We are witnessing an explosion of technological solutionsand services for Smart Living (smart home / building, personal services, etc.), but there are local markets and job opportunities that are still unexplored.
What is missing for these innovations to reach more homes, offices and neighborhoods in our cities? What are the next steps?
WHAT WE HAVE LEARNED SO FAR
In 2016 we met many of you, both directly and online. In the following we share what we have learned about this emerging issue and how we will use it for the coming months’ activities.
With the aforementioned questions in mind, we dedicated 2016 to involving the entire supply chain through new online tools (solution and competence matchmaking platform) and a series of events (SmartHomeNow workshops) organized to facilitate the meeting between technology vendors, service providers, digital experts and Internet-of-Things (IoT) professionals. Over 600 industry players participated in these workshops in Italy.
A growing market – There will be almost 100 M connected homes in Europe and North America in 2020 (Berg Insight). The global home automation and security market is estimated at $ 200B- $ 350B in 2025 while the Health and Fitness market could reach $ 170B- $ 1.6T (Mckinsey Global Institute). More and more new connected technological products reach the market, each equipped with its own APP and in some cases with application interfaces (API) open to integration with others systems. Some digital leaders (such as Amazon, Apple, Google, Microsoft) are providing shared platforms and devices that can be used to build and integrate applications. And a new generation of developers and companies are offering new services based on the intelligent processing of the collected data (analytics, artificial intelligence).
The user needs a local partner – the average consumer becomes increasingly familiar with technology and even the elderly are increasingly interested in investing in “smart solutions”. But it is still difficult to identify the right partner who knows how to “sell” and explain the solutions well and guarantee both customization and quality (reliability, security, privacy).
The business challenge – The IoT smart solutions market will be characterized by relatively low unit prices and a very extensive supply chain that includes technology manufacturers, data enablers / providers, system integrators, service providers, resellers and installers. When designing new sustainable business models, it will therefore be essential to guarantee interesting margins for each of the stakeholders involved.
The integration challenge – To create winning (multi-vendor) solutions that guarantee ease of use for the end user, it is necessary to involve various skills: new professional partnerships are required for creation as well as maintenance.
THE MAIN PLAYERS OF THE “SMART” VALUE CHAINS
Let’s start with a practical example that involves as many actors as possible.
Let’s imagine we want to create and market a solution that includes both products and services. For example, these could be solutions for personal assistance, safety, energy efficiency or in general applications that, by combining real-time local data and other available information / processing, create a significant improvement in the quality of life of the end user. In this case the supply chain is made up of technology suppliers (who supply the basic devices such as sensors), telecom operators, data service enablers, system integrators, local service providers, local professionals / installers / resellers.
Technology vendors (devices)
The established vendors in the market (e.g. home automation) are looking very carefully to the future and in particular to product connectivity and Internet-of-Things. But their transition to new markets risks being slowed down by the need to change existing business models and organizations. In the meantime, new emerging (IoT native) competitors are beginning to make themselves heard, especially in the residential market.
One way to enhance your product / service portfolio would be to facilitate integration (including OEM) made by others. Collaborating with other partners would facilitate the launch of a new solution due to the reduced investment and shared market feedback useful before creating strategies for large scale implementation.
The most successful new native IoT vendors are introducing new products (smart chrono-thermostats, environmental sensors, etc.) with focus on quality, ergonomics and the creation of ecosystems (API, cloud) that makes it easy to add new product to multi-vendor solutions. Often, these new players are very product-focused and do not always have the right experience or channels to reach the necessary market volumes. Greater integration with established vendors could generate new business opportunities for everyone.
Network operators (connectivity / Internet)
Internet-of-Things solutions rely on (secure) connectivity provided by various operators, especially over wireless networks. In addition to basic connectivity services many operators try to add value offering new services related to application deveopment (hosting, cloud, storage) even if there are other players focused specifically on the management of these services (see below).
Data service enablers (intelligent data management and processing)
A data service enabler offers value-added services on data: cloud platforms to integrate objects and users (data brokers), online applications to record and analyze data (artificial intelligence), customizable multi-platform interfaces for end users. The choice is between different types of cloud (public, private, hybrid) or between applications running locally rather than online.
One of the greatest promises of the IoT revolution is the ability to create solutions that, thanks to the cloud, allow you to easily connect the endusers existing smart objects and devices (e.g. smartphones, smart TVs). This way it is possibile to contain hardware investments and costs for configuration and maintenance which (after the initial physical installation) can be done remotely, online.
Sometimes when talking about IoT solutions we only think of the technologies involved, the APPs using the data and the service providers. We forget to consider that in order to implement these services it is necessary to create and integrate the platforms necessary for service providers (e.g. a utility) to actually deliver the services on a large scale. In some cases this back-end infrastructure could have a single client / administrator (for example a utility or service provider), while in other cases it could have a “distributed” nature – a functional interface allowing various players to interact. Using the cloud greatly and flexibly facilitates this implementation.
The service provider is the player in the supply chain specialized in value-added services such as assistance (care, consultation, etc.), energy management / metering, security and so on. The introduction of digital technologies makes it possible to improve productivity, expand the market, and retain existing customers.
But there are many questions. Beginning from which solutions? How to choose the technology if you do not have the necessary skills internally? How to build a profitable business in a market where the end users interest is not yet known?
This is another case in which a market test, carried out together with complementary partners in the supply chain, would provide the feedback necessary to define a large-scale strategy.
Local professionals (solution installation and maintenance)
Local professionals are the experts (installers, engineers, architects, caregivers, etc) who already manage the final customer (with existing systems, design, assistance) and who have a unique opportunity to introduce technologies and new services. But there is a risk that they will not seize the opportunity because of the “start-up” challenge. This is a new market to be developed, solutions are not yet mature and customers are often unfamiliar with the technology. Furthermore, many professionals may not yet have all the necessary skills (IT, marketing) to manage the transition to these new solutions and service models.
LEADING THE MARKET GROWTH
In this initial phase, in order to support and encourage the introduction of new “smart living” solutions, it is necessary to facility collaboration between complementary companies in order to identify solutions that meet real market needs. The definition of solutions should include the final cost for end users, the business model and the involvement of local ecosystems(service providers, business professionals and local communities / end users) with local market tests and communication at various levels: events, workshops, web, social networks.
We have used the term “facilitators” to define third party players who can accelerate creation of new supply chains and implementation of solutions. Here are a couple of examples.
BUSINESS facilitator – The smart living solutions value chain described above is complex and the collaboration between the various players is not automatic. Existing initiatives are mainly related to technological “standardization” or, as in the case of EU funded projects, to experimentation carried out by competing participants.
Instead, it is necessary to start from practical solutions supported by a group of complementary players. A business facilitator can coordinate the joint effort of integrating solutions, defining business models and implementing market tests.
FINANCIAL facilitator– In a growing market with significan upfront investments, a financial facilitator can provide the necessary advice for the financing of projects. The loan can be in favor of the end customer who invests in technological solutions (building managers, condominiums, families) or for the group of companies that collaborate to launch innovative solutions in the market.
To get a more concrete idea of the economic impact of launching an IoT solution, lets make a practical example.
Let’s assume we want to create a solution that includes for example:
- connected devices / sensors (€ 400 / user)
- installation costs (€ 100 / user)
- recurring costs of connectivity, cloud services, support (€ 25 / user / month)
- integration platform shared between the various players (€ 500 k)
- recurring costs for maintenance and evolution of the platform (€ 10k / month)
- local promotion and business development (€ 50 k)
- financial support (credit advance, project financing).
In this simplified scenario, 3000 end customers could generate a turnover of over € 5M (on average € 50 / month per user) during a 3-year period. Clearly this business case should evolve by increasing the number of customers and, for example, by increasing the number of services offered on the same infrastructure or by the reuse of products (sensors and devices) in a circular economy scenario.
But this is only a simulation, useful for opening an initial discussion between those directly involved.
An analysis of the market potential and profits(revenues, margins) for the various players would also make it possible to evaluate the sustainability of entering a partnership to drive market growth.
This is also the moment for “disruptive” initiatives, including scenarios with solutions that are free for the end user (to speed up distribution and data collection) or scenarios that include financial support for the partners expecting lower margins and higher risks (local integrators, service providers) as they are responsible for the direct contact with the end user, which requires a lot of attention and time, especially in the initial market development phase. Scenarios involving pre-sales and crowdfunding are also worth exploring.
In any case, a demo or preliminary version of the solution should be tested to collect feedback from a group of users to decide how to best proceed with large scale implementation.