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Four Factors That Will Drive Home Automation

Within the tech world, there’s plenty of excitement over the potential for home automation – i.e. the prospect of controlling the functions in your home (temperature, lights, etc.) from your smartphone or from a single dedicated device such as Amazon.com Inc.’s (AMZN) Echo device.

Frankly, though, a fair bit of the excitement is just hype – and reality hasn’t caught up.

Some of that is due to reasons that will be hard to overcome. As I’ve noted in the past, there are a few home automation “tasks” that are already pretty easy, and unnecessary to control remotely. For example, the number of people who want to control the lighting in a room they’re currently not in, is probably pretty small.

But even some of the more advanced applications that would simplify daily tasks are having difficulty gaining traction.

When Will Automation Become Automatic?

Take the Nest thermostat, for example, which has seen disappointing sales.

As you may know, Alphabet Inc. (GOOGL) owns Nest and while it doesn’t reveal specific revenue details for its smaller companies, most estimates put Nest’s revenue last year at about $340 million.

That would represent about 1.5 million thermostats, but Nest also sells carbon dioxide detectors and security cameras, so the number of thermostats sold was likely lower than that.

Compared to smart meters, which consumers don’t directly pay for, that’s pretty small potatoes. There are over 58 million smart meters installed in the United States, for example.

Other similar applications and devices that should be wildly successful, have also struggled to gain traction. Even though it’s now possible to have a home security system that doesn’t depend on a company like ADT Corp. (ADT) – and at a fraction of the price and with much better quality than was available just a few years ago – sales are tepid.

However, there are some signs that the United States is edging closer to greater adoption of home automation devices. What are those signs?

~ It’s Easier to Control the Controllers

In previous columns on this topic, I’ve criticized the myriad “universes” available to control home automation devices. For example, you need one system for the lights, another for the security system, yet another for the thermostat, etc.

But we’ve also noted that easier, more streamlined solutions are rapidly becoming available.

The biggest one, of course, is Amazon’s Echo. But the imminent arrival of Google Home will complete many of the same functions.

And Apple Inc. (AAPL) also announced an upgrade to its HomeKit app, which vastly simplifies the controls. For example, you can now simply say, “I’m going to bed” to Siri and it will automatically close the shades, turn off the lights outside the bedroom, adjust the thermostat, turn on the security system, and do whatever else you might want to do before turning in. In the morning, say “Good Morning” to Siri and it will reverse the process… and start the coffee, too!

Google, Amazon, Apple, and Samsung are expected to engage in a race to design the easiest-to-use, most convenient, all-encompassing devices, as they battle for dominance in this emerging industry. More capabilities and more simplicity at lower prices will encourage more homeowners to make the leap.

~ Compelling New Products

As products like Echo make it easier for homeowners to use automation, new products are being introduced to feed a growing market. This includes combining moisture detectors with timed watering systems for plants.

In addition, the aforementioned home security systems will eventually be good enough to pose a real threat to companies like ADT, who make their revenue from expensive annual subscriptions. Products like Notion, which I covered last week, allow consumers to pick from a broad range of potential monitoring applications with a single product at an approachable price.

Very few homes will need every application, of course, but as more homeowners find themselves desiring a larger number, the more they’ll find it worthwhile to invest in a centralized control system.

~ Retailers Upping Their Game

Even with simplified AI devices like Amazon’s Alexa, many home automation devices are still seen as complicated, and most consumers continue to regard the devices as unnecessary and it’s not always apparent what the benefits are. Consumers need to be sold on them.

Most retailers selling these systems have so far been content to allow the manufacturers to create their own sales tools, but this approach won’t work in the long run. Customers need to be walked through how systems from different manufacturers can work together to provide an overall solution to their home automation needs.

Happily, some companies have realized this, and are starting to change how they sell smart home products. The leader here is Target Corp. (TGT). It’s introduced a dedicated “store in a store” called Open House to explain how smart home devices work together.

The first experimental center opened last year in San Francisco and Target has taken the lessons it learned there, to put Open House in stores near its Minneapolis headquarters. Results show that Open House has significantly increased sales of smart home devices, and so, the benefits of doing it in other areas are obvious in terms of igniting the market. If Target’s success continues, look for other retailers to copy the approach.

~ Homebuilders Are Looking for an Edge

Given the intense competition in the homebuilding industry, companies are always looking for an edge that will tempt buyers to their communities, rather than those of their rivals’.

On the high end, this means more market-pleasing amenities. Past fads have included professional chefs’ kitchens, first-floor master suites, spa-style bathrooms, and ecologically-friendly features like geothermal pumps and upgraded insulation.

The latest initiative is smart homes, with many upscale builders including smart home features as an option when the house is built.

Some are going even further. Salt Lake City builder Candlelight Homes includes several smart home features with every new home purchased – even including those selling below the national median home price.

In addition to the standard functions like lighting control, thermostat, and security system, the company also offers options like control of the home’s blinds, sprinklers, locks, and home theater. The company even has its own app to control the system – though I expect that to change as third-party controllers become more popular.

All of these trends will combine and reinforce each other over time, with each expansion of the market for smart home devices triggering the next wave of adoption.

With the pieces gradually beginning to slot into place, it’s clear that widespread adoption of smart home features is ultimately inevitable.

To living and investing in the future,

Greg Miller

Greg Miller

, Senior Analyst

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