. with revenues of US$23.8 billion. Although the prospects are positive, growth rates are expected to be significantly lower than in China, with 17.3% annually. This will lead to revenues of US$51.2 billion by 2025.

The European market is worth US$18.4 billion in 2019, with Security as the biggest segment with US$4.1 billion. Sales are expected to grow at a CAGR1 of 14.1% up to 2025 and result in revenues of US$40.6 billion.

In the Chinese market, revenues of US$19.6 billion have been generated in 2019. Smart Appliances account for the biggest share of these revenues with US$6.2 billion. Judging from the high CAGR1 of 17.1%, the whole market is expected to exceed revenues of US$51.2 billion by 2025.

Key takeaways

▪ Control and Connectivity

− Foundational segment for setting up the home network with revenues of US$19.0bn in 2019 and US$39.7bn by 2025 

▪ Smart Appliances

− Second largest Smart Home segment in 2019, with revenues of US$19.0bn, a CAGR1 of 17.7% and revenues of US$50.4bn by 2025

▪ Security

− Security is one of the most relevant topics for customers, generating US$16.8bn in 2019 and US$44.0bn by 2025 

▪ Home Entertainment

− Classic market entry segment with revenues of US$11.2bn in 2019 and, following a CAGR1 of 11.4%, US$21.5bn by 2025

▪ Comfort and Lighting

− Easy-to-install market entry segment with revenues of about US$7.7bn in 2019 and a CAGR1 of 21.4% leading to US$24.8bn by 2025

▪ Energy Management

− Includes products for energy preservation and thus cost savings, generating US$6.2bn in 2019 and US$15.0bn by 2025

The global Smart Home market is worth US$80.0 billion in 2019 and is expected to grow even bigger

- Estimated market development: revenues (1/2)

Out of the major regions, the U.S. will still be the biggest market in 2025

- Estimated market development: revenues (2/2)

The global Smart Home market will fall 7% short of revenue expectations in 2020

The Smart Home market comprises both: start-ups and established companies

- Key player landscape

A smart home ecosystem consists of many intersections and entry points

- Smart Home ecosystem

Trend leaders and drivers are seen very differently by industry experts

- Expert voices in the market

There are still substantial market entry barriers for mass market consumers

- Selected key success factors

Brand awareness

Brand awareness is the most important aspect of all marketing campaigns. The smart home industry needs strong brands that unite different elements. Brand awareness for smart speakers, for example is already high but more specialized products often lack awareness.

Mass consumer sales channels

As the market is developing more and more into a general IoT, an early integration of products in mass consumer sales channels is important besides listings on eCommerce platforms. Also a go-to-market strategy can deliver unique value propositions and break down purchase barriers with trained staff at the point of sale.

Compelling cross-segment propositions and broader ecosystems 

Customers want products without limitation to e.g. energy management or security needs but potentially for all the demands they might have. This means that companies need to either implement functions that they previously considered out of their segment, or at least provide the possibility to easily connect other products to the ecosystem. Multifunctional devices should focus on consumer needs and not on integrating as many functions as possible.

DIY installation

The need for professional installation is always a cost driver and time consuming, therefore also a possible purchase barrier for customers.

Simple customer journey

Mapping the customer experience and optimizing all touchpoints is important for every complex product. After-sales service and easy-tohandle service enquiries are often neglected.

Support for industry standards

Missing interoperability is one of the main purchase barriers (slide 14) 

Voice control

Voice control has disrupted the whole digital economy. There is no doubt that it will stimulate growth in the market. However, not all use cases will include voice control, touch will remain an important way of device access. Nevertheless, extensive voice integration is an important step in nearly all use cases in the smart home environment.

AI, machine learning and more analytics

The progress in AI is unstoppable and will make smart homes autonomous in the future. The question will be how much use cases should be user or AI driven.

Data security and privacy concerns

Due to comprehensive networking and individual adaptation to user behavior, personal data protection and technical data security are particularly important topics. Data traffic must be protected against unauthorized viewing and access.

Missing interoperability is still one of the main barriers for consumers adopting smart home devices

- Home automation protocols

Smart home protocols and interoperability

Smart home devices communicate via wireless networks on bandwidths that are often not compatible with each other. Companies use various communication protocols while each protocol has its own appeal for 

different technologies. Devices that use other protocols are generally controlled via separate apps or control units. Many companies use proprietary communication standards in order to build market entry barriers for potential competitors and to prevent customers from switching to existing competitors.

Some companies also tried to standardize protocols and there is an increasing amount of software solutions which support multiple communication standards, but till now, there is no uniform standard. Last year’s launch of Bluetooth LE mesh was another step towards addressing the challenge of interoperability. Nevertheless, consumers still have to check which devices are compatible with one another.

Communication protocols are only one part of automation capabilities. If consumers want to use cloud-based voice services and personal assistants, they also have to check their compatibility. Not all devices can be controlled via Amazon Alexa or Google assistant.

Selected protocols for smart home solutions

Bluetooth

Short-range wireless protocol (around 10m) with adaptive frequency

detecting existing signals

WiFi:

Wireless local area networking based on IEEE 802.11 standards 

KNX:

Open decentralized protocol for building automation, operating on more than one physical layer (e.g. infrared, ethernet etc.)

Thread:

Wireless protocol used by Nest, Samsung, QUALCOMM or OSRAM; 

Devices can communicate even when the network goes down

Zigbee:

Wireless protocol which operates in a mesh network, using a device to relay a signal to other devices, strengthening and expanding the signal

Z-Wave:

Open source mesh network protocol owned by Sigma Systems which is slower than Zigbee but requires less energy

Integration is the key to success in the smart home business

- Trend analysis (1/3)

Cross-segment integration

While many companies used to see the single smart home segments as clearly distinguishable in the past, we have been observing a shift in this understanding for some time. Customers do not want products whose functions are limited to single purposes such as energy management or security needs, but prefer devices that meet all the potential needs and demands they might have.

This means that players in the market need to either implement functions that they previously considered out of their segment, or at least provide the possibility to easily connect other products to the platform/ ecosystem.

Smart assistants

Next to the smartphone, which already serves as a quite comfortable controlling device for smart home products, we see many users controlling devices with smart assistants such as Siri, Alexa or Cortana. With Amazon’s introduction of its Echo assistant, the speaking devices became part of the smart home. Google followed with its Google Home device, DingDong by LingLong was introduced and Apple’s HomePod as well as Baidu’s Raven followed in 2019, also Samsung announced its Galaxy Home speaker.

On the one hand, those assistants offer another possibility to control peripheral devices; on the other hand, they offer a higher level of AI learning to the Smart Home: Smart Home devices (e.g. a thermostat) learn certain patterns in an isolated way, but Smart Assistants could take these to the next level by synchronizing and 

optimizing cross-device communication and thus orchestrating functionalities and automating obnoxious 

procedures in a household.

Moving past the early adopter stage, the market still shows a diverse key player landscape

- Trend analysis (2/3)

Multiple key player landscape

IoT initiatives by Google, Apple, Amazon or Alibaba have already changed the smart home landscape 

noticeably, providing opportunities for all kinds of companies, but they have also forced market consolidation. The big tech players are rapidly expanding their product portfolios in the smart home field with huge 

investments, e.g. Amazon acquired Ring in 2019 for US$1 billion or Google which already acquired Nest for US$3.2 billion back in 2014. Nevertheless, several market segments still have no clear market leader. We 

believe that the smart home industry will emerge as a robust environment with multiple key players with strong brands in every segment. Manufacturers, telcos, energy suppliers, medium-sized companies or start-ups still have chances in the future, where practically every product in the average home will be connected in an economical way with the internet.

Data sharing and security concerns

The connection of every device, more sophisticated AI-driven services and the gathering of a gigantic amount

of data will bring along a big challenge for data transfer solutions. Sharing the data of homeowners with 

businesses will probably foster growth of new individualized technologies and services in the market. Data that are shared with smart devices will therefore be of great interest to companies.

Considering the handling of all these data, security concerns will become even more relevant. Consumers are already worried about data security breaches in the context of smart homes and providers have to respond to these concerns. Due to the fact that there are currently no minimum requirements, there is no standard for implementing cybersecurity into smart devices. All relevant providers should approach these issues from acost and value perspective. As the IoT market evolves and more consumers are willing to convert to connected homes, market demand for cybersecurity features will definitely increase.

Other markets will integrate into the smart home business

- Trend analysis (3/3)

Usage-based insurances

The two main areas where smart or usage-based insurances record the greatest advancements are connected cars and smart homes. The idea is simple: people who live carefully should pay less for their insurance than people who are more likely to be in the need for an insurance payment. A few years ago, such usage-based approaches were not possible, but with the introduction of a variety of sensors, they are today. With those sensors it is possible to identify what kind of behavior is potentially dangerous, and the frequency with which consumers behave in a risky way can be recorded as well.

This way insurances can become more accurate. Obviously both sides benefit: Consumers can benefit from lower fees and insurances from fewer claims. The only problematic aspect that remains is data security.

Cross-market integration

As mentioned previously, consumers rather want smart home devices which potentially connect to other areas. This applies to the segments on the one hand, but also different areas in life in general. Considering, for example, the entertainment segment, customers want the same availability of streaming services in all situations (household, car, phone). Thus, it is necessary for companies in the smart home market to ensure compatibility with cross-industry services such as media streaming.

Next to the insurance business (see above), eCommerce is worthy of being integrated, as the recent trend of dash buttons shows. These one-click purchases are likely to become automated even further as customers are likely to want certain things like toilet paper or laundry detergents reordered on a regular basis. These are only a few examples of possible ways in which smart homes will be integrated in a broader context.

To be continued... ... 

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