Gianpiero Francavilla | December 12, 2016
Despite the ongoing explosion of technology and innovation in the emerging Smart Living solutions and services industry (e.g. smart home/building, assisted living), the growth and employment potential in our local communities (including new jobs) is still unexploited.
What will it take for innovative technology to reach a large-scale audience in homes, offices and neighborhoods? What are the necessary next steps?
WHAT HAVE WE LEARNED SO FAR?
In 2016 we have met with many of you - during our events or online. We would like to share some of the most important learnings of these past months, which will be a starting point for our upcoming activities.
With the above questions in mind, we dedicated 2016 to engaging the emerging ecosystem of stakeholders: showcasing innovative solutions, vendors and local experts online (daivai.com) and bringing together a selected audience of technology vendors, service providers, consolidated professionals and digital/IoT experts during events (SmartHomeNow). More than 600 players have participated in the Italian workshops.
Growth - There will be almost 100M connected homes in Europe and North America in 2020 (Berg Insight). The global market of home automation and security is estimated at $200B-$350B in 2025 while the Health and Fitness market may reach $170B-$1,6T (McKinsey Global Institute). The number of new technology products is increasing rapidly - and products often include proprietary APPs and in some cases application interfaces (API) allowing for integration with other solutions. Digital leaders (Amazon, Apple, Google, Microsoft, etc.) are providing shared platforms and devices to build applications and manage integration and a new generation of players is getting ready to offer innovative services based on intelligent analysis of the data collected (analytics, artificial intelligence).
The consumer needs local support - The average consumer is becoming more and more familiar with technology and even the elderly are increasingly interested in investing in "smart solutions". However, it is still too difficult to identify somebody at local level who can effectively explain and "sell" the solutions ensuring personalization and quality (reliability, security, privacy).
Business challenge - The smart solutions IoT market will be characterized by relatively low unit prices and a very extensive supply chain including technology manufacturers, data enablers/providers, systems integrators, service providers, resellers and installers. Therefore, when designing new, sustainable business models it will be fundamental to guarantee interesting margins for all of these stakeholders.
Integration challenge - In order to create winning solutions (also multi-vendor) that are easy to use it is necessary to involve different skills: new professional partnerships are needed both in the development and the maintenance phase.
THE MAIN PLAYERS OF THE “SMART” VALUE CHAIN
Let's make a practical example that involves a large number of possible players. Image we want to create and market a solution including both products and services. It may be, for instance, a solution for care, security, energy efficiency or in general any service that combining real-time end-user data with information or intelligent functions available from outside (e.g. online) can really make a difference in the quality of life of the end-user. In this case the value chain includes technology companies (who provide the "basic objects" such as sensors and devices), network providers, data-services enablers, system integrators, local service providers, professionals / installers / local dealers.
Technology vendors (devices)
Consolidated vendors with many years of market activity (e.g. home automation companies) are paying close attention to market dynamics especially in terms of connectivity and Internet-of-Things. But their own transition towards new markets may be slowed down by the necessity to change existing business models and organizations. In the mean-time competition from new emerging (IoT-native) players increase, especially in the residential market. One way to add value to a mature product/service portfolio would be to facilitate integration (including OEM) made by others. Being part of a value chain with other partners would make it be possible to quickly test solutions in the market with shared and therefore limited investments to obtain input for large-scale strategies.
The most successful new, IoT-native vendors are launching new products (intelligent chrono-thermostats, air quality sensors etc.) focusing on quality, ergonomics and the creation of ecosystems (API, cloud) so that you may use their product as part of wider, multi-vendor solutions. Often these new players are very focused on product development and may not have the experience or market channels to achieve the necessary market volumes. Greater integration with already established vendors could generate new business opportunities for all.
Network providers (connectivity/Internet)
Internet-of-Things solutions rely on secure and reliable connectivity provided by the various providers especially on mobile networks. In addition, many providers offer tools related to application development (hosting, cloud, storage), although these services are being managed primarily by other players in the value chain (see below).
Data service enablers (intelligent data analysis and management)
A data service enabler offers value-added data services: cloud platforms to integrate objects and users (data brokers), online applications for storage and data analysis (artificial intelligence) and multi-platform customizable interfaces for end-users. It is possible to choose between types of cloud (public, private, hybrid) and between running applications on a local device or online.
One of the greatest promises of the IoT-revolution is the opportunity to create solutions that use the cloud to easily connect smart objects to the users’ existing devices (like smartphones, smartTVs etc.). This makes it possible to reduce hardware investments and costs for configuration and maintenance (apart from the initial physical installation) that can now be managed online, from remote.
When talking about IoT solution implementation we often focus only on technologies used, APPs involved and the companies selling the services, failing to take into account that reaching a large-scale audience (e.g. through a utility) requires to create upfront the necessary platform. This back-end infrastructure may have a single client/administrator (e.g. the utility or service provider) or may be "distributed" that is a description of functional interfaces (connectors) available to the various stakeholders. Cloud-based solutions greatly facilitate this implementation.
The service provider is the player in the value chain specialized in providing value-added services, e.g. assistance (care, consulting, etc.), energy management/metering, security. Digital technology can be introduced to improve productivity, extend markets and retain existing customers.
But there are still many unanswered questions. What solutions to start from? How to choose the technology if you do not have the necessary skills internally? How to build a profitable business in a market where nobody knows how the customer will react?
This is another case where a test, made in collaboration with complementary partners in the value chain, would generate the market feedback necessary to define a large-scale strategy.
Local Professionals (solution installation/maintenance)
Local professionals are experts (installers, engineers, architects, caregivers, ..) who already manage the customers (existing home/building systems, design, assistance) and who have a unique opportunity to innovate their business introducing technology and new services. But there is a risk they will not seize this opportunity because of the "start-up" challenge. The market is still in an early stage with not yet mature solutions and customers who are not always familiar with technology. In addition, many professionals may not have the necessary skills themselves (IT, marketing) to manage the transition towards these new solutions and service models.
DRIVING MARKET ADOPTION
In this initial phase, in order to support and encourage market uptake of new "Smart Living" solutions it is necessary to foster an innovative collaboration among several complementary companies in the value chain to define some solutions that meet effective market needs. The definition of the solutions should include pricing for end-users, business models and engagement of the local ecosystem (service providers, professionals and local communities/end users) through field testing and communication at various levels: events, workshops, web, social networks.
We use the word "facilitators" to describe the third-party players that can accelerate this initial meeting of stakeholders and encourage market take-up. In the following we give two examples.
BUSINESS Facilitator - The smart living value chain described above is complex and the interaction among complementary players cannot be taken for granted. Existing initiatives and associations are mainly focused on standardizing technology or, as in the case of EU-funded projects, on cross-country experimentation, and participants are often in competition.
We need to start from real solutions supported by interested and complementary partners and a business facilitator who coordinates the joint effort of solution integration, business model definition and field testing.
FINANCIAL Facilitator - In a market characterized by high growth, but also by the need for initial investments, the financial facilitator can provide the necessary support to obtain project financing. The financing can be given as favorable credit terms to customers (commercial and apartment building managers, families) who invest in a technological solution or to the group of companies that collaborate to launch innovative solutions in the market.
A business case simulation
To get a better idea of the economic impact of launching an IoT solution, let’s make a simplified example like the launch of a large-scale solution, including:
- connected objects/sensors (€400 per customer)
- installation costs (€100 per customer)
- recurring costs for connectivity, cloud, support (€25 monthly fee per customer)
- shared integration platform for all stakeholders (€500k)
- recurring costs for platform evolution and maintenance (€10k/month)
- local promotion and business development (€50k)
- financial support (credit advance, project financing).
In this simplified scenario, 3000 customers and a 3-year time horizon would generate more than €5M turnover (on average €50 per customer/month). The business case must obviously evolve by increasing the number of customers, and for instance by adding additional services to the same infrastructure or re-using products (sensors) in a circular economy scenario.
However, this is just a simulation to open the dialogue with the potential players involved.
It is necessary to analyze the market potential and the relative profitability of each stakeholder in order to assess the sustainability of the partnership and decide how to collaborate to drive market growth.
The moment calls for disruptive initiatives, including scenarios where solutions are free-of-charge for end-users (to accelerate market uptake and data collection) and scenarios that recognize (financial support) value-chain partners with lower margins and higher risks (professionals, service providers) due to their direct management of the customer, which is time-consuming but critical especially in this first phase. Also, scenarios of pre-selling and crowdfunding need to be explored.
In any case, a demo or preliminary version of the solution should be tested in the market in order to collect user feedback before deciding on large-scale implementation.