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22/9/2003

The Market for Connected Homes: a European Perspective

By Thomas Gilroy

The following are highlights from an interview with Roger Torrenti, CEO, Sigma Consultants, and Karine Valin, General Manager, Homega Research.

Thomas Gilroy: How would you describe the Connected Home market status and perspectives for Europe, from your headquarters, here in Sophia Antipolis?

Roger Torrenti: In order to answer your question, it is probably appropriate to first define what we mean by 'Connected Home,' to avoid any misunderstanding.

In our mind, the term Connected Home is one that characterizes an important evolution over the last twenty years, of the market for technologies and services for the home. This evolution has been, and is still mainly driven, by the rapid progress in the IT field. Some fashionable words representing milestones on the road to this technological progress include 'micro-electronics' in the late eighties - giving birth to 'smart devices', 'information highways' in the early nineties - enlarging the perspectives for added value services to and from the home, the 'digital' and the 'Internet' booms in the nineties, and more recently, the 'broadband' and 'wireless' waves. This constant technological progress, the increasing number of IT-based products and services for the home, have made it possible, over the years, to imagine, promote and realize more 'connected' homes, that are homes offering an increased connectivity with the outside world, through 'home gateways,' as well as inside through the use of 'home networks' to connect home appliances and extend their functionalities.

So, the term Connected Home can be taken as quite a relevant focus by the industry involved in products and services for the home. However, no one should ever forget that very few customers would look for connected homes or home gateways, or home networks. Most customers will buy the products or services which they find attractive, easy to buy, simple to use and affordable. Customers will never buy everything that technology makes possible!

To return to your question, I would say there is a benchmark for measuring the status and trends of the market for the Connected Home in Europe and around the world: our Net-atHome (conference and exhibition - ed). The expected success of Net-atHome2003, to be held in Cannes at the end of October, can be considered as a good indicator that the market is quite dynamic at the moment, despite an unfavourable economic environment.

Thomas Gilroy: How would you compare the market growth potential in Europe to the rest of the world?

Roger Torrenti: We can compare it quite favourably for a couple of reasons. First, in terms of technologies and services, many European companies compete favourably on the global scale with their North American or Asian competitors. This is due in the first place to the strategy and to the capacities of these companies. But for some of them it is also thanks to the support of the European Commission, which I would like to underline here. This year, for example, in the area of Connected Homes, the European Commission will sign (within the framework of the so called IST Programme) up to 60 million euros worth of contracts to help European companies develop innovative products and services. An example of supported projects is the TEAHA project, coordinated by Spanish Telefonica, an initiative to allow major European companies to work together to unite the two worlds of narrowband and broadband technologies and applications.

The TEAHA IST Project objective

Another reason is the situation in Europe in terms of broadband infrastructure, which is very favourable and which is undoubtedly a market driver in the field of Connected Homes. We also have here a very significant development of wireless technology - many cities are installing large coverage Wi-Fi hot spots free of charge, and some providers are offering ADSL and Wi-Fi together directly to customers. Although it is important not to overestimate what wireless can and will do, the rapid development of this technology and of these applications here in Europe are also important supports to the development of Connected Homes.

Broadband European Households (in 1000s)

Another aspect, which is very much a European phenomenon, is the move by energy utilities to deploy broadband power line communication (PLC) technology on a mass scale. Although not yet adopted by the largest of these companies, there have already been commercial rollouts in Scotland and Germany. If the biggest utilities follow through on this initiative, the effects on the market could be profound.

Thomas Gilroy: Do we know what the consumer needs are in terms of Connected Homes and what the killer application is?

Roger Torrenti: As I said when addressing the focus of our talk, needs in terms of the Connected Home are probably quite low. But if you ask someone who has two PCs today if they need a simple-to-use, affordable and reliable way to connect them to share their broadband access and avoid paying twice, the answer is a resounding yes. Similar questions could be asked about the myriad of products that make up the typical home entertainment system of today.

Let's stay focused on today's markets and forget the dream that most people will soon live in fully automated homes. Sure, Bill Gates has one, as does Michael Jordan, and some others. But this will remain an unaffordable dream for most consumers who need and can afford a number of products and services that technology makes possible today. And we know a lot about these needs. The challenge is to focus on these needs and make the right products and services available.

As for the killer application, this is also another industry dream that has to be kept away if a company wants to succeed. Consumer needs are diverse, and the market is quite segmented, though some of these segments look promising in the short term. Let's focus on them.

Karine Valin: I of course agree with Roger - understanding, stimulating and addressing consumer needs is important. This is why, although our principal role with Net-atHome is to support the supply side, we have decided this year to dedicate a whole session to consumer needs, above and beyond sessions typically devoted to specific applications or market segments such as Asian markets, today's drivers, in-home PLC, aging in place, trials and deployments, etc.

Thomas Gilroy: Where can the average person see the future?

Karine Valin: First, let's concentrate on today's markets, on today's consumer needs and not on tomorrow's markets or on the home of the future. I would say that everyone should find more and more attractive products and services for the home through traditional distribution channels such as retailers, specialised stores, the Internet, service companies, etc. Currently however, the contribution of the press and TV to consumer awareness remains essential.

We also think Homega can bring a significant contribution to the necessary development of consumer awareness and we are assembling a group of industry partners to design and build a pilot 'home of today,' demonstrating emerging technologies, products and services which will be widely promoted not only to industry professionals but to the general public as well. We expect to begin construction here in Sophia Antipolis in the second half of 2004.

Thomas Gilroy: In conclusion?

Roger Torrenti: When you look at the suited technologies, the products and services that are available, and at the determination of the major players to be active, you can only conclude that in Europe, at least we are likely to witness, in the short term, the beginning of a high-growth period in many segments of the market for the Connected Home.

Thomas Gilroy is an IT journalist, in Sophia Antipolis, France. This interview appears courtesy of Homega Research.

www.homega-research.com