Analysis of the Smart Home Market in Dubai*

There  is  hardly  any  aspect  of  our  life  today  which  is  untouched  by  the  ever-changing technology. The insatiable appetite of the technology hungry people is being whetted by the unending innovation which has continually made the end customer’s daily life comfortable. Smart Homes Technology is yet another tide which is gradually taking over the globe. It is something that has been around for quite a few years now  and is gradually picking up momentum,  thanks  to  the  increased  awareness  of  consumers.  The   advancement  in technology has also made these systems more affordable, secure, and easier to install and use.

Smart Home technology integrates all the devices and equipment which we use at our homes in our  daily lives, including the HVAC (Heating Ventilation and Air Conditioning), Lighting,  Curtains,  Door  locks,  Geysers  etc.  This  integrated  system  is  automated  and controlled via a central unit either mounted on a wall or by remote controlled devices. The various  household  devices  are  programmed  to  execute  certain  operations  on  receiving signals from a centralized unit to which it is connected either wirelessly or through wiring. It allows harmonized and customized controls to your home.   At the most basic level, the Smart Home technology allows effective communication between the devices at your home. A perfect Smart Home  gives  you the benefits of  comfort, convenience, energy savings, entertainment and security, to say the least.

Until recent past, typically Home automation has been done during the construction phase of a house as  the  switches, lighting, entertainment systems etc. require a lot of internal wiring which if done at a later stage would require significant amount of masonry work. Off- late due to emergence of wireless technologies for home automation, there are companies which even provide automation in existing homes. This is done  by either connecting your existing devices to a wireless unit which is then controlled via a router. Even advanced wired solutions are available today for existing homes which require minimal wiring and masonry work.
With the advent of wireless and communication technologies, there has been a viral growth in associated segments. Each new technology in the communication sector is taking a step closer to the ultimate aim of Convergence i.e. a customer receiving multiple services to his home over the same channel. The service may include what is commonly known as Triple Play - Voice, Video and Data.  Customers today generally tend to prefer tracking lesser number of transactions when it comes to making  payments towards the services availed. The conventional triple play services typically include a Broadband line, a landline and cable TV service on the same channel, which are offered by Telecom providers across the globe today. This allows companies to streamline their invoice to the consumer and at the same time it reduces the customers’ pain of paying multiple bills.

Today, the Ultra High Speed Next-Generation-Networks like Fibre Optics are highly secure, reliable and  scalable. This allows telecom firms to further widen their service portfolios, which were earlier inhibited due to the lack of bandwidth, signal attenuation and security issues. The core features of fibre optics make it a perfect medium to deliver Smart Home services along with the conventional Triple Play. This is a new business model that is fast catching up in the developed world. The model allows for the following advantages over a conventional Smart Home based model.

-    Consumers with no smart home technology at their homes can avail the same now without disrupting their routines due to minimal wiring and masonry work
-    A service based model allows for pay per use via periodic plans
-    Customizable  offerings  wherein  a  customer  can  choose  the  level  of  automation he/she may want in the house
-    Allows for convergence wherein the customer can pay for Entertainment, Internet and Data service and Home automation service in just one bill.

The benefits of the service based model to the provider are that it helps them to tap into a market  that  is  vastly  unexplored  and  has  a  huge  potential.  With  an  initial  installation payment and monthly plan based on the users need, it presents a huge market for telecom providers to explore. With their established  networks (4G/LTE, Fibre-optics), they do not need to invest significantly in terms of capital expenditure. With a contract based system, they can go ahead and charge the customers a penalty fee in case the customers decide to discontinue  the  service  prior  to  the  contract  period.  In  some  existing  setups,  telecom
companies have tied up with Smart Home solution providers for the necessary technical expertise they require for the same.  For smart Home solution providers, it adds an extra source of revenue in addition to their full scale integrated offerings that they sell under their own brand names.

The real estate market in Dubai is going ahead with a major restructuring currently due to the massive sub-prime crisis that spared no region and Dubai with its booming Real estate industry was no exception.

During the real estate boom in Dubai, the property was sold even before it was constructed and it changed hands about 2-3 times as the first owner usually had no intent to stay there. Thus,  it  was  not  important  for  the  property  developer  to  necessarily  differentiate  his offerings from the pack. The main intent of the entire process was to make quick profits, so the developers didn’t really pay attention towards increasing the property value by installing any form of home automation.

Today, due to the global real estate crisis and crashing prices, the property developer has to differentiate himself from the rest by creating value adds in his offering.  These often come in the form of Smart Home offerings. This is inherently an advantage to both the property developer and the final owner of the property, as the property value goes up for both the parties.

The area of focus for the Smart Home market is still the newly built houses and apartments, where home  automation solution can either be customized by the property developer or the  home  owner  as  per  their  needs.  In-spite  of  the  visible  merits  of  having  a  home automation  solution  installed,  there  are   significant  challenges  that  home  automation providers need to deal with at the moment.

1) Educating the developers and architects of the very clear benefits of having a home automation  system  involved  in  the  mass  luxury/semi-luxury  apartments  being  offered. Home  automation  helps   them   expand  their  portfolio  of  their  residential/commercial
offerings.

2) Convince them to make appropriate changes in the structure and architecture of the building to accommodate the integration of the home automation technology for the best possible result to the end user.

3) To  make  sure  that  the  developer  decides  and  sells  on  a  price  which  includes  the installation and package costs of the home automation solution that has been provided with the house.

With the emergence of retrofitting based home automation services now, the market is virtually split into  two different segments i.e. the existing home owners and prospective home  owners.  The  retrofitting  based  Home  automation  solutions  come  with  heaps  of advantages. They allow for almost the same level  of integration as that of a preinstalled home automation system during the build phase. This is achieved via minimal masonry work due to the latest wireless technologies in the scene now.   It even allows the  customer to customize his solution that suits his budget and his requirement.

Given the large benefits of such a solution, existing home owners would mostly prefer retrofitting based home automation services although the cost as of now is relatively higher than pre-installed home automation systems.  But that isn’t much of a challenge given that the region has slight revived itself from the crisis and local population is pretty well off and the  large  expat  population  is  financially  well  off  to   afford  retrofitting  based  home automation solutions.

There are two players in the telecom market in Du and Etisalat, who have excellent Fibre Optic network. The global Fibre To The Home (FTTH) penetration forecasts can be seen in the graph below. As discussed  earlier for telecom firms, DU and Etisalat can leverage on
their Fibre networks in the region and provide home control and monitoring services.

Porter’s Five Forces model analysis of integrators/individual product providers


Threat of new entrants: High

Home automation solutions are provided in variety of ranges from low, medium to high sophistication  in  the  kind of technology.  Given  the  wide  variety  of equipment  vendors available  in  the  market,  the  threat  of  new  players,  especially  integrators  is  very  high. Differentiation  of  the  services   remains  the   most  important  factor  in  ousting  your competition. With the possibility of Telco’s entering the  competition, the threat is set to intensify even further.

Threat of Substitutes: Medium to High

As mentioned above, the rather lower pricing of integrators allows them to be chosen over sophisticated smart home players. This is further affected by the lack of awareness of the sophistication of core smart  home solution providers in the region and people go in for cheaper solutions.

Bargaining power of Customer: High

With a large number of integrators/individual product providers existing in the region, the customers have  a  variety of players to choose from. Hence the customer buying in this segment would go for the most cost effective product for himself while considering a home automation solution. However with the limited  number of core solution providers in the region, the bargaining power of the technology aware people who prefer sophistication of
core players is slightly reduced as all the core players in the region have their own USP.


The Bargaining Power of Supplier: Medium

Here  again with a  large number of OEM’s existing globally where the products can be sourced from and UAE being a very lucrative market for any supplier to sell in the region, the bargaining power of the supplier is reduced to quite an extent. Also at the same time with  the  large  number  of  such  home  automation  provider’s  the  suppliers  won’t  mind switching loyalties. But there are suppliers which supply  high quality home automation devices  like  Bose,  Yamaha,  Honeywell,  Le  Grand  etc.  which  have  an  equal  standing  in deciding the prices at which they sell to the solution providers. So, the bargaining power is balanced.

Intensity of Competitive Rivalry: High

Home Automation solution providers face a stiff competition given the large number of firms providing these solutions. Moreover, the target segment and pricing for these market players is similar and thus there  is a very thin line separating these providers in terms of offerings.