The prosperity of the smart home market is becoming increasingly recognized. On June 25, research firm IDC released its latest estimates for the smart home market. It is said that the smart home market will continue to grow at a compound annual growth rate of 14.9% over the next few years. This includes smart speakers, which are considered a “must-have hub,” as well as smart bulbs, smart plugs, and other devices. However, while the market outlook is optimistic, we can also see in the European and American markets that some previously popular smart home brands are experiencing a continuous decline in sales.
Data shows that products like Philips Hue smart bulbs, the Nest thermostat acquired by Google, and Samsung SmartThings, which once launched a smart hub, have all seen varying degrees of sales decline on Amazon. The Philips Hue smart bulb, which once ranked second in Amazon’s sales, has now dropped out of the top 100. The Nest, which was once ranked in the 30s or 40s, has now fallen to over 80. As for Samsung SmartThings, it briefly peaked in sales during last year’s Christmas season but quickly fell out of Amazon’s top 100 list.
As the smart home market continues to develop positively, what can we learn from these failed “product samples”?
The Sword and Shield of Smart Homes:
The Fall of Bestsellers Amidst Market Growth
While the overall outlook for the smart home market is optimistic, specific products are struggling to sell. This seemingly contradictory situation reveals some specific issues faced by smart home brands.
First, the prices of smart home products are difficult to maintain at a stable level.
For example, Philips Hue was the first to launch a voice-controlled smart bulb, achieving significant sales. However, IKEA quickly introduced a similar product at a much lower price, causing consumer demand to be dispersed among different brands. In other words, smart technology does not necessarily bring a premium to home products, especially for widely used items like bulbs and plugs.
Moreover, the experience of smart home products is far from perfect.
When discussing the experience of smart homes, our first reaction might be issues like unresponsive voice interactions or slow responses. In reality, many consumers are deterred by the complex setup and installation processes before they even test the “smart capabilities.” Some consumers have reported that when trying to control their smart bulbs with six smart plugs, they found themselves needing to perform 11 steps for each bulb, and it was difficult to find someone to assist them. Additionally, there have been numerous rumors in the past two years about privacy issues related to smart homes, which can easily lead to a loss of trust in these products.
Lastly, it is worth noting that home products are not fast-moving consumer goods, and their replacement cycles are long. This can lead to a temporary market saturation as users who have already purchased products do not have a need for replacements.
Overall, due to frequent price fluctuations and imperfect product experiences, smart homes may be entering a “wait-and-see period.” The initial wave of users did not provide positive feedback, making it difficult to expand sales further. Many users are still waiting for smart home products to become cheaper or for new technological advancements in smart home products.
The One-to-Many of Smart Homes:
Reliable Smart Speakers with Fluid Ecosystem Partners
So, amidst the stagnation in sales of specific categories, why is there still overall growth in the smart home market?
The reason for this contradiction lies in the extension of single-category products and the expansion into multiple categories. Single-category extension refers to the sustained sales momentum of one category, while multi-category expansion refers to the continuous emergence of new categories to stimulate consumer purchases. Currently, the smart home field clearly has a stronger ability for multi-category expansion rather than the former.
This is particularly evident in the Chinese market.
IDC’s 2018 quarterly tracking report on the Chinese smart home device market shows that smart speakers, smart bulbs, and smart locks are leading in growth. Smart speaker shipments exceeded 20 million units, smart bulb shipments reached 560,000 units, and smart lock annual shipments were about 850,000 units. Moreover, a clear overlapping growth curve can be found among different categories, such as the significant growth of smart locks in the second half of the year and the concentration of smart bulb growth in the first half. By Q1 2019, data showed that sales of home monitoring devices like smart cameras and smart doorbells began to rise again.
This increase in sales across different categories is not a natural occurrence; it is driven by manufacturers collectively engaging in marketing efforts, creating various opportunities to ensure the overall market share of smart homes continues to rise.
In terms of continuous updates within a single category, almost only smart speakers have achieved this.
The reason for this may lie in the fact that since the launch of Amazon’s Echo, the form of smart speakers has been continuously evolving. For example, price drops brought by Chinese manufacturers and the recent trend of smart speakers with screens that began earlier this year. The rapid pace of product updates continues to pique consumer curiosity.
Additionally, smart speakers are a “low-risk” product; even if the IoT ecosystem partners are limited and controllable devices are few, at least the functionality of smart speakers in audio and video entertainment remains unaffected.
Furthermore, smart speakers are relatively mature in technology and have a stronger reputation compared to other smart home products, allowing them to maintain a continuous sales drive.
How Far Are We from an Ideal Future?
However, to maintain a healthy growth state for the overall smart home market, relying solely on the stable sales of smart speakers and the relay sales of other products in a “one-to-many” model is clearly insufficient. The ideal state would be to maintain continuous sales growth across as many categories as possible.
Nevertheless, the smart home market still needs to pass through several stages to reach this ideal state.
These stages include the continuous development of technology. Currently, an important issue facing smart home products is the ongoing advancement of AI and 5G technologies. The software algorithms and connection protocols behind smart homes may undergo rapid updates. Faster data transmission speeds and more powerful data processing capabilities could bring new demands for smart homes, potentially changing the form of smart home products.
There is also the stage of cost fluctuations; rapid technological development means that the costs of technology investments are continuously being spread out, and the premium on technology is being broken. Thus, smart home products may also fall into a price war similar to that seen in smartphones (which is already evident in the smart speaker category). This stage could be particularly challenging for smaller manufacturers.
Lastly, there is the natural fluctuation stage of the replacement frequency of home products mentioned earlier. This is specifically manifested in independent, feature-rich smart home products, such as previous smart speakers and this year’s smart alarm clocks with screens and smart doorbells, which will have a sales advantage; other products that rely on speakers or smartphones as interaction hubs, such as bulbs, will still struggle to break through the original replacement frequency of home products, which is “replace when broken.”
Conclusion
Given the lessons learned from Philips Hue and Samsung SmartThings in the European and American markets, what measures can Chinese manufacturers take to better navigate these stages?
From a technological perspective, manufacturers need to maintain investment in R&D while also ensuring that products are “open” to continuous software updates for those already on the market. They should also avoid the mistakes made by other manufacturers, striving to simplify the time spent on installation, connection, and resetting of smart home products.
In terms of industry ecology, fluctuations in technology and costs will lead to the integration of the entire ecosystem. Smaller manufacturers will likely need to form strategic partnerships or even be acquired by larger home appliance and technology companies to bear the future competitive risks.
Moreover, beyond the consumer market, for densely populated areas like China, collaborating with real estate developers, rental service intermediaries, and property management companies is also a good way to maintain sales momentum.
In summary, the current sales growth of smart homes characterized by “one blockbuster per year” will eventually pass. As the game of passing the baton comes to an end, only those manufacturers with deep technological layouts and cost-bearing capabilities in smart homes will be able to stand firm in the market.
