Making Money With Home Automation

Nest_Diamond_ThermostatAt CCG we are always telling carriers that they need to find products to replace cable TV and voice, both which are slowly losing customers. One of the products worth considering for carriers that have a sizable residential base is home automation.

What we hear is that once homeowners learn what home automation can do for them they want this product. But there are a lot of moving parts to the product. There are hardware costs to cover along with numerous home visits needed, so it’s not a product that is automatically going to make money unless you do it right. Here are things to think about when considering the product:

  • You must be willing to cross the threshold. This product requires you to routinely go into customer homes. As an industry we have spent a decade looking for ways to reduce truck rolls and this product increases truck rolls as a routine part of the product. Your pricing must embrace that concept so that you are recovering a lot of your technician time.
  • One way to look at this product is that it gives you the opportunity to cross-sell other telecom products. We are told by some clients that the cross-sales are worth far more than the margin on home automation.
  • There are not likely to be any industry standards for a long time, if ever. This means that you need to decide what devices you will and will not support. We think the right strategy is to define the list of things that you will automate, and even then that you only deal with monitoring units that are part of your suite of products. Otherwise customers will always be buying crazy off-the-shelf things (like an egg tray that tells you how many eggs are left) and expect you to somehow tie them into your system.
  • You must recover equipment costs. You need to have an initial installation fee plus some portion of monthly fee on a term contract that is aimed at recovering the cost of the equipment. Base hub units for home automation are going to cost you from $150 to $200 and there is a wide array of monitors that can be added to the system to automate things like watering systems, thermostats, fire detectors, music systems, lighting, etc.
  • This industry and the product are always going to be changing. Home automation is the first small step into the Internet of Things and by becoming the trusted vendor today you have a foot up on that market when it gets more mature. The downside to this is that the technology will be changing quickly and so you are going to have to always be looking at different and newer monitors and devices to support with the product. But your customers will want many of the new things that will be coming along, and so you will have a continuous opportunity to upgrade and add on to customer systems.
  • You must manage customer expectations. There are three components to pricing the product – installation, equipment and ongoing maintenance. We think customers are going to get excited about this product. Once it’s installed and you have automated their sprinkler system and window shades they are going to want you to keep coming back to update more things over time. So your pricing needs to make it very clear about what is included with your base fee, and what costs extra. We suggest that you offer pricing plans that include some set number of visits. For instance, a base plan might mean that all future visits to the home are for a fee. But you might then also sell plans that include two, four or six visits a year where the customers pay for these visits as part of their monthly fees. That kind of pricing will stop customers from calling you to visit every time they think of a new home automation device to add or a refinement to make with the existing equipment. Without managing expectations in this manner you will find yourself making a lot of unpaid trips to customers.
  • Bundle the product. It’s a natural to bundle home automation with home security, but you could bundle it with anything else your customers want. The whole point of this product is to use it as a platform to get your customers to buy multiple products from you.

The Future of Triple Play Providers

HK_KEN~1I am asked often about what I see coming in the future and anyone who reads this blog knows that I look into the future a lot, be that two years, five years or 100 years. One thing that I have thought about a lot is the future of the small triple-play carriers that make up the majority of my client base. What is there business going to look like ten or fifteen years from now?

I see two very contrasting choices and I think every small carrier that survives into that time is going to have to choose one of these two paths. I think the choices are between being a dumb-pipe provider or a full service provider, and I don’t think there is much room for success to stay at status quo and be somewhere in the middle.

I think by now that everybody understands that cable TV penetration rates are going to erode over time as more and more people eschew the high price of cable TV and opt out for programming on the web. And there is always the chance at some point where the migration away from traditional cable could become a flood if somebody can find a way to get enough programming to the web to make that an attractive alternative.

A lot of small carriers today offer the triple play in a fairly passive way. They market and try to sell their products somewhat, but in their footprint they have most of the customers and they don’t do a lot of hard selling. For instance, they don’t push upselling of existing products very hard. But as they lose cable customers and even more voice customers the way they have been doing business is not going to work any longer.

If a carrier elects to become a dumb-pipe provider (or maybe calling them a distribution provider sounds a little better), then they are going to make a living by bringing fast Internet pipes to their customers and they are going to let customers pick up most of their products over the Internet.

If you are a dumb-pipe provider you are going to increase the speeds of your Internet product enough to keep customers happy. You are going to have to charge a lot more for that Internet connection than you charge today. If you are a triple-play provider today you will probably keep some voice, and maybe even some cable customers years from now, but for the most part those will have gone away and the data pipe is going to be your only significant product. From an operational perspective you will have to cut your staff and overheads back to the bare bones needed to keep the pipes working. Your company will be a stripped down version of what you do today, but you can make a profit doing this.

The other alternative is going to be a full-service provider. That means you will replace telephone and cable revenues with a host of other products and services that your customers are going to want. I am always asked what the next big thing is that people can do to make money, and the unfortunate answer is that there is no one big thing. There are a whole host of new product lines that you might get into, but no one of them is going to be as big as your telephone or cable business you are trying to replace.

So you will offer a host of new products – things like security, home automation, energy management, medical monitoring, cloud service resale and device monitoring and maintenance. Every one of these product lines, and the dozens of other that might pop up over the next decade will be of interest to some of your customers. And by having a suite of products you will have something for everybody.

Being a full service provider is going to require you to operate very differently than today. These new product lines are going to need you to spend a lot of time in people’s homes doing things like connecting new devices to their home automation system, making sure their medical monitoring devices are working right, making sure all of their computer-like devices are properly accessing everything.

And there will be one other big change in the way small carriers operate. Today the typical small carrier handles every aspect of a product from beginning to end. If they are in the cable business they have a full cable headend. But in the future when you will need to be in many product lines you are instead going to partner with and buy a lot of these products from wholesalers. That is going to take a big shift in thinking.

Finally, you are going to have to be nimble. The products you sell are always going to be changing and you will need to keep up with those changes. You will not have the luxury you have today to leisurely analyze new business opportunities, but instead you will need to be able to implement new products on the fly. You will need a very well-oiled product implementation plan to make changes fast while keeping customers happy.

The Internet of Things is Here Today

Consider the following pricing chart from Vivint, one of the nationwide leaders in home security. This particular pricing chart happens to come from Fort Wayne, Indiana.

 Comparison Chart

This may not look like it, but this is the beginning of the Internet of Things and I think the way that Vivint has packaged this is brilliant. Just a few years ago this company and every company in the security business would have been selling only the features in the first column. But now they have added on energy management and home automation which are the first steps into the Internet of Things. To make this work they will install a gateway in the home that is capable of monitoring or communicating with the devices in the home and also communicating back with the cloud.

This is just the beginning. As more home-ready services are created Vivint will certainly add some of them on as enhancements to the packages listed or will create new packages. The next big field is already hinted in the last item, the medical pendant. We are not too far away from the time when sensors will be able monitoring your health and keeping a constant record of your heart beat, blood pressure and other vital signs. And a few years after that, micro sensors will be in your blood looking at your blood chemistry, looking for cancer etc.

A company like Vivint will have to decide what things they will support because the scope of the Internet of Things will become immense. It’s been predicted that much of the Internet of things will be done with Apps. But households still need the gateway and will want an expert to make sure things like security and smoke alarms are connected properly. I see a prominent role for businesses willing to go into the home to make sure that everything works well together.

Since there will be so many options in the Internet of Things it’s likely that a carrier will choose a few standardized packages that will fit a large percentage of the population and will leave customized packages to somebody else. For example, even today there are a ton of other options available in the energy management field and Vivint has chosen a few common options. Today a household can also do things like control blinds for allowing or blocking sunlight, coordinate ceiling fans, change the hot water heater settings dynamically during day, and interface with external solar panels.

I believe a lot of homes are going to want these services. I also know that customers will choose somebody they know and trust if given a choice of vendors. The Internet of Things is going to grow over time while traditional services like voice and cable TV wane. If you are going to survive as a carrier selling to households, then selling the Internet of Things needs to be in your portfolio.

Home Automation as a Carrier Product

Savant Home Automation Control Media Room

Savant Home Automation Control Media Room (Photo credit: Gramophone Maryland)

As a gadget guy I am interested in home automation. I stayed in the Hyatt in the Dallas airport last year which has automated rooms. I spent a great hour playing with the blinds, lighting and temperature from my bed. For a gadget nut this hotel gained a wow.

And a lot of people are interested in automating their homes to some degree. The problem they run into is that once they start investigating home automation they find a ton of different devices on the market, almost all from brands that they never heard of. And so they have no idea how to get started.

And this is why there is a product for carriers. As you probably know from reading this blog, I think that if you are a full-service provider that you need to take every opportunity to get into your customer’s homes. Meeting and talking with your customers benefits you in many ways. First, every time you meet them is an opportunity to upsell them. Second, they are able to put a face with your company so that you are not just another person they send monthly checks to. And this leads to loyalty from customers and less churn.

I have one client who has already seen the wisdom of installing home automation systems. He did his research and he picked a platform that is able to handle a number of devices and that looks expandable into the future. But this is the early days of home automation and he is not wedded to that system and he will consider a better one of it comes along.

And here is how he sells it. He will sell the equipment directly to a customer, but he would prefer that they lease it over time by signing a term contract. He makes more money on the lease and customers find it easier to pay over time. He then charges a fee to install the system to cover his technician’s time. Finally, he offers a monthly fee that will cover the labor cost of adding additional devices onto the system later. This fees basically lets the customer pay you to have you come and sell them more hardware in the future.

So what does he automate? There are a few obvious things. You connect this to the thermostat so that customers can easily change the temperature by time of day for comfort and to save money. And there is the old standby of putting light switches on the system so that they can be set to turn on and off when you wish.

But with a good home automation you can also tie in to security systems, irrigation systems, audio-visual systems, and a host of other devices like alarm clocks, smart door locks, blinds, coffee pots, you name it. With the advent of the Internet of Things, more and more devices in your house are going to have a WiFi or bluetooth interface.

A home automation system can save customers money. For instance, along with controlling the thermostat a customer can tie the system into smart blinds. The blinds can raise and lower at pre-set times to welcome the day, but more importantly to save energy by selectively blocking or letting in the sun depending upon the time of day and time of year.

You can also use motion detectors in the system so that a room responds when you enter by turning on the lights and playing your streaming Frank Sinatra. The number of options for a customer is almost unlimited and this is what homeowners find intriguing but also what they find daunting.  There are a ton of home automation systems on the market that will easily do stuff like automate the lights. But it takes programming to do the more complicated (and fun!) stuff. It’s a little more complicated if you want your house to remind you that tomorrow is your anniversary.

And the systems can all be accessed from the customer’s smart phone. The beauty of this is that you can also pre-set alarms. For instance, a customer can have the house tell them if the temperature goes warmer or colder than the pre-set temperature range. They can have the house send them a text every time somebody comes to the front door. They can check in to see that the pets or the kids aren’t killing each other just yet.

Not all home automation is serious. There are silly devices available that can be tied into these systems. Just last week I saw an egg tray that will tell you how many eggs you have left in the fridge. Doesn’t make sense to me, but if a customer wants that, then let’s make it work!