Articles and whitepapers

Analysis: The Smart Home Outlook for Western Europe (3/9/2012)

By Bill Ablondi, Strategy Analytics

During the first half of 2012 there was a lot of activity in the smart home market in Western Europe. Deutsche Telekom continued to build its Qivicon ecosystem with the addition of Winkle SolarSysteme, Samsung and Tado, a SaaS (Software as a Service) energy management solutions provider. Swisscom announced a joint venture with Asoka, a powerline networking technology company, to sell 'white label' residential energy management services to telecommunications carriers under the myStrom brand.

AT&T Mobility launched AT&T Digital Life, an IP-based remote monitoring and automation platform designed to enable service providers around the world to offer their subscribers smart home services. British Gas launched its Remote Heating Control and Safe and Secure services built on the AlertMe platform and SFR launched its Home by SFR IP-based home security system. These are just a few examples.

Smart monitoring using AlertMe.

Global Market Drivers

There is lots of activity, but is there a market developing? I have been involved in the home automation space for more than ten years, and during that time have not seen widespread adoption of home monitoring and control systems. But times are changing, and in general, across all regions of the world Strategy Analytics sees a number of common smart home market drivers. Key among them is the proliferation of broadband connectivity, fixed and mobile, with widespread adoption of smart phones and Internet-connected entertainment systems. In addition, broadband service providers need to develop additional revenue generating units (RGUs) to offset declining growth in traditional businesses.

As part of our ongoing research, we spoke with a variety of current industry participants to assess the outlook for the smart home market in different regions around the world. There were some notable drivers and inhibitors raised about the European market.

Market Drivers in Europe

There is a growing awareness for the need to care for a rapidly-aging population which will be a significant market driver in Europe sooner than in other regions, such as North America. In addition, Europeans feel a strong desire to provide home care rather than move the elderly to nursing homes.

Healthcare applications are seen as longer-term drivers due to multiple regional public administrations and the need to develop highly-reliable systems. Energy conservation and management are current drivers in Europe, especially in Germany where the government has mandated the elimination of nuclear energy by 2020.

The German Government has mandated the elimination of nuclear energy by 2020.

Germany is not alone in its concerns about energy management. The Department of Energy and Climate Change (DECC) in the UK recently mandated all homes be equipped with smart meters by 2019. This fact will build awareness for energy management programmes and provide the infrastructure for applications to compete in the UK's deregulated energy market.

Barriers to Adoption in Europe

On the other side of the coin there are some significant barriers that must be overcome. Some vendors tout that they can save consumers 20-25% on their energy expenditures, but most prospective buyers are sceptical. In addition, some consumers are very conservative and have little willingness to spend on services in addition to hardware.

In general, many benefits of smart home systems are not tangible enough to prompt rapid adoption. Market players have to invest in consumer education, a.k.a. marketing. Fortunately, we expect utilities and service providers to step up and take this on - they have the reach and motivation, and hopefully the budgets to accomplish this.

It's impossible not to mention the continuing global financial crisis as an impediment to the growth of all markets, including the smart home market. With this said, we have done our best to factor in economic conditions into our forecast, which would undoubtedly be unfolding faster and larger had we not.

Smart Home Market Forecast: Western Europe

We made a long-term assessment of the adoption of smart systems and services by consumers in Western Europe (Figure 1). In 10 years' time we believe that approximately 30% of broadband households will have some type of smart system - a system with some level of intelligence that can be programmed to perform tasks according to a desired schedule, routine or in response to specific events.

Growth will be driven by self-monitoring and control services offered by broadband service providers such as those previously mentioned, as well as BT, France Telecom and Telefonica, along with remote-enabled entertainment controls and smart appliances from the likes of Bosch, Siemens and Miele.

Figure 1 - Net households with smart systems in Western Europe: 2012 to 2022.

It is important to note that this forecast is for 'net' households with smart systems. A household with one will likely acquire multiple systems for different applications over time. In fact, we project that approximately 65% of households will have multiple systems by 2017.

Looking at the breakdown of smart homes by major country (Figure 2) from 2012 to 2017, Germany will have more than 8 million, with France and the UK each having approximately 5 million followed by Italy and then Spain. However, the other countries in Western Europe should not be ignored as together they will account for more than a third of all smart home in the region.

Figure 2 - Breakdown of smart homes in Western Europe by major country: 2012 vs. 2017.

Not surprisingly, the money follows the growth of homes with smart systems (Figure 3). Germany (US$2.4B), France (US$1.6B) and the UK (US$1.5B) will account for over 50% of spending on smart home systems and services in 2017. Again, countries in the rest of the region should not be overlooked as consumers in countries such as Denmark, Norway, Sweden and Switzerland have shown interest in home monitoring and control systems.

Figure 3 - Breakdown of spending for smart home systems and services in Western Europe by major country: 2012 vs. 2017.

The percentage breakdown of total Western European smart home revenues by major product/service category for 2012 and 2017 is shown in Figure 4. By 2017, revenues will reach more than US$10 billion, with professionally-installed integrated entertainment and whole-home controls remaining at the top. Revenues for the other applications will grow significantly over the forecast period, but will not overtake these traditional categories.

Figure 4 - Breakdown of spending in Western Europe by smart home product category: 2012 vs. 2017.

What to Watch for in the Last Half of 2012

As I write this article in the calm of the summer doldrums when much of Europe is on holiday, it feels like the proverbial calm before a whirlwind of activity. In September, Deutsche Telekom will launch Qivicon commercially in Germany and internationally in 2013. Telefonica will announce its smart home platform choice. I expect AlertMe to announce new telecom and utility partners and Asoka will publically announce another joint venture with a major telecom firm. In addition, Swisscom Smart Living will announce its initial ecosystem partners: an insurance firm and energy provider among others. We'll have plenty to talk about at Smart Homes 2012 and I hope you will join me there for the discussion.

By Bill Ablondi is the Director Smart Home Strategies for Strategy Analytics Inc., a global research and consulting firm that focuses on market opportunities and challenges in the areas of Automotive Electronics, Digital Consumer, Telematics, Wireless Strategies and Enabling Technologies.

www.strategyanalytics.com