Everything Smarter

Smartening Up

Key Residents

Value Propositions Matter

Everyday Issues

Struggling to Adapt

Rise of the Smart Home

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There’s No Place Like [ A Connected ] Home

Perspectives on the connected consumer in a world of smart devices

Everything Smarter

Smartening Up

Key Residents

Value Propositions Matter

Everyday Issues

Struggling to Adapt

Rise of the Smart Home

The vision of the connected home is finally beginning to come together.

But the market still has a ways to go before it reaches its full potential. Many consumers still do not understand connected device value propositions and early adopters face significant pain points that have yet to be addressed. McKinsey surveyed approximately 3,000 households for their views on the connected home—revealing distinct customer segments, emerging opportunities, and key issues to tackle in order to unlock growth.

Connected devices are disrupting every nook of the home.

Home intelligence

Energy efficiency

Entertainment

Wellness

Access control

Home safety

Home comfort

Daily tasks

Connectivity

With technological advances in voice control and artificial intelligence, the intelligent assistant is now a viable control center for the connected home. Tech giants and startup attackers have developed solutions delivered through both existing devices and new, stand-alone products.

exploding_chart I N T E L L I G E N T A S S I S T A N T V O I C E / N A T U R A L L A N G U A G E I N T E R F A C E

Despite the proliferation of devices, we're still far from the vision of seamlessly connected homes. We have yet to see explosive growth in the market, but well-positioned players still have the ability to create tremendous value.

The US market has seen substantial year-over-year growth in the number of connected homes, and this is expected to continue in the years to come.

2015

1 million

2016

1 million

2017

1 million

0%

compound annual growth rate

Yet actual sales growth lags behind the growth in household penetration.

2016 sales 100% Recurring revenue from 2016 42% New devices 23% 15% Replacement devices Expected 2017 growth 17% New household connections 37%

The noise is coming from all different directions. We have identified five primary consumer segments emerging from the connected-home market, each with their own needs, behaviors, and attitudes.

Connected-Home Market Percentage by Consumer

  • Connected Home Adoption

    Low

  • Tech Adoption Speed

    Late

  • Willingness To Invest In Home

    Lower

  • Willing to pay premium for ‘green’ products

    No

  • Channel Preference

    Big box / home improvement stores

  • Connected Home Adoption

    Low

  • Tech Adoption Speed

    Average

  • Willingness To Invest In Home

    Lower

  • Willing to pay premium for ‘green’ products

    Yes

  • Channel Preference

    Service providers/ online retailers

  • Connected Home Adoption

    Medium

  • Tech Adoption Speed

    Average

  • Willingness To Invest In Home

    Lower

  • Willing to pay premium for ‘green’ products

    No

  • Channel Preference

    Service providers/ online retailers

  • Connected Home Adoption

    Medium

  • Tech Adoption Speed

    Late

  • Willingness To Invest In Home

    Higher

  • Willing to pay premium for ‘green’ products

    Yes

  • Channel Preference

    Home improvement stores/ service providers

  • Connected Home Adoption

    High

  • Tech Adoption Speed

    Early

  • Willingness To Invest In Home

    Higher

  • Willing to pay premium for ‘green’ products

    Yes

  • Channel Preference

    Direct from manufacturer website

Connected-Home Market Percentage by Consumer

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For consumers that have adopted connected devices, we are seeing dramatic overlap with the wearable market.

Nearly half of the individuals in the connected-home market also own a wearable.

Yet, even amongst the variety of consumers, purchase decisions are driven by solving simple problems, at least today. Whole platforms and ecosystems have yet to resonate with consumers.

Percentage of thermostat owners who listed trait as top three buying influence

Price

0%

Energy saving potential

0%

Reliability

0%

Ease of use

0%

Ease of installation

0%

Lesser influences

  • Ability to work with other devices (e.g., smartphones)
  • Ability to connect to a central network
  • Ability to read temperatures in multiple rooms
  • Ability to receive energy usage reports
  • Number of programmable periods
  • Design
  • Geofencing capabilities

Despite advances in technology, consumers still face many daily issues as they continue to seek out comprehensive solutions.

Our McKinsey team shadowed Jim to better understand the consumer perspective on connected homes. What we found is frustration around a fragmented technology that failed to meet a full value proposition.

8:00 am
Waking up, Jim gets the weather of where he is, but not where he is going. He needs to manually look it up.
8:30 am
Jim interacts with multiple ‘smart’ devices that don’t work together and have clunky interfaces.
1:45 pm
Jim needs to pick up supplies but needs to call the store directly to check stock.
5:30 PM
About to leave work, Jim cannot check in advance what chores need to be done and automate them.
8:30 PM
Entertaining his friends later that night, Jim cannot get music to stream from his phone to his ‘smart’ entertainment system.

Players from all industries are bringing their own solutions to the table but are also wrestling with their own pain points. A significant amount of adoption is required to unlock the value in this market.

Industry pain points

Hardware manufacturers and consumer electronics

  • Difficulty creating distinctive features that could increase margins
  • Suffering lack of brand loyalty in an immature market

Telecom and cable providers

  • Connected home competes with existing, high margin products for sales associate and marketing focus
  • Fighting for ownership of customer data and home interfaces with ecosystem players

Retail outlets

  • Building sales force capability with the right skills for connected homes
  • Sheer complexity of value proposition that needs to be communicated to customers

Software and ecosystem players

  • Monetizing data collection in the ecosystem
  • Deciding which piece of the value chain to play in

Service providers (e.g., utilities, home security)

  • Creating technological capability across the company
  • Building sales force capability for complex connected-home devices

0%

of connected-home devices are purchased through service providers today, due to strong go-to-market access.

Solving these issues will require true business model innovation and new capability building, in addition to strategy.

Amidst these challenges, opportunities in the connected-home market abound.

Success depends on wide range of skills—from go-to-market to design thinking to partnership and M&A strategy.

Learn more about our work on connected homes.

Contact Us

Kabir Ahuja

Partner, TMT Practice

Mark Patel

Partner, TMT Practice

Traditionalist

24%

Traditionalist
Urban Dweller

22%

Urban Dweller
Family First

21%

Family First
Affluent Nester

19%

Affluent Nester
Lean Forward

14%

Lean Forward

Connected-Home Market Percentage by Consumer

Hover over each slice to view the percentage breakdown or view the table below for details.

Connected Home Adoption Big bo x/home imp r o v ement s t o r es Ser vice p r o viders/ online r etailers Ser vice p r o viders/ online r etailers Home impr o v ement s t o r es/service p r o viders Dir ect f r om manufactu r er website Family First Affluent Nester Lean F o r wa r d Tr aditionalist Urban Dweller Low Low Medium Medium High Tech Adoption Speed Late Av e r age Av e r age Late Early Willing T o P a y P r emium F or ?G r ee n ? P r oducts Channel Pr e f e r ence Willingness T o In v est In Home Lower Lower Lower Higher Higher $