While the advent of smart home solutions has created new revenue streams for residential security companies and subsequently increased the value that an alarm system provides to consumers, the technology still faces several challenges that could hinder its growth moving forward.
In fact, according to Tim Hewitt, analyst for security and building technologies at IHS Markit, while the initial uptake of smart home systems by early adopters was in line with expectations, existing market barriers have become more significant as companies have tried to expand their offerings to the broader market. As a result, Hewitt said the market research firm has revised its forecasts to account for the lack of broader consumer interest in connected home products.
The connected remote monitoring market in the Americas is expected to grow at a compound annual growth rate (CAGR) of 15.9 percent, from 5.5 million subscribers in 2015 to 11.5 million 2020, according to IHS Markit’s latest "Remote Monitoring Services Report." While the growth in this segment is strong, Hewitt said the traditional side of remote monitoring is experiencing a decline as consumers migrate toward connected products. For many service providers, the growth in connected systems is not providing substantial top-line subscriber growth but it does help counter the decline in their traditional security business.
According to Hewitt, some of the most significant barriers to mass-market adoption of smart home products include:
- Consumer awareness. While there has been some increased marketing activity around smart home technology over recent years, Hewitt said the effect of this increased exposure on smart home products has been less than expected. However, progress has been made in overcoming this barrier, with research showing increased consumer awareness of smart home technology. Telecom companies have been instrumental in increasing this awareness. Apple’s entry into the consumer-facing side of the market will also serve to markedly increase awareness, according to Hewitt.
- Fragmentation. Due to the many and various closed ecosystems and devices, Hewitt said the smart home industry is not very user friendly, which is subsequently inhibiting growth. Consolidation in the smart home market is happening slowly, as AllSeen, Z-Wave and Weave alliances work to create industry standards and promote interoperability. Recent news from Apple about an iOS 10 app that will control all HomeKit-enabled devices is yet another step toward a unified smart home consumer ecosystem. Apple Home is expected to stimulate the accessibility of do-it-yourself (DIY) systems and reduce the confusion caused by fragmentation within the industry.
- Device and service reliability. It only takes a few reliability issues to tarnish the reputation of an entire industry. While strict guidelines and regulations within the security industry mean that the core function of professional security-based smart home systems is reliable, Hewitt said many other systems and devices suffer from technical issues that adversely affect the consumer experience. These issues are not necessarily the result of particularly bad product design; instead, with so many moving parts, there are a lot of things that can go wrong in a smart home system. Even when everything does work, sometimes a product may not deliver exactly the kind of experience the consumer needs or expects.
Despite these challenges, research has revealed that there is still a lot of consumer desire and enthusiasm for smart home devices and systems. Surveys show that half of consumers in North America plan to purchase smart home devices within the next year, but Hewitt said these types of findings can also lead to overambitious projections for consumer adoption.
Hewitt said that professional security providers are still in a prime position in the market as most consumers prefer professional installation or a "do-it-for-me" approach to smart homes. In addition, security providers and telecom companies are leading the North American market in terms of the install base of smart home systems, and they have experienced strong growth in recent years, as early adopters and tech enthusiasts flocked to these smart solutions. However, maintaining a high level of growth is becoming more difficult, as these companies encounter the aforementioned barriers to the mass market.
"The reality is that most consumers have been hesitant to spend their hard-earned money in a market still striving for stability and reliability. Monitored security systems have been able to circumvent the high initial cost of smart home solutions, using an ongoing fee-based business model to spread out costs over time, and attach smart home products to ongoing services consumers deem valuable," wrote Hewitt in a research note.
Click here for more information about the "Remote Monitoring Services Report."
