Internet of Things start in the home.
The Internet of Things is poised to be the next wave of technology to wash over Silicon Valley and it may create a $290 billion global market by 2017, building on past tech waves like mobile, software, personal computers and semiconductors.
One of the first places you’ll see the revolution? Your own home, where appliances with embedded computer chips will talk to each other, the Web and your mobile device, all in the name of adding convenience and saving you money.
The U.S. market for connected homes is already expected to hit $10 billion this year, and will grow to $44 billion by 2017, according to estimates from wireless industry group GSM Association.
Bryan Kennedy, vice president of strategic development for Los Altos’ Electric Imp Inc. — one of the startups working on a system that all of those connected devices could potentially run on — explains the market opportunity this way:
“With the exception of some tech geeks who have multiple phones, nobody is ever going to have more than one smartphone at a time,” Kennedy said. “Today, everyone owns four devices that can be connected minimum … That means the market here is at least four times as big as phones.”
The sheer market size has almost every industry in Silicon Valley gearing up to grab their slice of the pie. Chipmakers like Intel Inc. and Spansion Inc. and networking providers like Cisco Systems Inc. and Juniper Networks Inc. want to sell the hardware at the heart of the Internet of Things.
Web companies like Google Inc. and Amazon Inc. hope to capture data to improve their online services. Appliance manufacturers like General Electric Co. and Honeywell International Inc. will embed the technology in their goods. Broadband providers like Comcast Corp. and Verizon Communications will sell end-to-end connected home systems, opening new revenue opportunities.
Residential developers like KB Home, Standard Pacific Homes, TruMark Co. and others will compete with each other to offer the most networked homes.
At this point, you’re probably wondering what’s in it for you. The benefits for the consumer are numerous. If you’ve ever left your house only to realize you left the lights or the oven on, for example, you’ll appreciate how that problem can be solved by simply hitting a button on your smartphone.
Or how does saving money sound? Once devices are talking to each other they can team up to run more efficiently, cutting your monthly electricity bill. A smart refrigerator will communicate with the electric grid to turn off the ice maker during peak hours, for example. And how about comfort? Imagine lighting and heating systems that automatically adjust to your desired levels once your phone’s GPS tells them you’re coming home.
But the real reason might be that it will soon be impossible to buy a device that is not connected. The benefits connectivity give to the appliance manufacturers are beginning to outweigh the costs of adding connectivity to a device.
The big advantage is the ability to push updates to an appliance the way cell phone manufacturers push updates to your smartphone. That can save a company millions in the event of a recall — witness Tesla Motors Inc., which was able to fix a problem with its chargers with a software update instead of pulling those chargers from the market.
The main barrier is cost — these appliances are still more expensive than their dumb brethren. But that’s changing quickly, said Honeywell’s Brad Paine, director of product marketing for software applications and services. Honeywell now has a range of connected appliances, from thermostats to security systems.
“It’s already getting to the point where it’s crazy for you to buy a non-connected thermostat, for example,” he said. “Costs are coming down so much that for a consumer, what you get out of it for a few extra dollars is tremendous over something that isn’t connected.”
The most lucrative opportunity, however, is not for the companies making appliances, but for the companies making chips that power them — and the companies building the systems that will connect those chips.
Connected appliances need a different sort of chip than computers or even mobile devices. These chips need to be reliable enough to run for very long periods of time, have relatively low power consumption, and carry a low enough cost as to not add much to the final price of the device it powers.
Spansion, a company generally known for making memory chips, bought Fujitsu’s microcontroller business in 2013, adding computing capability to its chips and paving the way for it to make chips for a wide range of applications, including cars and appliances.
CEO John Kispert said he wouldn’t be surprised if there was more consolidation in the chip industry as companies build platforms that will enable them to easily adapt to a wide range of devices.
“How do you set yourself apart in that kind of market?” Kispert said. “I think what is going to become very, very important is flexibility on the technology side. You can’t just design one device that fits into everything.”
That’s a trend playing out even at the largest chip companies. Intel, for example, already has an Internet of Things business that brought in $482 million in the first quarter, and it’s using security as a selling point. Being able to put security at the chip level was a key part of why it bought the security firm McAfee for $7.68 billion in 2010.
But it’s not just tech companies that benefit. For residential real estate developers, the connected home concept is already a selling point, and in the future it might be a source of new revenue.
KB Home, a Los Angeles-based residential builder, is leading the way on the connected home frontier. Right now, every new production house KB builds is a “smart house,” with, at the very least, smart home monitoring.
But the homebuilder also offers upgrade packages to connect everything in the home: From lights to door locks, all managed from a cellphone. Prices for these upgrades range from a couple hundred bucks to a couple thousand for more extensive systems.
Since these homes are sold mostly to new homebuyers, the cost is minimal compared to the total cost of the home, amounting to a few dollars more on a monthly mortgage payment. But that extra revenue adds up for the builder.
Dan Bridleman, senior vice president of sustainability, technology and strategic sourcing for KB Home, says he expects smart home sales to go the same way that cars have, with bells and whistles once considered a luxury becoming part of the standard package. That creates significant opportunity to sell add-ons.
“You don’t want to stick people with a lot of expensive options that maybe they don’t want, but you also want to make sure people understand what the capabilities are.” he said.
And KB isn’t alone — other big homebuilders are following suit. Publicly traded homebuilder Standard Pacific Homes has recently begun offering a built-in smart thermostat and security system from Petaluma-based ELAN Home Systems. A spokeswoman said demand for the offering has been strong.
In these early days of connected homes and the Internet of Things, it’s difficult for Silicon Valley companies to know where to lay their bets. Cisco, which originally coined the term “Internet of Things,” sees itself building the network that connects those things as a big source of future growth.
To cover the table, Cisco has put $100 million into a fund for startups focusing on this market.
It’s all about trying to predict the unpredictable. No one knows what the new computing paradigm will look like, just as the originators of the Internet couldn’t have foreseen companies like Google Inc. and Amazon Inc. growing out of it.
“Now we are on the threshold of everything being connected to everything else,” said Cisco’s Howard Charney, senior VP of the Office of the President. “That has just this gigantic implication with respect to human beings, and it has this gigantic implication with respect to the infrastructure we use, and it has this gigantic implication with respect to how it’s going to change our lives, and that’s pretty amazing.”