New Report by Deutsche Telekom Reveals Opportunities for Utilities to Create New Revenue Streams in Smart Home Sector
By Jon Carter, Deutsche Telekom AG
A new report by Deutsche Telekom, “How to Create Growth From the Connected Home,” sets out the key business opportunities and models that will enable energy utilities to create new revenue streams and succeed in the burgeoning smart home sector.
There are many players interested in the smart home, and in its wider context, the Internet of Things (IoT)-energy utilities, telephone companies (telcos), retailers, insurers, warranty providers, home assistance providers, as well as appliance and consumer hardware manufacturers. The burning question is, however: “What strategies can energy utilities adopt to best exploit the market and capture new revenues?”
Industry analyst Strategy Analytics predicted that the number of households with some form of smart home system would surpass 100 million worldwide by the end of 2015, and nearly triple in the next 10 years to more than 300 million. The challenge is that although the smart home offers compelling growth opportunities, it also represents a real threat, especially to energy utilities, as large U.S. technology companies are already entering the market with smart thermostats. Indeed, the smart home sector is immensely disruptive and some industries will be upended. New players are threatening to “disintermediate” some of today’s market leaders and are shifting value from one sector to another.
Deutsche Telekom’s report outlines opportunities including home security, insurance, home automation and not least, energy management. Energy utility companies already have a way into the home with the rollout of smart meters and thermostats. It might seem that energy management is the perfect opportunity for energy utilities to build a closer relationship with their customers. Others such as telecommunications and Internet companies have identified the utility sector as an entry point into consumers’ home and are making heavy investments to secure market traction; not least is Google, with its $3.2 billion acquisition of Nest, the home thermostat and alarm provider.
By its nature, the smart home-with access through the ubiquitous broadband router-offers multiple opportunities to energy utilities, which can then expand into other applications and services. The report explores how utilities can profit from the smart home through the right strategy, partnerships and platform.
From Smart Meters to Smart Thermostats
Energy suppliers are most likely to be involved with the rollout of smart meters, which are mandated now in some countries. Smart meters are really a first step toward capturing overall energy consumption detail.
When smart meters are combined with demand disaggregation capabilities, energy utilities can identify how to save energy and enable new, more flexible tariff structures. Deutsche Telekom’s report notes that leveraging a smart thermostat-connected boiler is another use case that can engage the home owner because it offers a way to better control one of the key drivers of higher energy bills.
Berg Insight reported in January of 2015 that the number of smart thermostats increased by 105 percent in 2014 to 3.2 million in both North America and Europe. Berg Insight also claims that by 2019, the number of smart thermostats will grow at a compound annual growth rate of 64.2 percent in both markets. In addition, Navigant Research predicts that global revenue attributed to home energy management products and services will grow from $586.9 million to $2.4 billion in 2023.
Take-up of smart thermostats in Europe has not been as great as in the U.S. That’s partly because of the need for professional installation in some European countries and a wide variation in the type of heating systems and energy type. Energy utilities can combat this by adopting a “joined-up” approach by partnering with installers or retailers. Otherwise, consumers who are not seeing smart home offers from their energy suppliers are likely to buy smart home kits from device manufacturers or retailers.
In a wider context, with closer integration between energy demand in the home and energy generation, societies can be more energy efficient and thus combat climate change. Depending on the local market structures, there also could be an opportunity to take real-time demand and generation data to better use the electricity grid and power stations.
Propositions, Platforms and Partnerships
Energy utilities will benefit more if they can secure the right platform, partnerships and value proposition. For instance, linking heating, energy management and security brings with it many advantages for consumers. When no one is home-perhaps when a security alarm is set or there is no movement detected by motion sensors-the heating system automatically turns off. Working with partners such as insurance companies and telcos to develop cross-sector propositions is a clear opportunity.
In addition, new service-related business models can differentiate energy companies from being mere commodity suppliers as they develop bundles around smart devices that increase engagement with customers. (At present, consumers spend a lowly six to nine minutes interacting with their energy supplier a year, according to Accenture.)
Because consumer interest in standalone energy management products remains low and most energy utilities have struggled to develop messaging and introduce the necessary cross-selling processes into their organizations, a bundled approach can make sense. Already several European energy utilities offer a free smart thermostat and installation to tempt switchers and retain customers.
The key to smart home success also lies in the Internet and the ubiquity of smartphones and tablets-some energy suppliers offer remote control of heating from these devices, and no doubt in the near future consumers will take such control for granted. This sort of remote control will extend not just to energy management, but to setting alarms, checking cameras and much more. Meanwhile, the real time data from smart meters will give energy suppliers a huge amount of usage information and the ability to offer tempting and dynamic demand-related tariffs.
Deutsche Telekom’s report also highlights the need for an open, standards-based platform that promotes integration among the players in the energy market. Authorities such as regulators are starting to look closely at issues such as data privacy in the IoT. Those players that work together to create value, while keeping crucial consumer protection safeguards in place, are likely to be the leaders as the smart home market gains momentum.
A key, critical risk for energy utilities is to remain as a commodity provider, especially with the introduction of legislation in some countries that will mandate same-day switching to competitors and access to smart meter data by third parties. It is imperative for energy utilities to get the right strategy-from a defensive decision to protect a customer base in the face of competition to rolling out a fully-fledged connected home proposition that demands resources, expertise and new partnerships.
Connected Home Platform is key to success
One of the greatest challenges facing firms seeking to enter the smart home market is the lack of common standards and architectures, as well as a lack of openness in terms of the application programming interfaces (APIs) between platforms. To overcome this, Deutsche Telekom built an open white label connected home platform that enables partners to integrate connected devices and create new services. The platform leverages the Eclipse SmartHome open source developer community.
An open ecosystem such as this allows energy utilities to play to their core strengths, benefit from multiple synergies, discover new routes to market, deepen consumers’ loyalty to their brand, capture device data and create new growth for their business.
Now is the Time to Join Forces
Deutsche Telekom’s report reveals that a partnership-based approach established in an ecosystem focused on mutual collaboration is essential for this market to realize growth, partnerships and industry-wide collaboration. The time is now, therefore, to join forces, combine industry-specific know-how and drive the smart home forward to realize new growth for Europe and other regions.
Energy utilities have a real, significant opportunity to engage customers in new services and grow their business. They must beware, however, because other companies are entering the smart energy domain. The key to success is to develop a strategy that maintains an open, agile and flexible course.
Visit www.connectedhomeplatform.telekom.net to download the report and view other material.
Jon Carter leads UK business development for Deutsche Telekom’s white label and open connected home platform. Jon’s focus is on establishing partnerships with telcos, utilities, insurers and retailers, as well as third party platform providers and original equipment manufacturers to help them realize the benefits available through innovative new models and revenue generating services.
Jon has worked in and around the connected home space since the early 2000s, and has a deep knowledge of the European market, and in particular what will finally drive growth in this market.