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Shaping the Digital Future
Attack of the
Future Smart Home Giants The fight of Apple, Google, Amazon, and others
for the most customer centric ecosystem
October 2015
FLASH INSIGHT
2
Copyright
This document is intended for personal use only.
Distribution is only permitted without any changes or omissions – publication, in
whole or in parts, requires prior written consent by MÜCKE, STURM & COMPANY
and correct citation of sources.
All mentioned company names, logos, brands, brand symbols and other copyrighted
material are the sole properties of the respective company; they are only used for
illustrative purposes.
3
The Smart Home giants strengthen their core businesses by enhancing their dominant ecosystems with smart home functionalities. Key Take-Aways
1
Smart Home as value driver for core business model The future Smart Home giants are gradually entering the market because they see touchpoints to their
specific and the adjacent markets. At the moment the smart home market is dominated by hardware
sales, which lay the foundation for the data driven business models of the “giants”. Therefore, their
smart home activities are not set up as independent business models and do not aim for direct
monetarization yet. They rather apply a freemium entry, cost plus or even loss leadership cross-
funded strategy to gear up towards their core business model.
2
Platform infrastructure secures ecosystem dominance By providing of smart home platforms, which are free to use for the end-user, and by leveraging their
huge customer base, the Smart Home giants are in a position to establish a great level of control over
the smart home and ultimately the IoT market. Thus, they can to a higher degree influence innovation
developments, leverage their dominant position to determine hardware specifications, and establish de
facto industry standards.
3
Create value alongside Smart Home Giants Existing platform business models are increasingly becoming redundant as new platforms and market
entries by future Smart Home giants are offering free access which comes with free M2M connectivity
to consumers. Hence, traditional platform providers, device manufacturers, and service providers need
to position themselves not as competitors to the Giants but must align their strategies with them by
creating additional local services based value leveraging their existing assets alongside or by
specializing in dedicated niches.
Source: Mücke, Sturm & Company
4
In the last two years, the Smart Home Giants have intensified their smart home activities to enter the market through hardware, software, and services. Smart Home Activities (Selection)
Sales1 US$ 182,8 bn ~US$ 66 Mrd. US$ 66 bn US$ 305 bn US$ 86,83 bn US$ 12,3 bn
Customers
Smart Home
Activities
> 600 m > 500 m ~ 244 m (undisclosed) >1,5 bn >300 m
HomeKit (2015)
HomeKit is a framework
for communicating with
and controlling
connected smart home
devices in a user’s
home. It is not
necessary to use a
gateway for remote
access.
Apple does not
manufacture own smart
home devices; instead
it licenses third-party
devices.
Strong focus on voice
commands via Siri.
Nest (2012)
The “works with Nest”
program includes a
variety of products that
can be connected to
the self-learning Nest
thermostat and Nest
Protect, an intelligent
smoke detector.
Project Brillo (2015)
Android based
operating system to be
used with IoT devices
and communication
semantic.
OnHub (2015)
Router with smart home
gateway functionality.
Echo (2015)
Voice command device
(Alexa) with functions
including question
answering, playing
music, and order
selected consumer
goods from Amazon.
Moreover it functions as
a smart home hub with
the function of
controlling your smart
devices via voice
command.
Dash (2015)
Consumer goods
ordering service
designed to make
ordering products
easier and faster.
Samsung Smart-
Home (2014)
Enables users to
control and manage
their personal and
home devices through
an integrated platform
and server.
SmartThings (2014)
Offers an open platform
for smart homes
powered by a hub.
Customers can add a
variety of products form
different manufacturers.
AllJoyn for
Windows 10 (2015)
Open source software
project that aims to
enable interoperability
among connected
devices. AllJoyn is
implemented in
Windows 10.
Integration enables
controlling via voice
command on every
Windows device.
Partnership Insteon
(2015)
Full incorporation into
Windows ecosystem;
enhanced version of
the Insteon app with
exclusive features for
Windows devices.
Expansion of
business division
Alibaba, the Chinese
retail giant, is
establishing a smart
living division. The
company started to
enter the market by
publishing a Smart-
Home app and is
rapidly increasing its
efforts in this area.
Functionalities offered
by international
competitors e.g. cloud
service, payment, etc.
are already in place.
US$ 88,9 bn
1 Sales revenues from 2014 2 Wildcard since essential functionalities for a Smart Home product are in place
Source: Mücke, Sturm & Company
5
Smart Home Giants identified smart home touchpoints to their core businesses and take a market entry approach with their own business model agenda in mind. Touchpoints & Strategic Reasoning
Hardware
E-commerce
Software &
Data-based
services
Secure price-premium
strategy for hardware
Expand ecosystem
Position iPhone as a central
control unit
Increase lock-in effects
Increase sales through
synergy effects
Create purchase incentives by
connecting own product
portfolio across different
segments
Improve overall value
proposition of brand Establish new
distribution channels
Strengthen all sales activities
Increase dynamics of sales
cycles
Expand ecosystem
Diversify portfolio and
protect home market
Secure dominant domestic
market position
Extend current portfolio
offering
Use core competencies to
generate economies of scale
in the Asian SH market
Increase
product reach
Provide cross-system
software
Secure market position
Expand ecosystem
Develop new partnerships
Improve personal data
collection
Implement Android as central
OS for IoT devices
Improve quality of collected
consumer data
Establish new affiliated
programs
Source: Mücke, Sturm & Company
6
Through the provision of HomeKit to all iOS9 enabled devices Apple increases its ecosystem attractiveness and secures its hardware price premium strategy. Detailed Analysis: Apple HomeKit1
How it Works
Common
Database
Siri
Manual command Sensors: Apple
Watch
Time
Trigger Processing Action (Extract)
Smart-Plug WeMo
by Belkin
Local
control
Remote
control
Hardware Sale iPhone, iPad, PCs
Position iDevices as access point
to smart home
Expansion of the iOS operating
system to create lock-in effect
Increase of market reach by
enabling smart home readiness
Strengthen the customers’
relationship with the brand
Smart light bulb hue
by Phillips
22°
Core Business
Model
Smart Home
Potential
2015 2016 2017 2018 2019 2020
Smart-Home-
Ready2
HomeKit-
User
Development of “Smart Home Readiness” and HomeKit Usage Households in Germany; in million; EoY view
1 MS&C FlashInsight: HomeKit – Der disruptive Smart-Home-Ansatz 2 Households that have iOS9-Devices and could therefore use HomeKit
Source: Mücke, Sturm & Company
14,4
35%
7,4
18%
13,9
34%
13,9
33% 12,7
31%
9,7
26%
6,9
17% 5,3
13% 2,9
7% 2,5
6% 0,8
2% 0,4
1%
Smart heating control by
ecobee
7
Offer unprofitable hardware to
open a new sales channel within
the home and strengthen the e-
commerce business
Cross-link services like Amazon
Prime Music, Video, and Fresh to
boost customer usage
Gain of customer insights
Amazon strategically positions a central smart device in the customer’s home to enable a quick access point to its core e-commerce services. Detailed Analysis: Amazon Echo1
How it Works
Trigger Processing Action (Extract)
Local
control
Lightning control with
Wink SH-Hub
2011 2012 2013e 2014e 2015e
1
2
0
-1
Profit & Loss In bn USD
Content: Apps, Movies,
Music, e-Books
Advertisement
Devices (Kindle Fire,
Kindle e-reader)
1 MS&C FlashInsight: Amazon goes Smart Home
Source: Mücke, Sturm & Company
Alexa
Smart-Plug WeMo
by Belkin
Smart light bulb hue
by Phillips
E-commerce
& Services Prime, Fresh, etc.
Core Business
Model
Smart Home
Potential
8
The dedicated positioning of the Smart Home Giants along the infrastructure segments of the value chain illustrates its perceived importance to gain dominance. Smart Home Value Chain
SH-Software
(Semantics)
Interaction
Instance
Smart Home
Devices
Hub/ Gateway
Functionality
Cloud
(Backend)
Connected
Services
Advantage for
SH-Giants
Establishment of the first
access point for end-
consumers in order to
strengthen the brand
Increased network effects of
connected households and
individuals to boost core
business
Full control over the
certification process for
all devices and services
within the ecosystem
Traditional Platform Providers
Traditional smart home platform providers have positioned themselves along the same
value chain segments as the smart home giants. Therefore, they will increasingly
face direct competition and will be forced to match a similar offering portfolio to
customers as their expectations rise. Moreover, chargeable functions currently
pursued by those traditional players are at risk as most of them are being offered for
free by the giants
Device Manufacturers Service Providers
Providers of smart
home devices can
currently choose from
a wide variety of
platforms. However,
not all platforms will
align and support
their business model
Providers of smart
home services have
to thoroughly
evaluate the reach of
smart devices in order
to address a wide
range of end
customers
Source: Mücke, Sturm & Company
Smart Home Giants
Selective approach In progress
9
The go-to-market strategy of the Smart Home Giants will have a fundamental impact on the whole industry and significant implications on each player. Implications
Implications
on specific
group
Recommen-
dation for
action
Through the entry of the giants into
the Smart Home market traditional
platform providers face an
unsustainable revenue model
through changed customer
expectations regarding free vs.
chargeable Smart Home
functionalities
Re-evaluate current business
and revenue model
Define and evaluate future
positioning to secure USP
against Smart Home Giants
Explore niche market positions
(e.g. energy, health, security) in
order to create best-in-class
position
Traditional
platform providers
Although certification programs
might limit the development
freedom or lead to reduced direct
brand identification, device
manufactures gain important
potential through outsourced back-
end functionalities, standardized
integration processes and
increased customer reach
Device
Manufacturers
Service
Providers
Through a huge existing customer
base and access to a wide range of
connected devices, platforms and
their ecosystems offer new
opportunities to increase customer
reach and improve the current
offering portfolio of service
providers
Use platforms of Smart Home
Giants to secure customer base
Provide devices for all important
and relevant platforms
Offer additional digital services
to end customers, using the
platform as vehicle
Join platforms that support the
digital strategy
Evaluate the accessibility of
connected device functionalities
for each platform
Develop services that make use
of the market-reach of SH-
Giants
Source: Mücke, Sturm & Company
10
Contact
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Cologne
Munich
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Michael Mücke Managing Partner