Smart Builders Bank on Smart Homes

Early last year Google spent $3.2 billion in cash to purchase Nest, makers of smart thermostats and smoke detectors controlled by the homeowner’s smartphone. The high-profile acquisition was a catalyst for our industry, rendering smart home products (nearly) commonplace. This year’s Consumer Electronics Show (CES) proved the widespread adoption of connected products—the show was brimming with connected lightbulbs, smart pet-feeders, selfwatering flowerpots, smart toothbrushes and more.

These space-age gadgets can look like hype, but consumers are spending in the billions. Broadly referred to as the Internet of Things (IoT), the connected —or smart home market—is big business, cashing in at $20.38 billion in 2014 and estimated to swell to nearly $60 billion by 2020 (Smart Homes Market by Product—Trend and Forecast to 2020). New products are streaming into the marketplace, and some estimate the IoT market will measure in the trillions by the end of this decade. What are these billions being spent on?

Connected product technology is dominated by systems that control lighting, home security, HVAC (such as Nest) and home entertainment systems, including both home audio and video. In 2014, security products were the most popular items, capturing 30 percent of the market. Security surprisingly beat out the home entertainment segment, which claims about 25 percent of the overall market share. HVAC is rapidly gaining market share, as competition and better technology increase affordability, which will open up the market to a wider demographic. Air Conditioning, Heating & Refrigeration News predicts that the $100 million smart thermostat market could reach $1.4 billion by 2020. Now that’s smart. And what does the future hold for the smart home market?

Most experts agree that consumer adoption will do nothing but grow. According to Forrester Research, nearly 20 percent of homeowners are using at least one automated feature in their homes today. Nearly half (46 percent) of consumers believe it is important that their current home or the next home they purchase be equipped with smart home technology, suggesting a pent-up demand for these space-age devices (ERA Real Estate and HGTV Survey). This pent-up demand is only going to grow as the product marketplace for these products grows with it.

While virtual beach views through a digital window are cool, homeowners are looking for smart products that save money, time and energy. John Burns Real Estate Consulting found that 91 percent of new home shoppers want energy-efficient products if they will save on monthly expenses. More surprising, perhaps, is that 65 percent of shoppers would pay $7,500 or more for energy efficiency that saves money—and 86 percent think more favorably about builders that use energy-efficient products. Money in buyers’ pockets, money in builders’ pockets and a good feeling all around—now, that’s smart.

Remodelers can also benefit from smarter homes. In the HGTV survey, 51 percent of consumers would consider installing smart home technology in their home to improve the resale value. And who is the most willing to spend of all the generations? Millennials. Despite their younger age, they were 10 times more likely than Generation Xers to consider an update. The biggest purchase? Programmable thermostats—proving that Google’s investment was a smart one.

We have the demand. We have the products. The only potential hurdle is pulling all these currently fragmented products together. Companies like Apple with its HomeKit, and Samsung with SmartThings, are developing “ecosystems” that get all the devices talking to each other through a smartphone or some other hub. But whether customers will buy is a different story. Only 25 percent of those surveyed by JBREC will pay for a smart home monitoring system selling for $7,000, about the current average price. When prices come down, according to the survey, consumer interest goes up.

It won’t be long until that happens, either, according to the Consumer Electronics Association. The business models that have been lacking in several popular hubs are beginning to crystalize, and the companies that have focused on the user experience until now are looking at revenue models that meet customer expectations.

The bottom line is this: consumers are getting smarter, their homes are getting smarter, and the best builders, well, they’re getting smarter, too.

Glenn Renner is President and COO of HomeSphere, the residential construction industry’s first B2B digital lead generation and custom loyalty platform that connects building product manufacturers with local and regional homebuilders. He may be reached at grenner@homesphere.com or by visiting www.homesphere.com.

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