The Internet of Things Consortium (IoTC) Research PresentationJANUARY 2015

Table of Contents

Research Background & Methodology What does “Smart Home” mean? Dimensionalizing the Smart Home Market & Opportunity Identifying the Market Barriers Defining the Core Target Market for Smart Homes Understanding How Consumers Research & Purchase Smart Home Products Future Smart Home Opportunities Summary Appendix

2

Research Background & Methodology

1,005 U.S. consumers, aged 18 and older, were surveyed about their attitudes towards Smart Home product purchases Survey fielded in November 2014

Research conducted by International Data Corporation

Study commissioned by the Internet of Things Consortium (IoTC)

Sponsoring Members:

3

What does “Smart Home” mean?

The terms “Smart Home” and “Automated Home” or “Internet of Things” are often used interchangeably, though there may not be universal agreement to the meanings nor differences of the various terms

For this research study, Smart Home is defined in the consumer survey as follows:

4

Smart home solutions refers to being able to control home settings and security through electronic devices such as smartphones, tablets, and PCs.

“”

Dimensionalizingthe Smart Home Market & Opportunity

5

The interest in Smart Home solutions is wide and far-reaching

0%2%4%6%8%

10%12%14%16%18%

1 2 3 4 5 6 7 8 9 10

Interest in Adopting Smart Home Solutions

65% of those surveyed are moderately or extremely interested in Smart Home Solutions

Projected to the US 18+ population, that equates to a potential market size of roughly 157 million Americans*

Not at all interested

Extremely interested

*Based on 2013 US Census figuresQ1. What is your level of interest in adopting smart home solutions? Smart home solutions refers to being able to control home settings and security through electronic devices such as smartphones, tablets, and PCs. (Scale of 1-10)

6

This interest is driven by energy efficiency and home security

64% 60%

48%41%

ImprovingEnergy

Efficiency

ImprovingHome Security

CreatingConvenience

Improving Well-Being

Appeal of Smart Home Benefits (Top 3 Box: ≥8)

Improving energy efficiency as well as improving home security are the two most appealing benefits to consumers

The promise of better energy efficiency and home security is what fuels the most interest in Smart Home solutions

Q2. How appealing are the following benefits of a smart home in your mind? (Scale of 1-10)

7

Current Smart Home device ownership remains fairly low

Smart Home Device % who ownHome security system 19%Set top box for your TV 18%

Smart thermostat 12%Smart light bulb 9%

Wearable fitness device 8%Smart watch 7%

Smart washer/dryer 7%Internet connected security camera 7%

Smart refrigerator 6%Smart power outlet 5%

Smart locks 5%Smart sprinklers 4%

Connected health monitor 4%Google Glass 3%

Outside of core computing devices (PC, phone, tablet) and connected TVs, Smart Home device ownership is still in the early adoption stages with the most popular ones being home security systems (19%) and smart thermostats (12%)

There is tremendous opportunity for the Smart Home solutions industry to broaden consumer adoption

Excludes PC, Tablet, Smartphone, Smart/Connected TV

8

Early Smart Home adopters are finding high utility

90%

89%

79%

73%

69%

68%

66%

63%

62%

61%

60%

60%

57%

56%

52%

50%

43%

41%

% WHO USE AT LEAST DAILY With but a couple of exceptions, all the devices listed were being used by the majority of their owners at least once a day

Data suggests that theses devices have, for the most part, replaced their “dumb” counterparts in the home

The high frequency of Smart Home device usage by their early adopters implies the products are more than mere fads and can have sustained longevity

9

Identifying the Market Barriers

10

Concerns around data privacy, cost, and hacking are most prevalent

55%51% 51%

39%32% 29% 29%

Data Privacy Hacking Cost BrandUnfamiliarity

SetupDifficulty

TooComplicated

Where toPurchase

Concerns Related to Smart Homes (Top 3 Box: ≥8)

Easing consumers’ fears around data privacy, hacking and cost are the most significant hurdles the market has to overcome to broaden its appeal to more Americans

Q3. How concerned are you about each of the following as related to smart homes? (Scale of 1-10)

11

Privacy concerns are intertwined with concerns around hacking and security

66% 64% 64% 64% 61% 60%54% 52%

Notknowingwho has

dataaccess

Hackingfinancialaccounts

Invasion ofprivacy

Using datato break

into home

Using dataillegally

Knowingwhere data

is stored

"Big Brother" Using datafor

marketing

Data Privacy Concerns(Top 3 Box: ≥8)

Digging deeper into Data Privacy (cited as #1 concern) reveals a mix of privacy and cyber security fears

All of the concerns surveyed scored >50% (more than half of consumers were very or extremely concerned), indicating that privacy and security worries pose considerable challenges for the Smart Home industry

Q11. How concerned are you about each of the following ways your user habits (the data) may be known and shared? (Scale of 1-10)

12

But some are more willing to forego privacy concerns for product benefits

17%

32%

18%

18 - 24 25 - 44 45+

AGE Amongst those who list privacy as

their top concern, 25-44 year olds, males, households with kids, and those familiar with IoT are more likely to be willing to sacrifice such concerns for certain product benefits

These traits line up well with those of our core target audience

30%

13%

MALE FEMALE

GENDER

34%

15%

WITH K IDS WITHOUT K IDS

CHILDREN IN HH

11% 23%65%

100%

N O D O N ' T K N O W

M E AN I N G

K N O W A L I T T LE

K N O W M E AN I N G

IOT FAMILIARITY

Q3a. You indicated that concern that your private data may be shared with or without your knowledge is your biggest concern (from the above list) that is preventing you from adopting a smart home device, are there any particular situations that are more important to you than your privacy concerns? (Yes respondents)

Those willing to forego privacy concerns by segment

13

And younger consumers are less sensitive to cost benefits

75%

72%

63%

63%

72%

69%

68%

65%

81%

80%

74%

70%

85%

84%

79%

79%

GOOD VALUE FOR PRICE

NO MONTHLY FEES

LOWERS HOME MAINTENANCE

COSTS

LOWERS HOME INSURANCE

COSTS

IMPORTANCE OF COST-RELATED PRODUCT ATTRIBUTES BY AGE

(TOP 3 BOX: ≥8)

18-24 25-44 45-64 65+

Though concerns around cost rank high for all age groups, younger consumers attach lesser importance to cost-related product benefits

Younger consumers think less about cost when considering Smart Home product attributes and may be willing to spend more to receive desired benefits

Q5. How important are each of the following attributes that you would want in a smart home device? (Scale of 1-10)

14

Defining the Core Target Market for Smart Homes

15

The Core Target is younger, male, affluent, with children and urban

53% 49%31% 19%

18 - 24 25 - 44 45 - 64 65+

Age The demographic traits which

exhibit the greatest interest and potential for Smart Home solutions and technology are: Younger age segments (18-

44)

Male

Higher HHI ($100K+)

With children in the HH

Living in an urban area

44%33%

Male Female

Gender

55%

30%

With Kids Without Kids

Children in HH

High Level of Interest in Smart Home by Demographic (Top 3 Box: ≥8)

32% 39%56%

<$49,999 $50K -$99,999

$100K+

Household Income

49%37% 29%

Urban Suburban Rurual

Residential Area

Q1. What is your level of interest in adopting smart home solutions? Smart home solutions refers to being able to control home settings and security through electronic devices such as smartphones, tablets, and PCs. (Scale of 1-10)

16

These demographic traits reappear throughout study results

The same set of demographic segments universally and consistently demonstrate greater interest in Smart Home technology throughout study results, including when looking at: Ownership of Smart Home devices

(with exception of the PC) Familiarity with IoT Those currently engaged in or are

interested in home network activities

Interest in “What If” future scenarios for Smart Homes (except for gender)

17

Understanding How Consumers Research & Purchase Smart Home Products

18

Word of Mouth is the most important info source for researching purchases

54%

43%

27% 27%

15% 13% 11% 11% 6% 5%0%

10%20%30%40%50%60%

Information sources for Smart Home & device shoppers

Word of mouth endorsements are the most cited source of information when researching for Smart Home and device purchases For those familiar with IoT, word of mouth is

significantly less important as they may be the ones providing such shopping advice to others

Retail store employees rank as the second most important source of information, underscoring importance for device manufacturers of educating retail sales associates

Though TV is where much of larger ad budgets go, online ads rank equally with TV as an info source Smart Home shoppers rely on.

Q7. When you are purchasing items such as smartphones, home automation systems, security systems, tablet, computers, etc. where do you get information to help you with your purchase decisions? Select all that apply.

19

E-commerce is on par with physical retail for sales of Smart Home devices

Online sales and retail store sales are at parity as top sales channel for Smart Home devices For the core computing devices with

highest ownership, PCs, smartphones and tablets, retail sales remains top channel

For the less ubiquitous devices in this category, their products may not benefit from wide distribution with physical retailers so online sales channels are vital

0%10%20%30%40%50%60%70%80%

Purchase channel by device

Retail Store Online Other

Q6b. You indicated you own the following devices. Where did you purchase each of these devices?

20

Smart home shoppers have a slight preference for DIY solutions

33%

38%

29%

“Smart Home in a Box” vs. DIY

Single packagesolution

Individualcomponents andcustomize my ownNot sure

38% of consumers would prefer to build their own DIY Smart Home setup vs. 33% who would prefer a packaged “Smart Home in a Box” solution

Those who prefer to customize their own Smart Home are likely to be: Younger (18-44)

More familiar with IoT (have heard of it and know at least a little about it)

Urban and Rural (vs. Suburban)

Q10. If it were available, would you prefer to purchase a “smart home in a box” solution – that is a solution that contained home remote controllers, devices, etc that came as a package solution or would you rather purchase individual components (such as smart lights, smart TV, smart locks, smart appliances, smart sprinklers, etc.) separately and build out a more personalized system?

21

Future Smart Home Opportunities

22

Imagining the near future of Smart Homes guides product development

Receive recommendations on ways to reduce costs / drive efficiency based on personal smart home data 44%

Transfer shows / content that you are viewing to another device without disruption in viewing 37%

Control home appliances via voice 37%

Receive incentives to pay less for home services by watching advertisements on connected home devices 37%

Access virtual healthcare services and recommendations based on personal data recorded from devices 35%

Television shows or video games that you watch/play in-home would become full entertainment experiences 34%

Traditional appliances would be activated by information that entertainment/media/news companies provide 33%

Receive information and discounts on sporting events from sports viewing behavior at home 28%

Change home preferences/device settings based on information from your social networks 28%

Purchase items from unique connected devices 27%

Survey respondents were asked to consider various scenarios for what Smart Home technology can offer 1 or 2 years from now

The scenarios that emerged as the most interesting and/or useful reflect ongoing trends in technology and media, but also provide an insightful glimpse into opportunities for smart home product development in the near future

Highlighted in following slides are the Top 4 scenarios

Q20. 1 to 2 years from now, connected home devices may soon allow you to experience situations that aren’t currently possible today. How interesting/useful would the following scenarios be to you if they were options you could choose? (Scale of 1-10)

Most interesting/useful potential Smart Home scenarios (Top 3 Box: ≥8)

23

Reducing costs based on personal smart home data (Ranked 1st)

Reinforcing data previously seen, for many Americans the promise of home automation now and in the immediate future is about utilizing technology to attain efficiencies and cost savings

With heating/cooling and lighting making up largest sources of energy consumption for US households, early solutions have focused in these areas

24

Current ExamplesPerhaps the most popular example of this, the Nest Learning Thermostat automatically adjusts your home temperatures based on personal preferences it remembers over time, while also saving on heating and cooling costs when away from home.

Similar cost-saving applications include smart lighting systems that turn on/off based on usage history, motion detectors, or programmed settings. Some Smart Homes have installed power meters that track and analyze energy usage of different appliances and equipment to recommend savings opportunities.

U.S. Residential Electricity Consumption

Heating & cooling LightingRefrigeration TV & relatedLaundry equipment Computers & relatedCooking Other

Future smart home products may focus on conserving energy costs around other household needs such as refrigeration, TV viewing, and laundry

Source: US Energy Information Administration, Estimated U.S. Residential Electricity Consumption by End Use, 2012

Transferring shows from one screen to another while viewing (Tied – 2nd)

With the proliferation of screens in the household, TV and video viewing is no longer confined to the living room

25

Current ExamplesPay TV providers such as Comcast, Verizon, and DIRECTV offer multi-room viewing where you can start a program on one TV and finish viewing on another via their DVRs

Google’s Chromecast and Apple’s AirPlay allow users to transfer video viewing from a smartphone or tablet to their TV

Future opportunities would be to broaden such technology beyond TVs and core computing devices and into emerging smart home device categories with screens (i.e. refrigerators and other appliances)

Controlling home appliances via voice (Tied – 2nd)

The increasing popularity of Siri and Google Now have brought voice command technology into the mainstream

26

Current ExamplesAmazon’s new Echo product, a voice-activated intelligent speaker, is a bold first step towards taking voice control and assistance technology beyond personal devices like a smartphone or smart watch and into the living room or household level setting. Controlled only by voice, the Echo not only plays music but will answer basic queries, give you the weather, news, and more

Incorporating voice control into the Smart Home for simple commands and functionality will likely be what many device makers will pursue independently

For those seeking to turn the Smart Home into more capable and intelligent voice assistants, it may require complex integration with popular OS providers like Apple (Siri), Android (Google Now) or Microsoft (Cortana)

Receiving incentives to pay less by viewing ads on devices (Tied – 2nd)

There is a surprisingly high tolerance for ads and marketing if it reduces Smart Home costs

Current ad opportunities, beyond core computing devices and TVs, are minimal on Smart Home devices Likely limited by the lack of screen real estate

with many of these devices

27

The larger opportunity may rest in the mining of Smart Home usage data and patterns to build consumer profiles and power more targeted ads and marketing efforts

Smart home device makers will need to carefully weigh such ad revenue opportunities with data privacy concerns

Food or supermarket brands looking to make recipe and product suggestions based on the contents of your smart refrigerator

Detergent brands interested in targeting ads to households that are more frequent users of their smart washers and dryers

Potential Smart Home Ad Targeting Scenarios

In the near future, the Smartphone will be the new Universal Remote

There is strong evidence that the smartphone is the central device for controlling Smart Home technology: 57% would be very or extremely interested in using a phone to

control their automated home (ranked 1st out of 6 devices) 23% of people would consider a total Smart Home solution only if

they could control it with their smartphone Using a smartphone to control other Smart Home devices ranked

2nd (tied, out of 11) for the most common or most desired home network activities

48% of people find the Smart Home benefit of managing things with a smartphone very or extremely appealing (ranked 3rd out of 6 benefits)

45% of people would find smart locks to be helpful if they could manage access via a smartphone

28

Summary & Conclusions

29

Smart Home products are poised to take off but not without some obstacles

Smart Home products are still in early adoption stages but early adopters are finding heavy use for such products. With a potential market of 157 million Americans, the future shines bright for the industry

The interest in Smart Home is driven by benefits of improved energy efficiency/cost savings and home security, but there are strong concerns around privacy, hacking, and cost

Costs may come down and improve over time with technology, but stronger cyber security precautions and greater privacy controls are crucial to growth of the industry

Smart Home device makers should start with word-of-mouth marketing to the core target of males 18-44, HHI $100K+, children in HH, and urban

Online sales and physical store sales channels deserve equal focus

Driving energy efficiency, transferring TV/video content across screens, voice command technology, and incentivized advertising are four strong potential areas for future Smart Home development

Device makers need to design with smartphone compatibility and control in mind

30

Greg Kahngreg@gkdigitalmedia.com

@GKmediaBUZZ