A bit of history…
The Netherlands was one of the first markets to innovate with connected controls in Europe. With over 80% of Dutch boilers working with the OpenTherm protocol, smart thermostats could relatively easily be connected. In the early 2010s, while Nest was making a name for itself in the US, some start-ups were similarly trying to capture opportunities in the Dutch market, and Quby was at the forefront of it. At the same time, control companies, such as Honeywell, and heating manufacturers, such as Nefit, started to develop their own offers.
Energy retailers such as Eneco or Essent have tried to use this momentum to fight their churn and to provide a first step towards offering energy services to customers. They started bundling smart thermostats at no cost with a long-term energy contract, typically 4 or 5 years. With extensive marketing campaign from energy suppliers and the likes of Nest, the awareness rose quickly amongst Dutch homeowners, which resulted in a quick growth of the market.
Why has the smart thermostat market stopped growing?
Today, around 20% of Dutch households are equipped with a smart thermostat, the highest penetration in Europe by far. But almost 10 years after the market really started, annual sales are plateauing in the Netherlands. Why?
Firstly, most of the typical early adopters already have one! If you think about the typical challenge of crossing the Chasm, the Dutch smart thermostat market is probably just there. Then, the number of customers willing to sign up for a long-term contract was probably limited in the first instance.
In addition, recent M&A activities have also led to a sharp decrease in innovative propositions from major energy suppliers, which used to be the most active sales channel. Essent (E.ON acquiring Innogy, the owner of Essent) has completely withdrawn from the smart thermostat market, while Eneco (acquired by a consortium led by Mitsubishi) has reduced its marketing activities. Vattenfall simply decided to focus on district heating customers for connected home offerings.
A year ago, energy suppliers accounted for over half of the connected heating control sales in the Dutch market. Their reducing activities leave a huge gap for products to reach customers, and other types of companies are trying to benefit from this.
The lower level of involvement and innovation of utilities has primarily benefitted professionals, such as HVAC and installation companies, who continue to increase their role in this market. Their bundled offers – combining a smart thermostat with a heating appliance, and sometimes a maintenance contract – are getting a lot of traction. Therefore, we expect the professional channel to stay the largest one in the coming years. But there are still challenges in convincing everyone in the value chain to promote these controls to more customers.
Retailers and particularly online ones are still a smaller sales channel. However, they have gained some of the market shares lost by the energy suppliers and by focusing on customers willing to install the products themselves.
But even with the HVAC and retail industries, the lost sales from energy suppliers have not been recovered and therefore the Dutch annual sales of connected heating controls have been stagnating for the last year. We don’t expect more than a few % growth in the next few years, and this vision was even before the pandemic hit the Netherlands.
The energy transition and the digitalisation in the home are providing other important growth potentials
While smart thermostat sales are stalling, other connected devices still drive the growth of the Dutch connected home market. Connected speakers have rapidly penetrated the market since the launch of Google Home in 2018. They bring interesting use-cases when combined with other devices, such as smart lights. We expect them to drive most growth of the market in the upcoming years.
The heat pump market has also been growing at a fast pace in the Netherlands, which could be a way to boost connected heating control sales. However, the number of heat pump controller offers has remained low, leaving a gap in the market. Most smart thermostats are not fit for heat pumps, which require a more specific and modular management compared to boilers. As heat pumps become more popular, associated connected products have a significant potential. Some players are already positioning themselves to capture this mid-term market opportunity.
Finally, remote diagnostics services are increasingly popular in the Netherlands. For installers and maintenance compagnies, they have the potential to reduce their risks, optimise operations and improve customers experience. For control compagnies, remote diagnostics is also an interesting add-on to a smart thermostat product and can be simply based on OpenTherm. This type of basic remote diagnostics is already offered by Eneco (Quby) and Tado for example. Considering that 50% of Dutch households have a maintenance contract for their heating appliance, we expect an important uptake of remote diagnostic offers.