This post continues a disruptive scenario analysis focused on assessing the transformative environment that faces companies, Industries, Governments, and society as a whole. Much attention is paid to several digital forces (e.g. Mobile, Social, Cloud, Big Data, The Internet of Things, AI, Robotics), but for the most part, the focus is isolated in nature. As described in The Second Machine Age, the combinatorial effect of these forces enables disruptive scenarios at an unprecedented pace. While some of these forces and their combinations are growing more visible, many are far off on the horizon, and countless scenarios are not yet visible. The visual below depicts this phenomenon, underscoring the difficulty of responding to the forces in our line of sight – and the near insurmountable task of responding to those further on the horizon. At its furthest point, lack of visibility to future combinatorial innovation drives a high degree of uncertainty.

No one can plan for disruptive innovations that are not yet visible – and the accelerated pace at which future innovations emerge complicates the matter further. Therefore success is highly dependent upon an enabling set of enterprise characteristics – a tall order for most traditional companies. Nonetheless, investment in the enablers of these characteristics is rapidly becoming a point of future viability.

Having focused on autonomous vehicles and transforming medicine, we now analyze the possible transformative effect of the Smart Home. John Chambers, the CEO of Cisco, was recently Quoted as saying that machine-to-machine connections on a massive scale (Internet of Things), will add $19 trillion to worldwide economic growth over the next 10 years. This perspective is consistent with the recent Thinking of two professors from MIT; namely, that the global economy is on the cusp of a dramatic growth spurt driven by smart machines that take full advantage of advances in computer processing, artificial intelligence, networked communication and the digitization of just about everything.

Why now? Several trends have emerged to drive Smart Home adoption, including an aging society, Smartphone penetration, and combinatorial innovation. The MIT professors referenced earlier suggest that we are at an inflection point driven by three breakthrough-enabling forces: the exponential progression of technology, digital inter-connectedness, and combinatorial innovation. As a result, the smart home – like many current disruptive scenarios – is no longer relegated to the world of science fiction. Wi-Fi removed an obstacle by eliminating the need to run Ethernet wiring to create a home network. Other barriers are eroding quickly as described in a recent Report from Forrester. Several observations from the report: widespread network bandwidth is accelerating the pace and availability of smart home products; an always-on broadband connection enables awareness and control of connected devices; mobile devices provide a remote control for the home; home networks distribute the connection throughout the home; local communication options have stabilized; the options for making local connections are now manageable.

Are consumers interested? This same Forrester report surveyed consumers to assess their interest in smart home capability and a significant percentage find the idea appealing. Yet we are still in the early stages of adoption and the survey indicates that interest among U.S. consumers has declined since 2009. In spite of apparent enthusiasm from consumers, adoption remains low with levels across five of the six application areas in the survey barely registering, and the sixth (security) rising above 3% adoption.

Although the market signals are mixed, a new Report from ABI Research sees demand for smart home technology growing at a rapid pace. According to the research firm, sales of smart home monitoring devices (such as contact and motion sensors, smart thermostats and smart plugs) grew to 17.23 million in 2013, almost double the 2012 amount. Contact sensors for detecting whether windows and doors are closed were the most popular devices shipped last year while motion sensors were in second place. By 2018, ABI projects that more than half-a-billion wireless smart home monitoring devices will be deployed in homes around the world. They expect growth to come from new users and the extension of existing systems by current users. Although they expect over 84 million contact and motion sensors to ship annually by 2018, they see smart plugs, smart door locks, and connected smoke and CO detectors having the greatest shipment growth. In addition, Juniper Research sees the smart home industry growing from $33 billion in 2013 to $71 billion by 2018.

Benefits of the Smart Home: Forrester describes four areas where smart home benefits will be derived. First, the smart home takes entertainment to another level by providing more flexibility and control over the media we consume; such as time shifting TV and creating shared experiences. Second, connectivity delivers peace of mind by assuring owners that their home is safe and secure. Third, smart products in the connected home deliver convenience by making it easier to do things. Fourth, by making better use of resources such as electricity, gas, and water, smart homes deliver Efficiency.

On a broader scale, benefits accrue to businesses and society as a whole. Demand-response functionality enables utilities to improve the operation and efficiency of their networks by managing its load. In another scenario, assets can be monitored by device manufacturers to save costs by running remote diagnostics and maintenance. The information gathered can also be used to inform their research and development activities.

What will consumers do with Smart Home products? There are a number of known applications and many more to be defined. As with any combinatorial innovation, the ecosystem will form to create new and yet envisioned value cases. Here is a representative list of scenarios and applications:

You leave the office after a late night

Start a load of wash as you are leaving the office

Illuminate the walkway

Play the evening playlist when you walk in the door

Pre-heat the oven upon arrival

Open the garage door as your smart car draws near

Unlock the door upon authentication via the wearable on your wrist

Turn on lights and close the blinds when you walk into the room

The car alerts the thermostat to turn on the A/C

The kids get home from school

Unlock the door upon authentication via the wearable on their wrist

Send an automated notification to parents that they are home

Security and control

Tell me who’s at the door

Make it look like someone is home when I’m away

Smart home connects to the community to share security alerts

See my home from anywhere no matter where I am

Allow access to my home to anyone by providing time-restricted codes

Control my home from anywhere via a Smartphone or tablet

The truly smart home

Gauge if someone is home to stay rather than running in because they forgot something

Voice controlled-home automation

Automatically dim the lights and drop the window shades

Extend the smart home to the car – example: sense the need for an oil change and send a coupon from a local service center to the in-home touch screen

Digital backsplash installed above kitchen countertops

Healthcare

Elder care

Assisted living service; integrate data gathered from remote medical sensors with the readings from utility appliances for enhanced care management

Efficiency

Running the dishwasher when the electricity is cheapest

Soil sensors indicate sufficient moisture, preventing sprinkler systems from running

Conserving energy by turning off or dimming lights in the house

Conserving energy by controlling motorized window shades and managing heating and cooling

Although these various scenarios deliver great value, this article on Bluetooth Plugs takes it one step further. According to the article, a truly smart home would know that the kids were leaving and close up automatically. Remote controlling your home would not be necessary, as your home would do it for you. The article describes how Bluetooth enables this scenario by creating a mesh network that tracks you, via your Smartphone, throughout your home. Beyond knowing where you are, the article goes on to describe a smart home that knows who you are. Now this gets interesting, as it takes personalization to another level; someone likes the lights a little lower when they watch TV at night; someone else always sets the thermostat a little higher when they’re home alone. These automatic adjustments enabled by Bluetooth are an outcome of the learning home if you will – and that’s a next generation experience.

As described in this piece on the Healthier Home, improving personal health is another area that promises to benefit from advances in smart home capability. The article describes the iRobot, a prototype robotic home health assistant that could eventually monitor and interact with patients to understand their daily routines and needs. Other Healthcare scenarios include room-to-room behavior sensors that log daily physical activity, and smart bathroom scales and wearables connected to the network. Collectively, these capabilities enable the home to effectively become an omnipresent personal trainer.

Smart home ecosystem: As it is with most future value creation, the success of smart home services cannot be driven by a single company, or even a single Industry. In order to truly create value from smart home applications, competitors must become collaborators. The Value Ecosystem model becomes the critical enabler for combinatorial innovations like smart homes, autonomous vehicles, virtual healthcare and many others. While the actors in the smart home ecosystem will evolve, there is a clear list of participants emerging:

Companies that currently focus in a single-category like energy, entertainment or security can exploit the emerging smart home market to widen their service offering and extend their relationship with customers. The ecosystem model enables both relationship extension and the creation of new revenue streams. As existing revenues come under increasing attack, finding these new sources becomes more critical. Examples of new sources of revenue within the context of the model: gaming companies could add wellness monitoring; communications providers could become primary suppliers of home-security and energy demand management services; Insurance companies could monitor the home and use sensor data to proactively avert damage from a pipe leak. These scenarios enable new or different relationships and revenue streams.

Stages of Evolution: The previously mentioned Forrester Report suggests that consumers don’t want a smart home; they want a smart product to solve a specific problem. If the need is to ensure that the lights are on or the door is locked, an integrated smart home solution is overkill. However, as individual smart products are added to address additional problems, new applications emerge from the combination of products. To realize value from this combination, smart products need to communicate and interoperate, and this realization will create demand for federation among smart products.

Forrester sees two types of connected homes existing: those enabled by integrated solutions, and those created by consumers who combine off-the-shelf smart products. The consumer-driven approach will outnumber the solution buyers, and while they may take diverse paths, all will originate from a smart product and evolve incrementally with additional smart products into a smart home. For solution buyers, Forrester believes consumer will fall into three categories:

New-home buyers – as the price of an integrated smart home comes down, home builders will use these features to attract buyers to new developments while extracting a premium for the peace of mind they offer. Some builders will partner with other ecosystem participants to deliver premium services

Existing home security customers – for customers who already subscribe to a professionally monitored security service, additional functionality such as energy control, remote video monitoring, and utility alerts will be enough to motivate an upgrade

New security customers – Those that did not previously see value will subscribe to connected solutions because the richer feature set or targeted functionality justifies the monthly cost

Challenges and Obstacles: As with many of the emerging combinatorial innovations, there are challenges and obstacles. Given that data is at the core of most innovations enabled by digital forces, privacy concerns is a big smart home obstacle. Additionally, security risk is high, as hacking into the home via the automation systems becomes a major concern. Other possible inhibitors to adoption are described in the Forrester report:

Monthly service fee models can be expensive

Difficulty finding smart home products and the educational experience required

Fitting smart home products like thermostats into existing homes

Interoperation complexity associated with coordinating smart home solutions

As the smart home space evolves, consumer benefits must be articulated in a manner that gains trust; new business models and cross-industry partnerships need to be developed and implemented; and technical standards need to be designed to encourage interoperable and scalable solutions.

Is disruption likely? Sticking with the theme of previous posts, the combinatorial innovation that drives the future smart home is disruptive. This innovation area – and many like it – will continue to Blur the Boundaries between industries and companies, and new sources of value will be created as the ecosystem emerges. Companies across multiple industries have already entered the space:

Who gets disrupted? This Forbes Article describes the smart home impact across four industries. The author describes how low cost sensors, rapid product development, the explosion of mobile apps, and cloud computing are driving a smart home revolution that will create alternatives to incumbent products and services. The number of growing alternatives is a key point, as it creates a disruptive effect on existing revenue streams. Here are the four industries the author focused on:

Elder Care – aging has driven a quarter trillion dollar elder care business in the U.S. alone. New smart home options provide alternatives to costly live-in care or elder care facilities

Home Security – likely one of the most disrupted industries according to this Article. The industry is already stagnant at 20% market penetration, in part due to high installation fees and annual contracts. Everyone wants to feel safe, and new low-cost, self-installable home security options will give new consumers that option

Insurance – early detection of possible home damage can create value for both the home owner and the Insurance Company. The home owner avoids damage and likely gets lower premiums, while the Insurance Company saves money. Smart home technology like moisture sensors can warn of a leak via a smart phone app

Pet Care – are kennels heading toward disruption? New smart home solutions can enable pet monitoring, with possible action enablement like feeding or keeping you up to date on the wellness of your dog

The Response: What are the likely responses to this growing opportunity? Clearly – as Forrester describes – ecosystem players like Amazon will pounce. Other drivers of the consumer computing ecosystem like Apple, Google, and Microsoft will also see the smart home as a way to extend experiences. These next generation experiences provide an opportunity for companies to connect to their customers in new ways. Customer experience efforts in my view have still not advanced to this level – with too much traditional thinking clouding the picture.

What about TV manufacturers? Does the TV someday Control the Smart Home? Does smart home intelligence simply get embedded into a centerpiece of our homes? Samsung has already talked about how their smart TVs will act as a control point. Does Google think the same way with their Android TV platform?

Communications providers are responding, as they Make Room for the Smart Home Opportunity. Thanks to their strategic assets, these providers are well positioned to capture value from Smart Home services. As the number of actors in the ecosystem expands, Communications providers can strengthen their central position as the integrator of Smart Home services. The article above speaks to the significant assets of telecom operators in the Smart Home environment, like the central role they play in customer relationships, their sales force, support capacity, and network management capabilities. Their broadband internet gateways make them leading players in terms of penetration of households with Smart Home solutions.

Will the smart home disrupt your revenue streams, or does it represent a new source of revenue? To Out Innovate startups, new market entrants, and major ecosystem players, companies must analyze smart home scenarios, embrace ecosystem-thinking and strategize the appropriate response. It has been the intent of this current series to focus on the visual provided earlier in this post; to look at combinatorial innovation on the horizon and evaluate potential impact and response. The next post will continue the journey.