Comcast and the Smart Home

comcast-truck-cmcsa-cmcsk_largeComcast has very quietly gotten into the smart home and the Internet of Things business. They reported recently that they now have 500,000 customers for what they are calling Xfinity Home. With their 22 million total customers this is just over a 2% penetration rate, but any business line with half a million customers has to be taken seriously.

Comcast started Xfinity Home five years ago as a security business competing against the likes of ADT. But since then the business has taken on energy management and home automation. Announcements this month show that Comcast is making a play to be a major home automation integrator. They are now supporting the home automation devices of 9 major manufacturers: August (smart locks), Automatic (automobile), Cuff (fitness tracking), Lutron (smart lighting), Leeo (alarms), Nest (thermostat), Rachio (sprinkler system), Skybell (doorbell), Whistle (pet tracking). It’s an impressive suite of products and is all integrated through the Comcast portal.

When I last looked at Comcast’s security product, a few years ago, it was more expensive than a lot of their security competitors. It looked like they were counting on the power of the bundle to attract customers. For instance, the basic security product only covered monitoring for 1 door and 3 windows and got more expensive to cover your whole house.

The monthly charge for the new suite of products is going to be $40 per month. This will include security monitoring as well as remote access to lighting and thermostat controls. Customer pay $5 a month extra if they want to be able to see and record video feeds from their home. Customers are asked to sign a 2 to 3 year contract for service. I can’t find yet if that new price will change as Comcast monitors more devices. Comcast normally charges $200 for installation but seems to often waive that fee. They charge extra for installing more than a set number of devices.

The key to succeeding in home automation is service. Customers find home automation to be confusing and they want somebody to set it up and somebody there to fix things when they go awry. I looked at a number of online reviews of Comcast’s current product and there are a lot of complaints about poor customer service and difficulties in getting problems fixed. This is going to get even harder for Comcast (or anybody else) to do well as they add more and more products to the home automation suite.

This business also requires a lot of truck rolls if done right. Most customers are going to want help whenever they integrate a new product into their home or whenever things aren’t working the way they want. Since truck rolls are expensive, this is one of the major concerns about being profitable in this business line.

Still, half a million customers is impressive, and as Comcast integrates more devices into the package it’s going to become more attractive to customers. Comcast has one advantage over most companies, which is that they already have enough customers to enable them to devote considerable time and resources into integrating devices and making sure they work well together. Ideally new devices from the various vendors would self-configure out of the box and would work seamlessly with existing devices. But I haven’t heard that anybody yet has yet mastered that degree of automation.

Comcast is doing this as a way to offset sinking cable revenues. And they are off to a good start. At $40 per month they are already near to a quarter of a billion dollars per year in annual revenues. And I’m sure they will find ways to goose more money from customers.

Every triple play provider has to look at this and consider if this business line makes sense. The biggest problem any small provider will have is in coming up with a suite of products that integrates well and works seamlessly together. But assuming that you are able to find such a suite of products, then the biggest asset for most small carriers is the relationship with their customers.

This is the kind of product that can be used as the springboard for everything else you do. When customers rely on you to make things in their home work right they are more open to hearing about other products and services you might offer. But I am sure that, just as Comcast is certainly finding out, the key to being profitable in this line is to find a way to control and cover the cost of the truck rolls while doing things right.

The Early Battle for the Internet of Things

Goneywell LyricThere are already a number of players aiming to become the primary player in the residential market for the Internet of Things. I think all of them see that this as a numbers game and that whoever can gain customers the fastest has the opportunity to become the largest. And so we are going to start seeing fierce battles in the marketplace. As you would imagine, every competitor is going about this in a different way.

Google is probably making the most news in the area, because with their billions they are buying themselves into the business. Google paid $3.2 billion for Nest, a maker of smoke detectors and thermostats. Last week they announced the purchase of video camera maker DropCam for $555 million. Google also acquired Boston Dynamics and DeepMind, two firms whose robotics research is aimed at developing artificial intelligence. And one can expect Google to continue to buy the piece parts needed to put together a fully integrated suite of IoT products.

This week Google also announced their primary strategy which is to open up their IoT platform to outside developers. They envision a world where the apps have as much or more value than the hardware. Google wants to sell hardware and control the base platform over which others develop apps to provide customization for customers.

Apple is taking a very different approach and wants to become the software platform that makes everything work together. Apple believes there will be numerous manufacturers of smart devices (in fact, most of the things in our homes will become smart over time) and they don’t believe consumers are going to want to be tied to one propriety package of devices, but will want anything they buy work with everything else. So Apple is trying to put together that platform, which they call HomeKit that will connect your garage door opener, your door locks, your thermostat and everything else together to give homeowners a customized suite of products that suit them. Apple is also an open platform that allows outside developers to create apps.

Honeywell just announced that it plans to offer significant competition to Google. Honeywell is the largest manufacturer today of thermostats and they announced a slick mobile-controlled thermostat they called Lyric. But Lyric is not just a thermostat and is going to be the base of a full suite of home automation products – all DIY and all controlled by smartphones. Honeywell is not only building their own platform, but they are also hedging their bets by working with the Apple HomeKit Program.

There are also smaller companies trying to crack into the market and who are hoping that by being early they can gain market share. For example, Lutron is the largest manufacturer of lighting control systems and they are expanding that platform to become the hub for integration to other devices. They think they have an edge since they already having lighting platforms in millions of homes.

And there are a number of start-ups chasing the market. Revolv has introduced a slick box that does a pretty good job today of integrating different devices into a coherent package. ALYT is a crowd-sourced start-up that plans to provide a full suite of communications technologies from Bluetooth through cellular making it easier to communicate with any device or the outside world.

This is going to be an interesting battle to watch. Each of these firms has taken a different approach. I certainly don’t have a crystal ball, but I am going to bet that the one that makes all of this work the easiest is going to have the best chance of winning the battle. But one can also suspect that for decades that multiple companies will own a decent segment of the market as they appeal to different groups of customers. But it’s hard to bet against Apple and Google not being two of the largest players. Each is creating an open platform for developers to create apps, and those apps are likely to give them an edge over any proprietary systems.