Three key challenges slowing down growth in the smart home market

The Nordic smart home market is on the verge of explosive growth. Yet, no firm has successfully penetrated the market. The industry faces three key challenges that must be met before broader household penetration can be achieved. The company that first overcomes these three key challenges will gain a strong foothold in the market.

When away from home, many people begin to worry about whether they left the doors locked, the windows open or the water pipes closed. These worries are unnecessary since smart home technology is already available for most of these common everyday problems. In addition to increasing convenience and bringing peace of mind, the solutions offer various other benefits such as cost savings, and a higher degree of automation and environmental friendliness. But despite these benefits, consumer awareness and penetration have remained low. In my recent work, I have concluded that there are three key challenges to overcome:

1. The integration and interoperability of smart home solutions have remained low

A significant hindrance to growth has been the low level of integration between the solutions offered by different providers. Many of the current smart home products have their own apps. However, consumers would rather have only one master app to control all home functions – from heating and lighting to entertainment. The reason why product integration has remained low is the prevalence of multiple competing standards and ecosystems. Companies from various backgrounds have rushed onto the market without sufficiently considering the benefits of cooperation and interoperable solutions. This has led to a situation where the smart home market lacks industry-wide technological standards. Whoever succeeds in creating an industry-wide ecosystem will experience high growth.

2. Finding winning business models has been difficult

Many smart home companies have been content with excessively traditional models. The choice of business model is crucial in differentiating the company from its competition and determining the role it wants to play in the value chain. The right business model can also ensure seamless customer experience at all customer touchpoints. Today, business models based around a pricing margin such as a monthly subscription are common. However, other business models with simple value propositions may be even more attractive for the customer. For example, companies with backgrounds in traditional industries may benefit more from business models such as service bundles, the-product-as-a-service, loyalty-based and insurance-based systems, and gamification. Loyalty-based models may provide tools to keep customers and lower churn in the company’s core business, whereas service bundles are ideal for cross-selling opportunities.

3. Data protection poses a challenge, particularly in the European market

Smart home companies face various challenges when it comes to data collection, storage and use, particularly in the European market. When the EU’s General Data Protection Regulation will start to apply from May 2018, companies must be able to tell consumers what data they have on them. Furthermore, companies must be able to erase all information collected on a customer if the customer so desires. The regulation also poses a brand risk for companies, since consumer trust will be easily lost if data is mishandled. Being as transparent as possible on data security will help companies to mitigate private data concerns and the fear of misuse. One concrete step will be to set clear rules on how the data is to be stored, and where and how it is to be used.

Sami Ali-Mattila has worked for the KPMG Global Strategy Group since March 2017 and has recently worked on several projects related to disruptive technologies. Sami holds a Master’s degree in Finance at the Aalto University School of Business. He has two years of advisory experience, particularly in growth strategies, commercial due diligence and M&A. In his free time, Sami enjoys various sports activities and travelling.

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