The business of home automation is enabling the internet of things

23 hours ago Dec. 21, 2013 - 1:30 PM PST

If we think about the homes that have a broadband connection today as the total addressable market for home automation, the home automation market size turns out to be around $8.8 billion at $100 spent per home or $880 billion at $10,000 for example in the U.S. If we are a little more conservative and say that only those broadband subscribers who use smartphones are targets, the range turns out to be about $5.63 $563 billion. In order to capture this opportunity a number of business models have come into play. While these are not new business models, it is interesting to see how this opportunity is being captured.

The Free approach: Here home builders are embracing the the art of negative margin by giving away connected devices for free as part of home sales. In doing so home builders appear progressive and invested in home innovation with the goal of attracting more buyers. One such example is KB Homes offering energy monitoring systems as a standard feature.

Building block sales: There is money to be made by providing the building blocks for IoT, be it sensors, hardware platforms or software. ConnectSense sells Wi-Fi enabled sensors, Axeda, Xively and others provide software platforms for IoT applications and companies such as Electric Imp provide hardware platforms.

Piecemeal: Here the manufacturer concentrates on one or a few devices e.g. Nest or August. Each manufacturer has its own app that lets you remotely and intelligently control devices.

Integration: The piecemeal approach lends itself to the rise of integration platforms. Hardware integration platforms such as Revolv and Staples sell hubs that can understand various protocols that home automation devices use. They additionally provide a smartphone app that can control various devices through the same app. Software integration platforms on the other hand such as IFTTT provide the ability to write rules that tie various devices together or connect the devices to other web services such as twitter or Facebook for e.g. using triggers and actions.

Subscriptions: Here cable providers such as Comcast network operators such as AT&T and some home improvement stores such as Lowes subsidize the cost of hardware or give it away for free in exchange for monthly subscription to monitor homes for security or setting up custom home automation rules as an example. This approach enables them to attract customers who may otherwise be unable to invest in automating their homes.

DIY: Before IoT became more mainstream, the rich and the famous built fascinating homes using custom service providers that build connectivity into the home. This business model will continue to exist but will account for a smaller percentage of the home automation market over time as IoT devices mature, become cheaper, easier to install and use.

The promise of double digit sales growth is attracting a number of players, big and small, to the home automation market. As competition heats up and prices decline, business models will evolve. But we will continue to see a wide spectrum of models in use as different players target different segments of the market. In fact players may adopt more than one business model to capture bigger pieces of the pie. Speaking of pie, happy holidays!

Seema Jethani is director of product management at Enstratius, a Dell software company.

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The business of home automation is enabling the internet of things