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Ovum forecasts that the smart home market will reach 20% penetration of global households by the end of 2020 (see Figure 1). This represents a dramatic uplift given that the market has languished in the sub-5% range for the past 15 or so years when it was only used in the very high-end market or by very early technology adopters. The new market drivers for smart home are complex, however, and not always obvious to the casual observer. Understanding these drivers, the corresponding value chains and the optimum channels to market are essential to all players looking to capitalize on this new market growth.

Figure 1: Global smart home penetration

Figure 1: Global smart home penetration


Consumers are gradually accepting smart home technology, but there is still work to be done to turn that into sales

The first and perhaps most important driver for smart home products is consumers' gradual acceptance of smart home technology based on the simple fact that more and more devices in the home are becoming connected. Not so long ago, something like a connected cooker would have seemed absurd to most people. While it may still perhaps be seen as extravagant, the fact that so many home devices (such as speakers, TVs, and webcams) have not only become connected but have benefited from it, it now at least doesn't seem such a silly idea. Consumers are, therefore, finally starting to imagine how such technology could be used in their own situation and how it could therefore potentially improve their lives. However, acceptance by itself will not equal sales. Smart home products still come at a premium and can seem overly complex compared to their non-smart counterparts. Therefore, retailers, service providers, and vendors still have a big job to position and market their products correctly.

Greater marketing around the use case rather than technology

A second driver Ovum is expecting is a shift in marketing strategy, as well as increased marketing investment and intensity, to highlight smart home use cases rather than the technology. This will take the form of greater and more focused media advertising, as well as a shift in and greater emphasis of product placements in retail stores; for example, smart lighting solutions starting to appear in the home furnishing and design stores, rather than in DIY and electrical stores. Together with increased training of field engineers and shop-floor sales reps to provide greater guidance to consumers on the benefits of certain smart home technology, this shift in marketing will reduce some of the barriers surrounding smart home products such as perceived value and complexity.

Industry will push smart home tech to deliver new consumer services

The third driver will be industry pushing smart home technology into the home in order to deliver new consumer services. A good example would be an energy company pushing smart energy devices as part of a new smart energy tariff, or a home insurance company pushing connected home safety and security devices in order to offer a new type of home insurance premium. Such strategies are already available on today's market, but it is still early days and many players and still experimenting with various service concepts and business strategies. Over the next few years, both elements will mature and we will see a dramatic increase in availability and marketing around such services. The impact of these strategies will be to push smart home technology into the home that otherwise consumers may not necessarily go out and purchase on a purely retail basis – a connected flood sensor is a good example.

Industry will also push smart home tech for greater efficiency, but this will be a slower burn

The fourth big driver will come from industry wanting to push smart home technology into the home to help them drive greater efficiencies within their existing business. Examples of this could be home delivery companies utilizing smart locks to enable more efficient delivery of goods, home service companies connecting home appliances to enable efficiencies within their support teams, energy utility companies looking to control the flow of energy to certain non-critical devices/appliances during heavy peak-usage periods. Such initiates normally have certain advantages to the consumer, usually be either making things more convenient or cheaper, but often the bigger advantage is the cost savings to the enterprise itself. This double business advantage will be a key driver, however, these models will also take time to come to fruition as they not only rely on a change in consumer attitude towards companies having greater visibility and control of devices in their home, but also appliance lifecycles, which in some cases (a central heating boiler or air conditioning unit, for example) can sometimes be 10s of years.