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Attractiveness of the Smart Home market in the US

A Market Analysis

Written by L. Clarenbach

Grade 1.3

Paper category

Term Paper


Business Administration>Management




Term Paper: Smart Home”-products are all products that help to or fully do technically automate different functions like energy management (lightingand water for example), household tasks or different security functions like an electric camera-doorbell system.All devices are in this connected to a central unit called “hub” that controls everything. The user interface for the applications can be mounted to the walls in the house. The most important factor in this is the connection and inter-connectivity of the devices that enables the automation of different tasks, which makes Smart Homesolutions valuable to the customer (house owner).This enables also mobile devices to control the connected devices from afar with use of the internet(Bendel, 2019a)The Smart Home market can is as of now strongly fragmented with different companies fighting for market shares.In the market you can find big, investment-rich players like Amazon or Google, but also new and small start-ups that find new and unique solutions to different problemsthe competitors maybe not even thought about.Considering the industry life cycle, the Smart Homemarket andthe containedSmart Homeproductscan be seen at the stage of growth, with the perspective of a high increase of market size in the future(BCG, 2019).The market is thus still in its development stage andyet relatively young. In terms of geography,the Smart Homemarket in the US is by far the most dominant, with the highest revenues, units soldand according to the Boston Consulting Group the most competitors in the market with 628 to 103 in China or 50 in Germany for example. Because of that,this paperwill focus solely on the US market as (yet) the only really relevant one defined by overallc apital and investmentvolume and number of competitors.Statistics also predict huge future growth in this market, the amount of Smart Homes will according to that in the next four yearsfurther increaseby 177 %from 34,81 million Smart Homes in 2019 to 61,62 million in 2023 (Statista,2019d).This paper is devoted to determine the attractiveness of the Smart Home market regionally limited to the USAand how future growth potentials can be discovered and taken advantage of by companies and investors. In order to conduct a complete external analysis, the author will use different tools of analysis that examine the levels of the external business environment, ranging from exploring the competitors in the market themselves (Strategic Group Analysis), over analyzing the industry (Porters ́ Five Forces Model) to evaluating the macro-environment 2(PESTEL-Analysis) (CFI Education, 2019).In the endthe author will givean overall conclusion,an outlookandarecommendation from the viewpoint of a consultant advising a potential investor in the market will be given. Market and competitor introduction The smart home sector is divided into 11 sectors including security, health, and smart energy. In total, they received nearly US$12 billion in investment (BCG, 2019). These companies offer different product combinations, and it can be observed that they each follow their own strategies to provide different home solutions and increase customer loyalty. The similarity between all these companies' products is that all products can be used individually or connected to each other, thereby increasing the value of the product. This helps to increase brand loyalty, because if a customer has already used one of Amazon's products, he is very inclined to buy more smart home products from the same company. Amazon's home ecosystem mainly revolves around and focuses on their voice control product Alexa. Products include Amazon Echo dot with Alexa, Alexa Smart HomeEntertainment, Alexa built-in devices (Alexa hands-free) and Alexa on the go (Echo buds wireless, Echo framework, Echo loops) (Amazon, 2019). The idea is that by using Alexa, you can voice control all connected devices in your home, from simple lighting functions to complex entertainment systems. Philips is known in this market for its most popular product "Philips Hue", customers can use it to remotely control the lighting of bulbs and lamps connected to the central hub "Hue Bridge" (Philips, 2019). Google entered the smart home market on a large scale in 2014 by acquiring the well-known home automation company Nest. It was originally an independent business unit, but was integrated into Google's smart home division "Google Home". From 2019, all the company's home solution products will be sold under the name of Google Nest (Vox Media, 2019) . This highlights the importance of global technology giants on sales and development of smart home solutions. Google Nest products are divided into three categories: security, entertainment, and interconnectivity (Google, 2019a). Products include Google Nest Protect, a smart warning system (Google, 2019b) that connects to homeowners’ smartphones, Nest Cam (Google, 2019a) for indoor and outdoor use, and Chromecast, which allows video streaming from 4K resolution. Connect the smartphone to the TV (Google, 2019c). Samsung acquired SmartThingsin, a home automation company, in 2014. At that time, a technology startup provided hardware hubs and other products that allowed consumers to connect their devices and control them through a single smartphone app (Forbes Media), 2019. Interestingly, this technology allows users to connect their Samsung smart home devices with other companies' technologies and products, such as Amazon's Alexa, Google's smart assistant or Philips' Hue (Samsung, 2019). 3) Market environment-PESTEL analysis PESTEL analysis is a strategic tool used to analyze the company’s external or market environment to determine market attractiveness, monitor current and future environmental factors that may affect company performance, and determine specific strategies Possible success or failure in the market (Chartered Personnel and Development Institute, 2019). Political/legal considerations are the security of the system. For example, individuals outside the system can control certain functions of the ecosystem, which can basically be described as an intrusion into the private space of customers. An example is the former security breach in the Philips Hue system, which enables hackers to fly near buildings through drones equipped with the Hue system and remotely control any Hue bulbs within a range of 70-200 meters (HeiseMedien, 2019). Another issue is connected home technologies, which do not require recording household residents’ conversations with the service and allowing their employees to listen to them, which has already happened in the case of Amazon’s Alexa (Bloomberg, 2019). Such news reduces consumers’ trust in smart home technology. The customer must feel safe to "let the product into his home" and must use adequate precautions that can be communicated to the customer to prevent misuse. To this end, you can also consider adding customer protection laws, but this may harm the company's freedom of product development. Considering the security category of smart home solutions, products such as security cameras provide additional protection in family disputes and theft cases. Firstly, as a deterrent tool in the case of a visible security system, and secondly as an evidence tool. For example, when a homeowner’s actions against an intruder are questioned, a sophisticated camera system can help. In this way, smart home systems can improve the safety experience of American homeowners. Economic analysis of the economic environment of the smart home market requires consideration of the overall economic conditions of the United States. In 2019, the US gross domestic product (GDP) reached US$64.767 per capita, a year-on-year increase of 3.45%. By 2023, GDP is expected to increase by 13.13% over 2019, reaching US$73.268 per capita (Statista, 2019c). This means that the purchasing power and consumer spending of American consumers may increase. At the same time, the number of households that may become market targets will increase from 128.5 million in 2019 to 132.1 million in 2023 (Statista, 2019c). Read Less