Every year, projections for the smart home market grow, but less than 5 percent of customers in the United States and Europe currently are using home automation, monitoring, or home energy management solutions.1 Industry analysts and insiders are forecasting mass adoption within the next decade, with the value of the global connected home market reaching $200 billion to $350 billion by 2025.
Are these projections overly optimistic considering current adoption rates? Do they assume we will overcome obstacles such as high costs, a market of disparate solutions from multiple suppliers, lack of a clear customer value proposition, and poor user experience?
According to Mark Lantrip, President and CEO of Southern Company Services, “We have yet to discover the iPhone for home energy management.” He is spot on. Smart home technology solutions exist. But, without an integrated ecosystem, a value proposition, and a ubiquitous channel to facilitate accessibility, adoption will fail to scale.
The market is fragmented. There are energy efficiency solutions that measure consumption (most without real-time insight) and home automation products that monitor and control capability. The two are not connected, and the value proposition for the customer has been sub-par.
Technology companies, seeing the potential to fill this gap, are developing offerings for the home energy management space. For example, smart thermostats are anchoring electric companies’ demand response programs and are attempting to provide additional revenue opportunities. Though some technology companies may tend to focus on isolated use cases that don’t connect to a broader value proposition, many are making progress, and electric companies have taken notice of the movement into this space.
The increasing number of solutions offered in the market is confusing the average customer about the full value proposition presented, resulting in low adoption rates and high product costs.
The smart home is facing a “chicken-and-egg” dilemma. Without a higher adoption rate, production costs remain high; without lower cost to customers, adoption stalls. With significant cost differences—for example, prices of leading smart bulbs, outlets, and thermostats are more than five times that of their “non-smart” counterparts—it’s no wonder adoption is in the doldrums.
While we’ve seen success with affluent, green, and tech-savvy customers, how do we move beyond these early adopters? Which of the dominant smart home channels—direct-to-consumer, electric company, cable, or telecom—is best positioned to establish a unifying ecosystem? One that can demystify the market, trim costs, and cut through the complexity to reach scale. The market needs a home ecosystem that bridges multiple devices across different categories throughout the home. Can electric companies be the bridge?
As disruptors outside the energy industry take aim at the opportunity ahead, they face a much steeper uphill battle. For starters, customers’ relationships with their electric companies are generally grounded in trust. Few others are trusted to enter customer homes and install equipment. While the ongoing relationship typically stops at the meter, it’s not a big jump for electric companies to move beyond the meter.
In fact, customers want their energy provider to add value beyond the meter. Studies show that 58 percent of customers would like their electric company to offer home energy management solutions, and 61 percent prefer that electric companies provide home monitoring and control solutions. This preference is 1.5 times greater than customers’ preference for retailers, and more than double that for cable and communications companies. Electric companies have created the largest, most reliable network in the world—the energy grid. The energy grid works so well that customers rarely even think about it. As a nation, we take the grid for granted, but, as energy professionals, we know the hard work that goes into delivering reliable energy.
THE MARKET IS “OURS TO LOSE”
A decade ago, adoption of wireless technology started slowly because users had to find and install their own devices. Cable companies became the catalyst for Wi-Fi adoption by seamlessly extending their services to include installation of cable modems. By leveraging their existing relationships with customers, cable companies created an entirely new revenue stream and simplified user adoption. The wireless market took off.
Similarly, home energy management, the central use case for the smart home market, is a natural extension of existing electric company services. When electric companies lead the charge, reduced energy bills and free supply or installation are very likely to positively influence adoption. This is pivotal because it could ramp up user adoption of broader smart home technology significantly. Yet, there remains an imbalance between the smart home’s value to the customer and its market potential. Considering the resistance to wider user adoption, electric companies are well-positioned to balance the scales in a way that has more appeal to customers.
When we balance the value ratio between electric companies and customers, the results are immediate and impactful. As a prime example, DTE Energy has tallied more than 200,000 downloads of its Insight app. Using a connection to the smart meter, DTE has successfully engaged customers in a new, real-time energy experience that has resulted in engagement of more than 110,000 unique visits weekly and average household energy savings of 7 to 10 percent. According to Steven Ambrose, CIO of DTE Energy, “We’ve translated technology into an experience that is driving excitement and efficiency for our customers and for DTE Energy.”
Electric companies have an important choice to make. They can stop service at the meter, or they can push forward to offer energy management, appliance control, and home automation solutions to enable customers to solve energy use problems and secure an avenue of future growth. While doing so, they can meet energy efficiency goals, optimize peak load utilization, better meet environmental mandates, improve their carbon footprint, and develop new revenue sources.
This is a pivotal point in energy industry history. Electric companies can be the victim of disruption or seize the opportunity to drive new levels of efficiency and growth. Their choice will determine the progress of the customer- focused energy industry.
Originally published in IEI, THOUGHT-LEADERSHIP SPEAK OUT: Key Trends Driving Change in the Electric Power Industry.