In 2015 the market for traditional residential security equipment was valued at around US$2.3 billion. Yet despite its enormous size, industry growth is at best flat and sometimes negative due to the emerging demand for “connected” or “smart” devices. So what are these new devices and why are they replacing equipment that has been the mainstay of the security industry for over 20 years?
- Traditional security – Systems installed by a professional which have only local management capabilities e.g. arm/disarm with a keypad or key fob.
- Connected security – Systems which can be remotely managed but with devices that do not speak to each other, and although alert messages may be sent, human intervention is still required.
- Smart home security – Devices that make decisions based on some form of input. For example, if a thermostat detects no one is in the home, the thermostat will shut off the lights, lock the front door, close the garage door and power off the coffee maker.
The popularity of the latter two types of equipment has spiked as a result of a variety of factors, increasing smartphone usage for example, the fact that customers now possess such a powerful device at all times when away from home has flung open the doors of possibilities for residential security providers. Manufacturers have introduced the capability to arm/disarm systems, open gates or live stream home surveillance equipment through smartphone applications; end users are now able to interact with the equipment with greater ease and more often and therefore see more value in connected/smart devices. Another important factor has been wireless equipment affordability finally reaching a point where the additional cost of buying wireless products is outweighed by the installation cost of a wired system.
A number of large multi system operators (MSO's) have been quick to capitalize on this demand and availability of affordable wireless equipment, making significant inroads in the US residential security market with their own affordable packages. As shown in the graphic below the Americas region currently accounts for just over 85 percent of connected/smart equipment sales globally.
Looking elsewhere across the globe, in Europe security does not seem to be at the top of the list of concerns for homeowners and securing savings on energy bills seems to be more of a priority, as a result it is the utility providers that are having the most success with companies such as British Gas, Essent, Eneco, Nuon, RWE, EnBW, and Eon each introducing their own smart home solutions.
However, it isn't just MSO's and utility companies that are vying for a piece of the smart home market pie, new market entrants are coming from all ends of the value chain. In addition to the traditional security service providers, there are also specialist home automation providers, software and platform providers as well as the device manufacturers and retailers themselves. Each brings their own value proposition to the table and each believes that they will be the one to ignite mass market adoption.
Barriers to adoption and are they insurmountable?
Last year, IHS conducted an end user survey with over 1000 participants consisting of current smart home device owners, consumers with interest in the devices (potential adopters) and those that showed little interest (non-adopters). Six of the main barriers to adoption include: Privacy, Security; Interoperability/Inter-application functionality; Installation challenges/servicing; Consumer awareness; and affordability.
Privacy was viewed as the second greatest barrier to purchasing smart home products by respondents to the survey. There were significant differences in attitudes as to which types of information respondents would be willing to share, for example data on energy consumption and climate control appeared to be least contentious whereas information about the location of individuals in the home and media consumption habits were the most contentious. Surprisingly security ranked fairly low on our list of barriers for the end users themselves, although one specific area of exception was in applications where security devices, such as door locks, can actually be controlled.
Interoperability issues typically arise in a new market when vendors are still trying to establish themselves and consumers purchase multiple products from different vendors. The survey results indicate that for non-adopters especially, having a simple network was of paramount importance as complexity was a huge barrier to adoption, as the graph shows below being able to control all functions from a single application was highly desirable. Over a third of smart home device owners stated that they would not feel comfortable adding additional devices to their current network; this suggests that there is still work to be done by vendors on improving ease of installation as well as providing better after sales support.
Although this latest volume of survey's results did indicate that market awareness has grown significantly since the previous edition of the survey in 2013, the fact remains that this time around a quarter of respondents still answered that they were unsure of where to start with a home automation solution. Education remains a key driver for the industry in terms of awareness but also in terms of reducing concerns over data privacy and home security which are barriers to adoption in their own right.
The final and single largest barrier to adoption according to our survey is the cost of the products, over 40 percent of survey respondents selected affordability as their number one barrier to purchasing and over 75 percent named it in their top 3. Although device prices continue to fall and huge strides forward have already been made in improving functionality and usability, it seems as though vendors still have a long way to go to convince potential adopters of the value in owning a connected/smart security system.