Global market outlook
Gartner defines connected home or smart home as networked to enable the interconnection and interoperability of multiple devices, services and apps, ranging from communications and entertainment to healthcare, security and home automation. These services and apps are delivered over multiple interlinked and integrated devices, sensors, tools and platforms. Connected, real-time, smart and contextual experiences are provided for the household inhabitants, and individuals are enabled to control and monitor the home remotely as well as within it.
The smart home technologies segment is divided into the following sub-segments: Smart Home Hardware, Smart Home Platforms, Smart Home Services, and Smart Home Connectivity which are part of IoT products and services.
The sub-segment with the highest market share is Smart Home hardware with 50.51% share in 2021. This sub-segment has an estimated market volume of US$9.59bn in 2022. IoT revenues from hardware, sensors, data acquisition or processing modules or communication modules are taken into account.
The Smart Home Services subsegment includes IoT services, equipment installation and maintenance and is the smallest segment with 4,32% of market share in 2021.
Smart Home Connectivity is a subsegment which includes the usage of wireless (for example cellular, LPWAN) or wired networks. Smart Home Connectivity has a market share of 10,27% in 2021.
The last subsegment is Smart Home Platforms which has the second largest market share in 2021 (34,95%). Smart Home Platforms subsegment includes platforms, that is to say, the software that enables the device to acquire, process, and communicate information.
Key growth factors and challenges of Smart Home industry
Increasing revenues, the main growth driver for the Smart Home market
The Smart Home market owes its growth to multiple factors including the increasing adoption of the internet, smartphones and social networks by the general public. The growing attractiveness of this market is due to the increasing urbanization at the global level and the increase in incomes in developing countries which have generated new ways of living and therefore consumption. Indeed, consumers are looking for a better life comfort and more and more individuals have embraced digitalization. This is where the Smart Home sector comes in, offering a wide range of products and services that are increasingly efficient thanks to new technologies. Smart Home products considerably increase the comfort of users and are very successful, for example voice commands such as Google Home or Alexa which share the vast majority of market share with Google Assistant taking the lead in 2020 with 43% of market share and 34% for Alexa the product of Amazon.
Customers in this market have a growing preference for these internet-enabled smart products and devices such as radio frequency identification (RFID), barcode scanners, and mobile computers. The internet penetration rate has risen sharply over the past 10 to 15 years, especially in developed regions such as North America and Europe. According to a study conducted in April 2022 by We Are Social, Hootsuite and DataReportal, the Internet penetration rate in Northern Europe is 98%, the highest in the world. Western Europe and North America follow with 94% and 93% respectively.
The constraint of the security of smart home devices
The Smart Home sector works through the exchange of information between devices and objects in the home. This information can concern the consumption habits, the movements, the bills of a user for example. All this data is vulnerable to hacking. Since data related to personal information, physical security, medical care and homes are stored virtually in the cloud, the possibilities for hackers to misuse this data are high. A hacked device provides access to personal information which in turn can provide access to other personal data which causes a chain reaction to sensitive data that could victimize the owner of that data. Moreover, a single hacked device is enough to gain access to the other devices in a smart home, which can put an entire household at risk.
The issue of data security in the smart home sector represents a significant challenge for smart home players. The World Economic Forum’s Connected World Council mobilized a coalition beginning in 2022 that brings together business leaders, government officials and technology experts with the goal of reaching consensus on basic security protections. Five security requirements for consumer-facing IoT devices were defined at the international level. This consensus reflects that the issue of cybersecurity is important and part of the challenges of the Smart Home industry.
Major markets globally
Statista reports that the Smart Home industry is a growing market that accounts for a revenue of US$104.42 bn in 2021 globally. The revenue is expected to grow at an annual rate of 13.30% from 2022 to 2026, resulting in a market volume of US$207.80bn in 2026. In the smart home market, the number of active households is expected to reach 573.7 million users by 2026. Globally, Asia gets the largest market share (40% by 2021). America comes second with 30% of the market share thanks to the United States which is the country that generates the most revenue in this sector with an estimated US$33,660.00 million in 2022. Europe comes third with 26% of the market share.
Whereas early adoption of smart wearables, home electronics and appliances was concentrated in North America and Western Europe, China is projected to overtake the United States as the largest market size by the end of 2024 according to the World Economic Forum. These regions dominate due to rising per capita income and increasing penetration of smart devices such as tablets, smartphones, and standalone voice assistants in homes.
Asia Pacific is the region that is expected to grow the strongest during the period 2022 – 2026. This region is seeing increasing demand for automation solutions for residential applications which is expected to drive growth.
When Prime Target looks at the conversation on Twitter over the last year for India, the United States, the United Kingdom, Germany and Australia for example, we can see that the topic of Smart Home is strongly discussed for all these countries.
India is the country for which there are the most discussions with 478 discussions associated with the keywords “Smart Home”, “Connected Home”, “Home automation” and “Intelligent Home”. This is followed by the United States and Australia.
Social media market snapshot from Twitter from 2022-04-20 to 2022-05-20
Major industry players
The main players in the sector have chosen as a strategy to collaborate, with partnerships or mergers and acquisitions in order to access the global Smart Home market and be able to offer ever more innovative products. For example, in January 2020, the U.S. company Vivint Smart Home Inc and Mosaic Acquisition Corp. announced a merger in January 2020. The purpose of this merger was to take the company public and improve the smart home platform offerings.
As mentioned earlier, the United States is the leading country in terms of smart home market revenue due to macroeconomic factors (increase in income) and high internet penetration in the country. However, the concentration of market leaders is also an important factor in their growth. Indeed, the majority of the global market leaders are American. For example, Honeywell has a very strong presence in the smart home market, in part due to its broad product portfolio that includes a variety of products and services related to, for example, security and firefighting, as well as building control and software. Other U.S. leaders in the Internet of Things have carved out a strong position in the smart home sector such as Amazon with its flagship voice control product Amazon Alexa or Google with its voice-activated device control Google Assistant among others.
While the United States is gaining ground in the global market, Europe and Asia are not left behind with their players. Indeed, companies such as Schneider Electric and Somfy for France, ABB for Switzerland, Robert Bosch for Germany, LG Electronics, Samsung Electronics for South Korea, Sony for Japan are among the major players in the global smart home market.
Covid 19 impact
As with most industries, the Covid-19 crisis has impacted the smart home market. However, according to Statista, the market is still growing (16.55% between 2020 and 2021) although slowed down by the health crisis. Major markets such as China and the United States have been affected with the United States experiencing a slowdown in growth (+5.9% in 2020) due to the disruption of the supply chain in China. The decline in the number of new construction projects and the temporary closure of manufacturing facilities are some of the factors that have dampened market growth in China. Market participants have witnessed a reduction in smart home system installations during this period. This reduction is largely due to the limitation of contact with people outside the home. The installation and programming of some smart home products require professional workers on site. As a result, buyers have been reluctant to install these systems to minimize outside contact during this period. However, during periods of confinement, people refocused on the comfort of their homes which drove the consumption of smart home products. Overall, the Covid-19 crisis has somewhat disrupted the sector but has not had an irreparable impact since we see a strong growth of 32.56% between 2020 and 2021 at the global level (Statista).
The environmental concern has become an important topic for all industries. In developed countries, consumers are looking to optimize their consumption by limiting their environmental impact. As per Jeff Merritt, Head of Urban Transformation for the World Economic Forum: “We look to new technologies to help address pressing global challenges – from climate change to rapid urbanization” The smart home sector is already offering products that optimize energy consumption, for example with lighting controls, which has experienced strong growth in recent years. This sub-segment includes a very wide range of products such as dimmers, timers, occupancy sensors, daylight sensors and relays. These products are used either independently or are integrated in the same solution, always with a view to optimizing consumption through data connectivity. They can be integrated into home automation systems through wired and wireless technologies. In order for this technology to work, lighting controllers can be used directly, without external communication protocols or connectivity. This is expected to significantly increase the demand for this type of product, creating opportunities for players operating in the smart home market. The introduction of IoT as in connected lighting systems is bringing radical changes to industries by converging multitudes of markets. The introduction of LED-based systems allows for increased control capabilities (e.g., switching and dimming) and reduced operational costs and energy consumption. IoT technology is rapidly maturing, making it economically feasible to connect every luminaire to the Internet. In addition, many governments include in their programs grants to help companies develop environmental solutions such as Smart Homes. So this is a great opportunity to establish the Internet of Lights in the home.
The smart home industry, driven by the penetration of the internet of things into people’s lifestyles, is booming and offers multiple opportunities for market players. Increasing incomes across the globe are making this technology accessible and the quest for improved living comfort is creating demand for smart home products. The integration of the internet into everyday objects is an extremely strong trend that will become a way of life. The number of smart homes in 2021 is 259.89 million and according to Statista will reach 478.22 million in 2025, an increase of 84% in 4 years. The will of governments, and other actors of the market and consumers to reduce our environmental impact represents a great opportunity for smart homes that have every interest in turning to innovative solutions to address this issue. However, while the smart home market is growing internationally, it is important for market players to consider customer needs that may vary from region to region and the regulations that are in place. For example, European regulations can potentially hinder the development of Smart Home technologies within the territory and will require players to adapt their offer to this market. Finally, there is no doubt that the smart home market is a future market that will transform our lifestyles in the long term.
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