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Service providers grab for share of growing, crowded home security and automation market 8/08/2016 8:00 AM Eastern
TakeAway

Home security and home automation products are becoming key growth engines in service providers’ product arsenals.

If it wasn’t clear before, Comcast’s deal to acquire a big chunk of Icontrol Networks delivered a powerful message to the home-security and automation sector: The cable industry is through with experimenting and ready to start disrupting.

 

Cable operators and other multichannel video-programming distributors (MVPDs) are relatively new to the smart home market and, so far, have only managed to make a small dent against a diverse group of incumbent providers.

 

But it’s increasingly evident that Comcast, along with companies such as AT&T, Verizon Communications and Cox Communications, now see home security and automation as an important growth engine. After all, video-subscriber growth remains a challenge for the whole MVPD sector, and even broadband Internet growth will eventually flatten out.

 

Related: Why Comcast Is Buying Icontrol

 

Comcast, which launched Xfinity Home in 2010, has said it has more than 500,000 customers for that product, a number that it hasn’t updated in more than a year. It sees nothing but opportunity ahead.

 

“We are at the start of a massive upgrade cycle,” Dan Herscovici, senior vice president and general manager of Xfinity Home, said, likening this period to the mobile market’s rapid shift from flip phones to smartphones.

 

About 70% of consumers are on “older, antiquated home-security systems” that simply sound alarms and call the police, and that don’t support the connected smart-home elements people now desire, Herscovici said.

 

Cox, whose Homelife service relies on the Icontrol platform that Comcast is acquiring, hasn’t disclosed subscriber numbers. “But I’d say [home security and automation] is material in terms of growth,” Kristine Faulkner, Cox general manager and vice president of home security and smart home, said.

 

Sixty percent of Cox’s new smart home subscribers have never had a monitored security service, she said. “We’re having a tremendous year in this category of the business.”

 

FRAGMENTED MARKET

The home security and automation market is expanding, but it comprises a massive array of large and small rivals.

 

Related: Charter: We’ll Continue to Support TWC Home Security Subs

 

The market leader is ADT, with more than 6 million subscribers. It’s fighting for share with more than 100 regional players and thousands of local dealers.

 

“It’s a pretty fragmented industry,” Tom Kerber, director of research for home controls and energy at Parks Research, said. “It’s still in the early-adopter stage, but that’s about to change.”

 

For it to get to the next level, consumers must get more familiar with smart home systems, he said, citing a survey in which 14% of respondents were aware of general smart-home market terms.

 

Despite those low numbers, the door is wide open for cable operators and other MVPDs and ISPs with direct consumer relationships to step in, educate the masses and pitch home security and smart-home products, he said.

 

“The product doesn’t sell itself; it has to be sold,” Kerber said. “All of the telecoms have superior capabilities in terms of consumer outreach, a customer base and marketing horsepower. But at this stage in the market, those [factors] are not what it takes to win.”

 

Success will also require service providers to embrace a consultative selling model, he said.

 

Cox’s Faulkner agreed that home security and automation are complex services that require a “fair degree” of customer education. “If you do that right, it works really well,” she said. “If you’re missing components, that’s going to hurt you.”

 

Cable operators also have a potential cost advantage because they can build smart-home services into their customer-acquisition costs, which, in turn, could allow them to undercut their competitors.

 

MVPDs have used these advantages to take about 5% of the market during their brief pursuit. “As familiarity grows and awareness grows, those major strengths will play a bigger role,” Kerber predicted.

 

And pay TV providers are trying to play to those strengths as they formulate and evolve their smart home and home security strategies.

 

Comcast is taking a hybrid build-buy approach with Xfinity Home as it prepares to pair a homegrown platform with the one it is acquiring from Icontrol.

 

The No. 1 U.S. MSO is buying Icontrol’s “Converge” platform, the element of Xfinity Home that uses ZigBee to underpin its fundamental security “state machine” (i.e., the engines, rules and requirements for that security component). Alarm.com is purchasing Icontrol’s Connect platform, a Z-wave-based service that counts ADT as its biggest customer.

 

Comcast’s in-house platform supports the MSO’s own smart home products and, through its “Works With Xfinity Home Program,” also links up with a curated mix of third-party retail devices from companies such as Google unit Nest (smart thermostats), Chamberlain (garage door controllers), August (door locks) and Lutron (wireless light controllers and dimmers).

 

By combining its in-home systems with Icontrol, Comcast hopes to establish a unified user experience that can rely on one app to handle all of Xfinity Home’s security and automation elements. “Building everything yourself doesn’t always make a lot of sense,” Herscovici said.

 

In addition to accelerating its own roadmap for Xfinity, buying Icontrol also turns Comcast into a vendor of sorts. A handful of other MSOs also use Icontrol’s Converge product for home security and automation, including Cox, Rogers Communications and Charter Communications (through its acquisitions of Icontrol partners Time Warner Cable and Bright House Networks).

 

Comcast is “excited” about the prospect of being in the wholesale home security and automation business, Herscovici said. “Our hope is to grow both businesses.”

 

Faulkner said she views the Comcast-Icontrol deal as a positive for Cox, which is already licensing Comcast’s X1 platform for the next generation of its Contour multiscreen video product.

 

“Comcast will bring a good customer focus and mentality, and it will bring scale and investment,” she said.

 

AT&T, which sells a Digital Life-branded smart home and security product, is taking a similar approach. In 2010, it acquired home-automation platform developer Xanboo, whose technology now forms the foundation of a service that supports AT&T’s home security and automation products, as well as those of third parties such as Nest and Lutron.

 

The telco made the decision early on to bring that capability (and control) in house, which accelerated its ability to integrate it with its customer billing systems and sales channels. It also underpins a solution that AT&T is licensing to other telcos, starting with U.K.-based provider O2.

 

AT&T is now making progress toward integrating Digital Life with DirecTV. Before AT&T acquired the satellite-TV provider last year, DirecTV offered its own home security/automation platform under the LifeShield brand. Digital Life apps are now present on DirecTV’s Genie set-tops.

 

“We have brought those organizations together,” said Stephen Vincent, executive director of business development for AT&T Digital Life, noting that AT&T has deployed the product to about 86 U.S. markets.

 

Vincent also said he believes that service providers are positioned to propel the next phase of the smart home market.

 

“We’re starting to sense a bit of frustration from customers about all of these disparate experiences that are out there,” he said. To help customers link retail products with the Digital Life’s platform, AT&T has built a system that lets them self-connect compatible smart home products from companies such as Nest.

 

EchoStar, the technology spinoff of satellite-TV provider Dish Network, is taking a much different approach with Sage by Hughes, a do-it-yourself platform launched in early March. Rather than selling home security and automation products alongside Dish’s pay TV offerings, Sage is currently focused on retail distribution.

 

Sage is targeting a sizable consumer base that hasn’t sprung for such products, but the company has not disclosed any sales figures.

 

“The market data says about 20% of all households have a home-security system, so there’s 80%-plus, in our opinion, that don’t have a system,” EchoStar CEO Mike Dugan said on the company’s Q1 earnings call.

 

Early on EchoStar is sidestepping distribution through major “big box” retail chains and instead pitching the product through a mix of digital marketing and its network of independent satellite retailers.

 

“We are tapping that market, which really helped [Dish chairman] Charlie [Ergen] get started in the early days with Dish, and he did that instead of big box [stores],” Dugan said. “So we’re certainly taking that page from his playbook.”

 

At this stage, larger MVPDs such as Comcast, Cox, AT&T and Verizon have been leading the way with home security and home automation products.

 

“I think the industry learned early that you have to make a very significant, basic commitment to launching these solutions,” Greg Roberts, vice president of marketing at Icontrol, said. “There’s a significant amount of technical support and sales support that is very intense and very incremental to their business. It makes sense for those not offering to take a back seat and to watch what is going on.”

 

Suddenlink Communications has been amomg the exceptions among midsized MVPDs, as it launched a product in partnership with Alarm.com before it was acquired by Altice USA. Altice, which wrapped up its acquisition of Cablevision Systems in June, has not announced a home security and automation strategy for its U.S. operations.

 

WideOpenWest, meanwhile, plans to launch a market trial later this year with an unnamed partner. If all goes well, it could launch a commercial home security and automation product in the first half of 2017.

 

“We want to be the enabler” of those services, Cash Hagen, WOW’s chief technology officer, said. “They [consumers] are going to look to a partner or a service provider such as us to bring that to them.”

 

Charter is still a wild card among major U.S. cable operators. It will continue to support home-security and home-automation customers who came on board through the Bright House and TWC acquisitions, but has halted new sales.

 

“Intelligent Home is a new business for Charter and we are in the process of assessing it,” the company said in a statement. “While we assess the program, we are reducing the focus on sales.”

 

INTRAOPERABILITY CHALLENGE

Though Comcast, AT&T and others are integrating their platforms with some third-party products, a major challenge in the years ahead will involve the support of new and emerging connectivity and control protocols.

 

One company hoping to help with that is Zonoff. The Malvern, Pa.- based IoT startup is pitching an agnostic approach that teams middleware and a cloud-based management platform that allows for the use of multiple devices relying on a wide variety of protocols.

 

“There’s myth around interoperability,” Kevin Garton, Zonoff’s chief marketing officer, said. “We believe that what we have is intraoperability.”

 

Zonoff has said its approach already works with several protocols, including Bluetooth, WiFi, Z-Wave, ZigBee and Lutron’s Clear Connect technology. “In theory, we could do more,” Garton said.

 

He said Zonoff is in discussions with Universal Electronics, the remote- control giant that entered the home security and automation market last year through the acquisition of Ecolink Intelligent Technology, which uses a proprietary protocol.

 

Zonoff launched a white-label IoT platform for service providers in January, but hasn’t announced any cable deals. “We have several things in the works,” said Garton, who thinks Zonoff could add value to MSOs by incorporating its software in smart-home hubs or cable boxes.

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