Margin Pressure Pitting Smart Home Hardware Players Against Service Providers

The market for smart home sensors, devices, and controllers will drive US$27.3 billion in consumer spending in 2021, up 20.3% over 2020, as consumers continue to invest in making their homes more efficient and more functional as the world moves on from the hardest effects of the pandemic, finds global tech market advisory firm, ABI Research.

However, as spending on hardware continues to grow, the value of services delivered to smart homes has failed to keep pace. By the end of 2021, smart home service revenues – primarily set-up and/or subscription services related to smart home installations, will have grown to US$32 billion, just 3% to over 2020.

The two-stage growth reflects a growing divide within the smart home market. Smart home hardware shipments growth will outpace revenue growth by 6% as keen price pressure continues to threaten manufacturers' margins. Meanwhile, service revenues will see similar price pressure as close to 15 million homes will become smart homes this year, but the value of services sold to those homes declines.

“Smart home hardware players are faced with rising competition and price pressure as embedded connectivity pushes into more offerings. At the same time, the cost of maintaining growing installed bases of customers with earlier generation equipment is demanding that hardware vendors develop a way to better monetize their customer base,” says Jonathan Collins, Smart Home Research Director at ABI Research. As hardware players look to drive service revenues to their installed base, there is further pressure on existing smart home subscription services,” he adds.

The smart home market is at a key inflection point in its development. Clearly, both hardware and service provider players require both sides of the market to be healthy, and increasingly the upfront investment to secure long-term revenues is a model that serves only a handful of major players in the market, such as Apple, Amazon, and Google. “With interoperability coming to hardware and system management thanks to the emerging Matter specification, vendors across the smart home space will have to reassess their long-term strategies and engagement in the smart home space. New services and new technologies, such as UWB, LWPA, and 5G will all play a part as will smart appliances and consumer robotics,” Collins concludes.

These findings are from ABI Research’s Smart Home market data reports. A set of three new reports illustrate the current and future markets for Smart Home Services, Smart Home Hardware, and Smart Home Consumer Robotics and Smart Appliances. These detailed reports are part of the company’s Smart Home research service, which includes research, data, and ABI Insights. Market Data spreadsheets are composed of deep data, market share analysis, and highly segmented, service-specific forecasts to provide detailed insight where opportunities lie.