Sunny days have come to Europe in the first weeks of spring, meaning sales of connected heating controls will start to slow down, as customers start to turn off their heating for the summer. This is a perfect time for industry stakeholders to take a step back, and consider the learnings they gathered over the winter… before the next one comes!
This next winter season might actually be the last chance for the European energy industry to establish itself in the connected home space, and to own part of the customer relationship. It is extremely likely that this market will soon be attacked by giant companies such as Amazon and Apple, and by large telcos and retailers entering similarly to how O2 and Dixons Carphone have started doing to do in the UK. These companies will most likely own the customer relationship if they succeed, and the energy players will have reduced market power if they try and work with these companies to play in the market.
With around 2M properties now equipped with either a smart thermostat or connected room controls, it is clear that energy is the leading vertical of the European connected home market. While this number looks like a promising start, Amazon has already equipped 3M houses in the US with its Echo product, in far less time than the Europe’s energy numbers.
According to our bottom-up country by country in-depth analysis, we believe the connected home ‘energy’ market will reach nearly 4M new customers, annually, by 2018. But who will capture this growth? Certainly committed companies like British Gas, Bosch and Eneco think they can capture part of it and are investing accordingly in the space (i.e. British Gas has £500M to spend in connected home over the next 5 years). However, the market will need more energy suppliers, more HVAC manufacturers or more heating servicing businesses with the same mind-set of strategic investments in connected homes to keep up with the deluge of non-energy companies eyeing up this market.
Despite lots of activities from large energy retailers (e.g. Engie just announced launching the Quby platform in Belgium), I have started to see some negative signs from the energy industry in the European connected home market. Here are 4 reasons why:
1- The Nest hype (by ‘Nest hype’ I mean the great publicity that Nest created for the market in its early days) is clearly over, and companies have to battle against their senior executive who are arguing "Google can’t seem to make it happen, how could anyone else?”. Instead of investing strategically for the long term, these companies might focus on short term tactical moves to try and secure quick profits – which could be a difficult challenge, or even temporarily step back like Nuon in the Netherlands.
2- Most of the sales so far have come from established energy services businesses, like the British Gas or Eneco boiler installation and service cover businesses. However, if the mass market is to happen, it won’t only happen through cross selling smart thermostats with boiler maintenance contracts. Products need to be actively pushed through multiple channels, like e-tailers, DIY retailers, DIFM (Do It For Me) retailers etc. Very few companies – if any – are successful through that many sales channels. Eneco already understood this, and is now selling the Toon in retail outlets, where sales people even encourage customers to sign energy supply contracts with Eneco when buying the product.
3- For those who are going through multiple channels, most customer facing people (installers and sales people on retail floors) are not actively selling connected home products to customers. Euronics (a major electronic retailer) said at the Smart Home Summit in Frankfurt, that they will start specialising a few of their sales people in smart homes, equipping their own properties, so that they can better understand the end-user values, and therefore sell it better! I am convinced this is the way forward for the retail channel but I don’t see too many retailers with the same mind-set across Europe.
4- Other types of players have the power to disrupt the market and own the customer relationship:
- Amazon is the obvious example I mentioned above. They have the ability to reach out to a lot of customers through an entertainment and convenience product, while they also have the vision that connected homes will enable them to increase their core online retail business.
- Like in the US, retailers and telcos will attack the connected home market in Europe with ecosystems of devices working together. An example of this is the freshly announced Dixons Carphone Honeybee, which is rather positioned on customer support for any appliance in the house. These kinds of platforms – if successful in Europe – will be able to cross sell connected heating controls in the future, in which case some energy and heating players might be left out of the game with no control over the customer relationship.
Up until now, European energy companies have been lucky that the big global players like Amazon and Apple are focusing on the US market, and that most telcos haven’t been aggressive in Europe. It gives the energy industry a chance to establish itself and own the customer relationship on the energy side of the connected home. This would be hard to replicate for others and can establish a defendable position for energy companies.
However, if the volumes don’t start to ramp up quickly from this winter onwards, it is very likely that ‘the others’ will emerge from everywhere with disruptive ways to capture the customer relationship. The energy industry would be left with no sustainable defence and might have to kneel in front of ‘the others’, or be left out of the connected home market.
We will therefore focus our connected home research over the coming months on exploring the strategy and tactics of some of ‘the others’ – such as European telcos, as well as insurance and security companies, to help energy players better understand the threat coming from this part of the market.