Six Evolving Business Models for the Smart Home

For decades, the promise of the smart home has tantalized businesses looking to capitalize on the dynamics of connected technologies in the home, predicting and managing the desires of the occupant entirely without human interaction. Now, with the ascension of artificial intelligence from dream to near-reality and the growth of the Internet of Things (IoT), we’re closer than ever to realizing the dream.

Yes, smart home technology is here to a certain extent, but experts predict the truly interconnected smart home, where devices and appliances can talk to each other may still be a decade away. There are important issues such as data security and interoperability between devices to address.

The challenge until then for manufacturers and service providers is how to maximize the revenue potential from stand-alone, pointed appliances and devices using smart home technologies that provide added-value to homeowners. The market is there. An estimated 854 million smart home devices were shipped worldwide in 2020 alone, according to IDC. 

Smart companies today understand that traditional models of one-time sell through of products, or standalone products that cannot be monitored intelligently, provide little or no opportunity to create a relationship with consumers and establish brand loyalty. They also realize that in today’s market, their products can serve as revenue generators with the data they gather based upon a homeowner’s energy usage, security connectivity and/or home entertainment preferences.

The revenue potential of connectivity is actually one of the main drivers of a company's investment in smart home solutions. In fact, 42% of recent survey participants say the opportunity to create new markets or product categories is a main driver of investments. Jabil's latest Smart Home Technology Trends Survey also reveals that 99% of respondents believe connected home solutions enable new business model opportunities. 

A good business model for companies looking to capitalize on the smart home revolution should contain many, if not all, of the following elements:

1. Personalization is Still King

One thing that will remain constant in the future of smart home technologies is that companies must be prepared to create a unique user experience through engaging content and social media. Using data accumulated by a product, more opportunities exist for companies to craft messaging, plus deliver product and service information that is specific to the user’s tastes, past purchasing habits and product usage.

Companies can provide access to social network-powered communities that generate positive experience feedback and share helpful tips and product recommendations. According to the Jabil survey, 50 percent of smart home and building solution providers expect to create new solutions based on data collected from their connected devices.

2. Programmatic Commerce Generates Passive Revenue

Even though smart home technology is in its infancy, one thing has become clear: consumers are more than willing to delegate routine and repeated purchases of product accessories to their machines. People lead busy lives and letting a dishwasher order more soap or a coffee maker order more beans saves time.

More impressively, the smart appliance can even complete the transaction without any human input by simply accessing account information. Although these types of behaviors will need some time to be fully adopted due to security concerns or pure discomfort, they can significantly add to the long list of conveniences offered by the smart home. Thirty-seven percent of participants from the Jabil survey expect to enable this business model with connected home and building solutions. 

3. Sell an Experience and Continual Value, Not Just One-Off Products

Products are being commoditized daily. Over the past decade, the “X-as-a-Service” model or subscription model has changed the way people buy everything from the music they listen to, the movies and sporting events they watch at home and even the apps they use on mobile devices.

It now appears consumers are willing to apply that same model when it comes to making smart home purchases. Rather than simply making a purchase and owning a device until it becomes obsolete or breaks down, they can opt to sign a monthly service agreement that provides for product use and upgrades as smart technology continues to evolve.

This business model provides consumers with the connectivity and technology they are growing to expect and offers services to make family life more secure and comfortable, while generating a predictable, monthly revenue stream for businesses. This model can also offer preventative maintenance through proactive monitoring, which 44% of survey respondents expect to leverage.

4. Freemium is a Business Model

In addition to the subscription business model, highly disruptive companies are transforming their product management approach, and finely parsing solutions such that the base offering might be free, and a cross-sell/up-sell motion with new offers each month are constantly delivered to the user. The home monitoring base station may be “free,” but services such as burglar detection, carbon monoxide detection, smoke detection, etc. can be added as new offers.

Net/net, product managers should shift from long, drawn out BIG products with lots of features, to a lighter “base” offering, parsing out features into “options” that can be up-sold later. Nearly one in three companies are looking to enable this business model through connected solutions, according to the Jabil survey.

5. Offer Savings and Safety

According to Simmons Research, the most sought-after smart appliances by consumers provide increased energy efficiency and greater home security. Today’s consumers want thermostats that not only regulate temperature in the home, but can also make energy purchases on their own when prices are lowest. They want security systems that can be monitored remotely and offer connected motion detectors, surveillance cameras, automated door locks and other security system components that create a safer home. You can’t put a price on peace of mind.

6. Opportunities in Interconnectivity

With any new technology, the growing pains of development can present obstacles, which savvy business people realize are opportunities. This is especially true around interconnectivity. Developing products that can drive technology to closer interoperability between appliances, through advances in hub devices or those that further the development of smart home homeowner recognition (voice, iris or face) can help businesses stand apart from their competitors.

Another issue that will probably offer unique opportunities is transaction integration where companies can create innovative payment experiences, particularly when purchases are initiated by multiple smart appliances and all of them can be managed in one place.

Putting the Smart Home Business Model in Motion

Although there are a variety of emerging devices and companies that are utilizing parts of these elements in their business models, it’s not hard to imagine a not-so-distant future.

Think about a subscription coffee service for example. By seizing on the possibilities generated through the integration of smart home technologies and improving on the current revenue model for a coffee machine, the future could bring us coffee machines that communicate with the user. From routine maintenance tips to updates about automatic ordering, your coffee machine could evolve to know your preferences in caffeine levels, how hot you like your beverages and even the exact time of day or year you prefer certain flavors.

These advancements are not limited to the kitchen either. Major brands in CPG and others are exploring opportunities to develop more meaningful relationships with their consumers by connecting smart packaging solutions to smart home devices.

For example, what if your detergent’s packaging could speak to the washing machine? They could communicate about what types of materials are in a load, identify the right pour or amount of detergent and similar to the coffee machine, auto-replenish by ordering your go-to detergent when supplies are low. And what about when your devices can effectively communicate with one another? Well, then the opportunities are endless.

Regardless, it is important to note that while there may be vast opportunity in the smart home market, the user experience must always be at the center of it. While solutions like the ones we discussed may be key to “locking in” customer loyalty, we must also recognize that it can’t exist without stellar customer experiences.

A radical transformation is occurring in the way that businesses are incorporating smart technology into home products that cater to the needs of their customers. With the growing acceptance of smart appliances by consumers comes heightened expectations for convenience and functionality.

It’s, therefore, important that companies shift from a product company mindset to a solution company by embracing technology and evolving towards innovative new business models. This will help in two ways: 1) create new and accretive revenue streams for their business and 2) establish a deeper and longer relationship with the consumers that use their solutions.

A version of this article originally appeared on IoT For All on March 28, 2018.