The Smart Home: A New Business Model September 2014

What is a Smart Home?

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Smart Home

Heating

Mobility

Entertain-ment

Home Security

Lighting

A smart home is described as “a home equipped with lighting, heating, and electronic devices that can be controlled remotely by smartphone or computer.”

The European market is estimated to be worth nearly 19 billion EUR in 2025.

The development of smart homes is changing the business model of traditional energy providers.

Advantages: Consumers

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Increased level of home comfort through the Interconnectivity of smart devices. Potential for more efficient use of devices and therefore reduced energy bills. Increased security and control. Digital access to devices from outside the home.

Photo: DigitalStrom

Advantages: Business

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New Market Opportunities

The industry is supported by EU regulatory initiatives to improve energy efficiency in buildings.

According to Article 7 of the EU Energy Efficiency Directive energy providers need to lower the amount of energy they are selling. They therefore have a special need to expand into new markets to increase revenue stream.

The smart home market means that energy providers are now offering more services that just energy and are becoming energy service providers.

Smart home chip by DigitalStrom used to connect devices. Photo: DigitalStrom 2014

Advantages: Business

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CRM Approach

The data produced by devices like the smart meter enable providers to develop a CRM business approach. Example, online user interfaces are being built to entice customers and reduce “churn”, i.e., the rate at which consumers change provider.

Increased cross selling of energy service products. Energy providers that sell more services to a consumer are less likely to be displaced by a competitor.

This data could also lead to improved methods of targeted advertising. The provider can identify which devices are less efficient and suggest an upgrade.

Who are the Main Players in the Smart Home Market?

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Traditional Energy Providers

Traditional energy providers are being forced to sell less energy. This means they must look to other revenue streams and expand their business model accordingly.

They are developing their own smart technology and partnering with technology providers.

A Nest Labs thermostat. Photo: © Nest Labs 2014

Who are the Main Players in the Smart Home Market?

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Tech Providers

New technology companies are entering the market and offering smart technology to consumers, independent of their energy provider.

These providers have a history of manufacturing products and are well place to provide for the smart home market.

Photo: ABB, Bosch, Cisco and LG Consortium.

Challenges in the Smart Home Market

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Tasks Tech Providers Energy Providers

Lack of unified technical standards

Balancing saved energy with energy

consumption of the ‘smart’ electrical device

Cyber Security and Data Protection

Obtaining customer base

Consumer Trust and Acceptance

Changing business model: Technology drive

A Closer Look: Data Security

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Smart Home by definition deals with sensitive personal data. All devices are connected to WIFI. Consumers are worried their personal data could be hacked by third parties. Smart Home providers must build consumer trust for their product.

Case Study: Security concerns for Apple devices were raised in August 2014 when iCould accounts belonging to high profile individuals were hacked. Smart Home market participators need to avoid situations like this in order to gain and maintain consumer trust.

A Closer Look: Unified Technical Standards

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VDE Institute:

Conformity Tests – Art 21e of the German Renewable Energy Act states that smart metering systems can only be used once they have been proven compliant with the requirements of the BSI safety profile for data security.

Interoperability – Standardised interfaces and interoperability provide the basis for secure data exchange.

Safety Testing - The smart home concept includes generator units like solar panels on the roof of a home. Operators must ensure that their systems comply with the legal regulations and safety requirements for feeding into the local grid.

The EU and US Smart Home Market

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US Market: Higher market penetration in the US. Smart home technology like the Nest thermostat can be installed by the user directly without the help of a professional electrician.

EU Market:

Professional electrician is required to install the smart technology (e.g. Nest Thermostat). Therefore there has been a slower market development in the EU when compared with the US.

Conclusion

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Huge potential of smart homes market in Europe. The market is estimated to be worth nearly 19 billion EUR by 2025. All smart home market players will need to combat new regulatory areas like EU General Data Protection Regulation and EU Cyber Security Directive. Both traditional energy companies and smart technology developers are competing against each other in the market. A particular challenge for energy utilities is the change in their business model from traditional energy supply to energy related services. A specific challenge facing smart home technology developers is access to a customer base.

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