Shifting Smart Home Services from Provider Add-on to Core Feature

In January, U.S. cable giant Comcast announced a key shift in the way it will offer its subscribers smart home. Riding on the back of an expansion of broadband and mobile offerings, Comcast will bundle its managed smart home platform for all its subscribers as an integrated part of its basic service. The move represents development in a market where telco and cable companies have struggled to find the best business model for smart home services. Typically, there has been a trade-off between gaining new subscriber revenues directly from smart home offerings and gaining broad support for those services. In contrast, Comcast believes smart home management cannot drive revenues directly, but instead, the popularity and appeal of smart home can help support the appeal of other subscription services. There is no doubt that similar plays will be eager to see the appeal of its new strategy.

Comcast is aiming to put the company’s Xfinity platform at the heart of not just home TV and broadband management but also a wealth of smart home devices. While there will be support for the management of a range of smart home devices and functions, Comcast will not be charging its subscribers for the smart home functionality. Instead, this functionality will be at the heart of their Xfinity services.

Comcast has long offered smart home features with its Xfinity Home security service, typically priced at an additional US$25 a month. However, the new program decouples smart home from monitored security and will be part of the service offering for Comcast’s 25 million broadband Internet only customers. By comparison, Comcast currently has over 1 million monitored home security subscribers.

This is not the first time Comcast has decoupled smart home from monitored security services. Back in June 2013, Comcast announced a version of its XFINITY smart home service without the home-security monitoring that had been the foundation of the Xfinity Home service since its launch in June 2011. However, priced at US$14.95 per month, the offer was short-lived and was dropped after just over a year in the market. The lesson, as Comcast saw it, was that smart home could not demand a monthly fee.

Key to Comcast’s technical ability to bundle smart home services into its platform now, is its ongoing upgrade of the routers in its 25 million Internet and entertainment subscribers. In December, the company started shipping the xFi gateway it launched in May 2017, across its nationwide footprint. The gateway, which is already in more than 4 million homes, supports Wi-Fi networkmanagement, including controlling what devices are connected, parental controls, and other features. The gateway can be managed via the mobile app, website, or Comcast’s X1 voice remote. Critically, the gateway also includes smart home protocols Bluetooth, ZigBee, and Thread.

Support for the smart home device management embedded in the xFi functionality flows from Comcast’s investment in smart home infrastructure and a series of smart home acquisitions including much of iControl in 2016and more recently IFTTT rival Stringify in 2017. Stringify’s technology already supports a range of smart home devices, and it is set for integration into the Xfinity platform toward the end of the first quarter of 2018. In addition, at CES in January, Comcast announced its “Works with Xfinity” partner program aimed at attracting more and more smart home devices to support integration with the Xfinity platform.

However, supporting smart home device management within its Xfinity platform is only part of the story. Comcast is looking to bring the integration of smart home features with its other services to improve the adoption and appeal of its other core business operations. For example, last year the company announced its Xfinity-branded MVNO offering which brings mobile devices into its Xfinity ecosystem. Such breadth of service enables cross Xfinity services such as the new Phone Finder app that lets Xfinity Mobile customers search for and locate their mobile phone in their home using the X1 voice remote. In addition, Comcast is also expanding the scope of its own voice control platform, which is currently limited to entertainment control, to smart home device and system control. Supported commands will range from specific device control (“lower the thermostat temperature”), to multi-device scenarios (“Away” or “Goodnight”).

Comcast is far from alone in testing to find the best way to leverage smart home growth for its business. Other service providers have struggled to find the correct business model to bring in smart home control to their offerings. Monitored security has long been the tentpole service, not just because it includes many of the same functions and devices as smart home systems but also because monitored security is an established service that has long supported subscription pricing. In the U.S. market, monitored security has been a foundation for smart home device adoption. Players such as Vivint have built their smart home offerings around monitored security, while cable companies and telcos such as AT&T have all made monitored security the cornerstone of their smart home plays. Those that did not, most notably Verizon, found an unwilling market. Verizon pulled its smart home service, which was not tied to monitored security, in 2014, just two years after its launch. Even now, despite embedding Z-Wave smart home connectivity in the Verizon FiOS gateways installed in around 3 million households, Verizon has yet to return to offering smart home service management.

However, even in the United States, monitored security is not a mass market. Penetration for monitored security remains relatively level at 20% to 25 % of households despite the uptick from smart home adoption. Outside the United States, monitored security adoption is typically far lower, and support for subscription smart home services are challenging. The end of last year saw Telefónica’s UK business O2 shut down its subscription smart home services, which focused on self-monitoring security and energy management, after little more than a year. European service providers, including Orange, have seen only limited uptake of their smart home services, which have typically been built around US$10 subscription rates.

But while telcos have struggled with their subscription-based offerings for their smart home offerings, rivals from other industries faired far better and have driven smart home adoption. Retailers have become a force in the U.S. market, while globally consumer electronics and consumer IT device manufacturers have been quick to capitalize on the appeal of smart home devices and services. Smart home device vendors typically offer connected device control and management at no recurring cost to the consumer, with any cost bundled into the price of the device. In addition, players including Apple, Google, Samsung, and Amazon increasingly offer ways to tie these devices together in a managed system again at no additional cost. Voice control devices such as those from Amazon and Google have arguably done more to push the popularity of the smart home than telcos around the world combined.

In their commitment to making smart home and incremental revenue stream, telcos and cable companies have left the way open for the “dumb pipe” scenario that has long haunted their engagement with Internet provision to carry over into the booming smart home market. Having access to the rich data stream flowing from smart homes and the ability to weave that into valuable and popular services is becoming increasingly vital. Without a platform play in the market, telcos and cable companies run the risk of being able to derive none of that value for themselves. By contrast, Comcast’s no-subscription fee approach is a way to keep rivals from the CE industry away from relegating Comcast to just Internet provision. Instead, it can keep those subscribers within its own domain. It is worth nothing that Comcast now gets most of its earning from Internet not entertainment service provision. In addition, by making its smart home functionality available across its customer base, Comcast is also providing smart home device manufacturers with a sizable market to invest in providing application programming interface (API) integration with Xfinity.

Through investment and a strategic approach to smart home, Comcast’s smart home strategy is makingsmart home management a fundamental part of Internet service provision. It is a move likely to impact churn by making its package of services stickier or by driving up recurring monthly revenues per subscriber by offering greater levels of ease from integration. It is a strategy that looks to defend the company’s core businesses from a wave of competition,  including content provider; ISPs; and mobile device, retailer, and online advertising players. Its move is evidence of a sentiment that smart home is of value to providers and customers only when it is integrated across operations, or in the case of the smart home, integrated into as many aspects of daily life as possible.

Comcast’s smart home integration comes as telcos, especially in Western Europe, are looking to refine and develop their initial smart home plays. . For example, efforts are underway at Deutsche Telekom to develop its own voice control offering for its Qivicon smart home platform. At MWC in February, Telefónica’s highlighted its strategy to integrate its Aura voice assistant platform with a range of smart home voice platforms, including those from Google and Microsoft. Also at MWC, Vodafone unveiled its smart home partnership with Samsung’s SmartThings platform. Vodafone will be Samsung’s exclusive strategic telco partner in select European markets, linking SmartThings smart home control gateways and platforms with its newly launched “V by Vodafone” consumer Internet of things (IoT) subscriber identity module (SIM) offering. Launching in Spain and Germany in the second quarter of 2018, the partnership focusses on self-monitoring security services and devices and adding Vodafone connectivity to the SmartThings gateway. Aside from security, new devices including speakers, thermostats, and lighting are all planned. As with DT and Telefónica, there is a voice control aspect too, with Vodafone’s V-Home package including its own voice assistant. For its part, SmartThings already supports voice control via Amazon Alexa, Google Assistant, and Samsung’s Bixby platform. Details regarding the recent steps from Telefónica and Vodafone regarding data sharing remain limited, but DT’s approach in keeping the carrier at the center of the smart home environment is closest to Comcast’s model.

Increasingly, telcos are choosing between two models for their smart home strategies: either support multi-vendor device implementations, provided that there is significant data access through included third-party partnerships, or develop their own central smart home platform capabilities. What is fundamental is that telco smart home strategies may not be able to drive direct additional smart home revenues from customers willing to pay an additional monthly fee. To defend and grow their consumer offerings, telcos must develop smart home strategies that not only ensure they play in the smart home market but also place them in the position to integrate and leverage smart home data to strengthen and extend the appeal and reach of core services such as broadband, mobile, entertainment delivery and more.

Smart home is a market that will require strategies that shift from region to region and even country to country; however, most, if not all, service providers are currently not delivering the depth of integration that Comcast is pursuing. There is no doubt that there will be plenty of scrutiny of Comcast’s strategy from service providers around the world.