Shaping the Digital Future

Attack of the

Future Smart Home Giants The fight of Apple, Google, Amazon, and others

for the most customer centric ecosystem

October 2015

FLASH INSIGHT

2

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Distribution is only permitted without any changes or omissions – publication, in

whole or in parts, requires prior written consent by MÜCKE, STURM & COMPANY

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All mentioned company names, logos, brands, brand symbols and other copyrighted

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illustrative purposes.

3

The Smart Home giants strengthen their core businesses by enhancing their dominant ecosystems with smart home functionalities. Key Take-Aways

1

Smart Home as value driver for core business model The future Smart Home giants are gradually entering the market because they see touchpoints to their

specific and the adjacent markets. At the moment the smart home market is dominated by hardware

sales, which lay the foundation for the data driven business models of the “giants”. Therefore, their

smart home activities are not set up as independent business models and do not aim for direct

monetarization yet. They rather apply a freemium entry, cost plus or even loss leadership cross-

funded strategy to gear up towards their core business model.

2

Platform infrastructure secures ecosystem dominance By providing of smart home platforms, which are free to use for the end-user, and by leveraging their

huge customer base, the Smart Home giants are in a position to establish a great level of control over

the smart home and ultimately the IoT market. Thus, they can to a higher degree influence innovation

developments, leverage their dominant position to determine hardware specifications, and establish de

facto industry standards.

3

Create value alongside Smart Home Giants Existing platform business models are increasingly becoming redundant as new platforms and market

entries by future Smart Home giants are offering free access which comes with free M2M connectivity

to consumers. Hence, traditional platform providers, device manufacturers, and service providers need

to position themselves not as competitors to the Giants but must align their strategies with them by

creating additional local services based value leveraging their existing assets alongside or by

specializing in dedicated niches.

Source: Mücke, Sturm & Company

4

In the last two years, the Smart Home Giants have intensified their smart home activities to enter the market through hardware, software, and services. Smart Home Activities (Selection)

Sales1 US$ 182,8 bn ~US$ 66 Mrd. US$ 66 bn US$ 305 bn US$ 86,83 bn US$ 12,3 bn

Customers

Smart Home

Activities

> 600 m > 500 m ~ 244 m (undisclosed) >1,5 bn >300 m

HomeKit (2015)

HomeKit is a framework

for communicating with

and controlling

connected smart home

devices in a user’s

home. It is not

necessary to use a

gateway for remote

access.

Apple does not

manufacture own smart

home devices; instead

it licenses third-party

devices.

Strong focus on voice

commands via Siri.

Nest (2012)

The “works with Nest”

program includes a

variety of products that

can be connected to

the self-learning Nest

thermostat and Nest

Protect, an intelligent

smoke detector.

Project Brillo (2015)

Android based

operating system to be

used with IoT devices

and communication

semantic.

OnHub (2015)

Router with smart home

gateway functionality.

Echo (2015)

Voice command device

(Alexa) with functions

including question

answering, playing

music, and order

selected consumer

goods from Amazon.

Moreover it functions as

a smart home hub with

the function of

controlling your smart

devices via voice

command.

Dash (2015)

Consumer goods

ordering service

designed to make

ordering products

easier and faster.

Samsung Smart-

Home (2014)

Enables users to

control and manage

their personal and

home devices through

an integrated platform

and server.

SmartThings (2014)

Offers an open platform

for smart homes

powered by a hub.

Customers can add a

variety of products form

different manufacturers.

AllJoyn for

Windows 10 (2015)

Open source software

project that aims to

enable interoperability

among connected

devices. AllJoyn is

implemented in

Windows 10.

Integration enables

controlling via voice

command on every

Windows device.

Partnership Insteon

(2015)

Full incorporation into

Windows ecosystem;

enhanced version of

the Insteon app with

exclusive features for

Windows devices.

Expansion of

business division

Alibaba, the Chinese

retail giant, is

establishing a smart

living division. The

company started to

enter the market by

publishing a Smart-

Home app and is

rapidly increasing its

efforts in this area.

Functionalities offered

by international

competitors e.g. cloud

service, payment, etc.

are already in place.

US$ 88,9 bn

1 Sales revenues from 2014 2 Wildcard since essential functionalities for a Smart Home product are in place

Source: Mücke, Sturm & Company

5

Smart Home Giants identified smart home touchpoints to their core businesses and take a market entry approach with their own business model agenda in mind. Touchpoints & Strategic Reasoning

Hardware

E-commerce

Software &

Data-based

services

Secure price-premium

strategy for hardware

Expand ecosystem

Position iPhone as a central

control unit

Increase lock-in effects

Increase sales through

synergy effects

Create purchase incentives by

connecting own product

portfolio across different

segments

Improve overall value

proposition of brand Establish new

distribution channels

Strengthen all sales activities

Increase dynamics of sales

cycles

Expand ecosystem

Diversify portfolio and

protect home market

Secure dominant domestic

market position

Extend current portfolio

offering

Use core competencies to

generate economies of scale

in the Asian SH market

Increase

product reach

Provide cross-system

software

Secure market position

Expand ecosystem

Develop new partnerships

Improve personal data

collection

Implement Android as central

OS for IoT devices

Improve quality of collected

consumer data

Establish new affiliated

programs

Source: Mücke, Sturm & Company

6

Through the provision of HomeKit to all iOS9 enabled devices Apple increases its ecosystem attractiveness and secures its hardware price premium strategy. Detailed Analysis: Apple HomeKit1

How it Works

Common

Database

Siri

Manual command Sensors: Apple

Watch

Time

Trigger Processing Action (Extract)

Smart-Plug WeMo

by Belkin

Local

control

Remote

control

Hardware Sale iPhone, iPad, PCs

Position iDevices as access point

to smart home

Expansion of the iOS operating

system to create lock-in effect

Increase of market reach by

enabling smart home readiness

Strengthen the customers’

relationship with the brand

Smart light bulb hue

by Phillips

22°

Core Business

Model

Smart Home

Potential

2015 2016 2017 2018 2019 2020

Smart-Home-

Ready2

HomeKit-

User

Development of “Smart Home Readiness” and HomeKit Usage Households in Germany; in million; EoY view

1 MS&C FlashInsight: HomeKit – Der disruptive Smart-Home-Ansatz 2 Households that have iOS9-Devices and could therefore use HomeKit

Source: Mücke, Sturm & Company

14,4

35%

7,4

18%

13,9

34%

13,9

33% 12,7

31%

9,7

26%

6,9

17% 5,3

13% 2,9

7% 2,5

6% 0,8

2% 0,4

1%

Smart heating control by

ecobee

7

Offer unprofitable hardware to

open a new sales channel within

the home and strengthen the e-

commerce business

Cross-link services like Amazon

Prime Music, Video, and Fresh to

boost customer usage

Gain of customer insights

Amazon strategically positions a central smart device in the customer’s home to enable a quick access point to its core e-commerce services. Detailed Analysis: Amazon Echo1

How it Works

Trigger Processing Action (Extract)

Local

control

Lightning control with

Wink SH-Hub

2011 2012 2013e 2014e 2015e

1

2

0

-1

Profit & Loss In bn USD

Content: Apps, Movies,

Music, e-Books

Advertisement

Devices (Kindle Fire,

Kindle e-reader)

1 MS&C FlashInsight: Amazon goes Smart Home

Source: Mücke, Sturm & Company

Alexa

Smart-Plug WeMo

by Belkin

Smart light bulb hue

by Phillips

E-commerce

& Services Prime, Fresh, etc.

Core Business

Model

Smart Home

Potential

8

The dedicated positioning of the Smart Home Giants along the infrastructure segments of the value chain illustrates its perceived importance to gain dominance. Smart Home Value Chain

SH-Software

(Semantics)

Interaction

Instance

Smart Home

Devices

Hub/ Gateway

Functionality

Cloud

(Backend)

Connected

Services

Advantage for

SH-Giants

Establishment of the first

access point for end-

consumers in order to

strengthen the brand

Increased network effects of

connected households and

individuals to boost core

business

Full control over the

certification process for

all devices and services

within the ecosystem

Traditional Platform Providers

Traditional smart home platform providers have positioned themselves along the same

value chain segments as the smart home giants. Therefore, they will increasingly

face direct competition and will be forced to match a similar offering portfolio to

customers as their expectations rise. Moreover, chargeable functions currently

pursued by those traditional players are at risk as most of them are being offered for

free by the giants

Device Manufacturers Service Providers

Providers of smart

home devices can

currently choose from

a wide variety of

platforms. However,

not all platforms will

align and support

their business model

Providers of smart

home services have

to thoroughly

evaluate the reach of

smart devices in order

to address a wide

range of end

customers

Source: Mücke, Sturm & Company

Smart Home Giants

Selective approach In progress

9

The go-to-market strategy of the Smart Home Giants will have a fundamental impact on the whole industry and significant implications on each player. Implications

Implications

on specific

group

Recommen-

dation for

action

Through the entry of the giants into

the Smart Home market traditional

platform providers face an

unsustainable revenue model

through changed customer

expectations regarding free vs.

chargeable Smart Home

functionalities

Re-evaluate current business

and revenue model

Define and evaluate future

positioning to secure USP

against Smart Home Giants

Explore niche market positions

(e.g. energy, health, security) in

order to create best-in-class

position

Traditional

platform providers

Although certification programs

might limit the development

freedom or lead to reduced direct

brand identification, device

manufactures gain important

potential through outsourced back-

end functionalities, standardized

integration processes and

increased customer reach

Device

Manufacturers

Service

Providers

Through a huge existing customer

base and access to a wide range of

connected devices, platforms and

their ecosystems offer new

opportunities to increase customer

reach and improve the current

offering portfolio of service

providers

Use platforms of Smart Home

Giants to secure customer base

Provide devices for all important

and relevant platforms

Offer additional digital services

to end customers, using the

platform as vehicle

Join platforms that support the

digital strategy

Evaluate the accessibility of

connected device functionalities

for each platform

Develop services that make use

of the market-reach of SH-

Giants

Source: Mücke, Sturm & Company

10

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