Lowe’s Connected Home Strategy Seen Needing Industry Help to Succeed

SAN ANTONIO - Several decades into the market for home control systems, industry players are still struggling with how to reach consumers and make money at it, said panelists at Parks Associates’ Smart Energy Summit. Educating consumers about benefits of home control, monetizing the service and simplifying the technology for a mainstream consumer all remain barriers to success of the category, they said.

One huge hurdle is “consumer awareness is low,” said Kevin Meagher, vice president-general manager, smart home, for Lowe’s, which is finding its way with home controls after a few months in the market. At the heart of Lowe’s strategy is the Iris platform for connecting devices in the home based on the assumption that “consumers will not use multiple apps in the home,” Meagher said. To hit the mass consumer with the Iris ecosystem, vendors need to go through retail, he said.

But even Lowe’s with its 1,700-store store network “can’t do it all ourselves,” he said. So Lowe’s is branching out to other industries to reach customers in a variety of ways. Lowe’s has adopted the strategy to sell its branded products through third-party retailers, such as Verizon Wireless, where the carrier is demonstrating connected products that take advantage of its data network. The more connected devices operating over the mobile network, the more revenues Verizon brings in from its data network, he noted.

Iris products will not be sold next to 4Home Z-Wave-based energy management and home monitoring products that Verizon Wireless and 4Home demonstrated together at the 2011 CES, Meagher said. That leaves Verizon Wireless’ commitment to 4Home platform versus Iris unclear. A spokesman for Motorola, since bought by Google and slated to be sold to Arris, said 4Home products are being sold in some Verizon Wireless stores but referred us to Verizon for more information. Verizon Wireless didn’t respond by our deadline to questions about its strategy for the two product lines.

In addition to the Verizon relationship and other potential partnerships with telcos, service products and utilities, Lowe’s is looking to the builder channel for products including its water shut-off valves and water leak sensors. It’s also approaching insurance partners that might provide a discount for sensor-based products that avert a leak or other damage to a home, he said. Different channels deliver unique ways of coming at the home controls market, and Lowe’s is looking at working all of the channels, he said.

Lowe’s has published a 60-page document for its vendors outlining the rules they need to follow to be part of Lowe’s Iris connected platform, Meagher said. The rules ensure that a vendor’s product will work with other devices in Lowe’s Iris ecosystem. “We're perfectly comfortable if the product works with the Schneider platform, the Schlage door lock or the Honeywell user interface,” Meagher said. “We'll let the customer choose [which platform] as long as they buy from Lowe’s,” he said. Lowe’s message to the industry: “Let’s get out of the gate and do something,” Meagher said.

Insteon, an X-10-based supplier of home automation devices since 1992, will make a concentrated push into mass-market retail this year, said Rich Peterson, vice president-retail and channel development at Insteon-Smarthome. Peterson, formerly of Best Buy, said Insteon products are sold in 126 Best Buy stores and are “doing very well on the floor” with “no support from employees” due to its “fifth-grade” tech level. Peterson wouldn’t name for competitive reasons the retailers or types of retailers the company is talking to but said “Insteon will be visible out there. We're trying to hit that price point that people will try for $100."

Insteon and its online Smarthome website have a no-fee strategy for growing the connected home market, Peterson said. “Other companies charge $9.95-$19.95 for monthly service, Peterson said, “but customers are saying, ‘I don’t get my return on investment if I have to pay $20 a month. If it’s free, I'll try it.'” Insteon grows its business by “tenfold” after the $100 buy-in when customers add products in the first year to expand their systems, he said. “They know they don’t have to pay that monthly fee so they add a little more here, a little more here, and it’s easy to do,” he said. The company will continue to add to its product portfolio to keep customers interested, he said. Last year, Insteon added 75 products to its lineup, Peterson said.

Moderator Stuart Sikes, president of Parks Associates, questioned panelists about the lack of recurrent revenue models in the home control market, considering the notoriously thin margins on hardware. Meagher of Lowe’s said with all devices being connected “and everything will be connected,” Lowe’s doesn’t believe every Internet-connected device can “assume incremental revenue is attached to it.” There’s a limit to how much a customer is going to devote monthly when already strapped with monthly entertainment bills for cable and Internet, he said. “If we at Lowe’s start charging a dollar for everything that’s connected, they'll just stop connecting stuff,” Meagher said. In the future, “it will be impossible to separate from product from service” as they become more intertwined with apps, he said. Lowe’s will “just have to live with the cost of supporting those apps in our infrastructure,” he said.

Breaking into the service side of the residential market is challenging, said Yann Kulp, vice president-strategy and business development for Schneider Electric’s Eco-Business. Schneider, a manufacturer of electrical hardware, is looking to leverage presence in the home with its Wiser energy management system that allows homeowners to reduce or shift energy use during peak times for grid efficiency and network reliability.

But the 100-year-old Schneider is a “victim of our history,” Kulp said. “You don’t transform from a product to a service company overnight.” Utility customers hold the potential for service and revenue income because they see the value in Schneider’s model, but homeowners don’t see the value in a service contract, he said. Schneider research of consumers in Europe and the U.S. shows that getting “even a few bucks out a homeowner every month doesn’t work. It’s a tough market,” he said.

Netgear understands the potential value of a recurrent revenue contract with consumers but has chosen “to ignore it,” said Jeff Wilson, director of product management. Developing simplified setup and diagnostics process and apps are “part of the way we do business,” Wilson said. Netgear did buy a video company called VueZone that does have a monthly charge, “and we're trying to figure out how to deal with that,” Wilson said, but Netgear’s focus is to make products easier to install.

Consumer awareness of home control technology remains a barrier to broad-based adoption, panelists said. Sikes cited Parks research indicating that historically three or four store visits were required by the decision makers of the household with a hands-on process and multiple demos to convey the value of home control to potential customers. Lowe’s is attempting to sell home control through end cap demos on 29-inch touchscreens that provide advice, videos, support “and all the things good retailers do,” Meagher said. He acknowledged the challenges in that approach. “It forces the customer to stand there and have an interest,” he said, “and that’s a problem.” As Lowe’s progresses it will have “people who know this stuff and talk to consumers,” he said. Product breadth is important as well because consumers have different wants when it comes to connected control, and that too is a challenge, he said.

Lowe’s is launching a category but will need the larger industry to make it succeed, Meagher said. It will also have to make significant investment in service and training, he said. “We have to accept that service is part of the product sale of the future, adapt to it and get on with it,” he said. Vendors will expect that if they're going to sell their connected products through Lowe’s, he said. Whether through utilities or in stores, Lowe’s will sell solutions, not products, he said, but “we're a mile away from where we want to be right now.”

Drawing from his experience at Best Buy, Insteon’s Peterson stressed the need for simplicity on the sales floor. “How can you sum up what the solution can do in less than a sentence?” he said of the home control retail challenge. A salesperson first has to qualify where the customer is coming from whether it’s energy, security, entertainment or another angle, he said. In CE retail, “we confuse customers all day long,” Peterson said. “We try to put as much information out there as possible because we think that’s the way to do it, but less is more.” On the other hand, a retailer can have customer for a long time “if you take care of them,” he said, by explaining simply what the product does, how much it costs and how it will enhance their lives.