Smart Home: Business models for success

The smart home market is  growing at an exponential rate, and so are the range of business models, from traditional through to decidedly bleeding edge, a vast range of opportunities exist to suit almost any business. What’s more, the only thing that is completely certain is that the range of models has only just begun to evolve - we have only scratched the surface of the possibilities across Europe and beyond. 

There is a clear evolution taking place however, between the traditional business models that many would take for granted, and newer, more innovative strategies that point the way for this most dynamic of markets to develop over the coming years.   

For example, pay monthly subscription-based services will be familiar to most consumers, as well as many businesses too. Telco providers and utility providers in particular have established billing systems and relationships with the end user that make this a popular option in the burgeoning connected home marketplace. Many utilities throughout Europe have established successful new models by supplying a smart home gateway, apps and compatible devices on a 24-month contract basis. 

Of course, direct consumer hardware sales need a mention here, and while the basic version of this model - such as traditional high street retail - is familiar enough, there are plenty of innovations here. For example, industry verticals not traditionally associated with retail are beginning to use extensive customer databases to sell white-label products direct. Slovak Telekom, one of the largest telcos in Slovakia, has recently launched a consumer offering with an initial focus on protection and monitoring, energy conservation and home automation. It’s not just a market for telcos either - trans-European utility provider Vattenfall is seeing considerable market interest in different Smart Home packages bundling the QIVICON Home Base, app and hardware. 

Meanwhile, pay-as-you-go models are delivering excellent results for many businesses across Europe, in particular utility providers in Germany. One particular company is offering six-month Prepaid Smart Home packages, including a gateway, app and hardware, while others use a combination of hardware bundles of a gateway with app, compatible devices and one-time payment/24 month packages. This combination has proved successful by lowering consumer uptake barriers and hugely simplifying billing. 

An interestingly niche business model is regulatory-based, particularly complex across European countries, but due to some national utility regulators allowing smart thermostats within their energy obligation targets it is proving popular. Smart thermostats are often regarded as an excellent initial toe-hold in consumer’s homes, and the combination of recognisable consumer benefits and government regulation has meant that many European utilities have become very successful in signing up large numbers customers to these devices. 

The bundling of services has proven one of the more innovative models in operation currently, with one notable area linking connected home products together with new green energy tariffs. This has resulted in considerable cross-pollination, for example by signing up to a specific energy tariff consumers also receive a voucher for a Smart Home Starter Pack. 

The growth in bundling partner services have resulted in some truly new and exciting partnerships. In one example, Dutch telecoms giant KPN has rolled out Deutsche Telekom’s smart home platform and entered the market with ‘KPN SmartLife’, a service that offers users control over their security, energy and comfort. The company has partnered with third parties - notably security experts Trigion - to add additional, bespoke functionality to their offer. In some cases, insurance companies are partnering with 3rd party smart home security product manufacturers to extend their reach and user base.   

Finally, loyalty-based models are alive and well, specifically where new and exciting connected home products are leveraged to mitigate consumer churn. One major European utility has road-tested this theory, with strong results, significantly reducing customer churn by providing connected home thermostats to customers. It is certain that this is just the tip of the iceberg for this model. In the near future, a smart-home may be able to tell a utility company that a house is insufficiently insulated in one wall, allowing the utility company to be able to offer the consumer free or discounted insulation services in return for a longer contract.   

In the imminent future, we expect to see a wide range of other models like affiliate programmes or metered use begin to find their footing and deliver powerful use cases too. In addition, micro subscription services, such as washing machines automatically reordering powder, to shavers or coffee machines monitoring consumables and reordering as necessary will become a reality - much of the technological and logistical groundwork for this is already in place.   

The technological growth of the connected home market will also drive new use cases - as previously mentioned the home insurance industry has multiple opportunities to partner or incentivise consumers directly by offering lower premiums to consumers with smarter homes, but this has been hindered to date by a limited number of sensors on the market. A range of recent consumer launches of water and humidity sensors will begin to address this, and augment the already maturing smoke alarm market, where a popular package is Deutsche Telekom’s compact alarm system which bundles QIVICON (our smart home platform) compatible security devices, including a camera and smoke alarm.   

Additionally, we will begin to see models based on leveraging data in more innovative ways, such as aggregating third party data or through affinity relationships built around an ecosystem. Data - and the security of it - is increasingly a live issue for businesses and consumers alike, and the value of that data and the ability to interpolate and segment it in new and exciting ways will only become more important. Another important realisation for businesses is that success in the competitive smart home space may well depend on innovating around the business model, but not at the expense of their core business. Developing a smart home offer that extends, builds upon or indeed consolidates their already successful USP will be the mark of the successful contender... 

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Thomas Rockmann, VP Connected Home at Deutsche Telekom 

Image Credit: Bergserg / Shutterstock