Samsung’s SmartThings Acquisition: A Sign of Things to Come?

19 August 2014

On Aug. 14, Samsung’s expected acquisition of SmartThings was finally confirmed. Using its own hub and app, SmartThings seeks to unite a range of different connected devices, such as light switches, sensors and thermostats, from a variety of device vendors, to enable a unified ‘smart home’ experience.

According to a blog post by SmartThings CEO Alex Hawkinson, the acquisition will see SmartThings operating as in independent company within Samsung’s Open Innovation Center group. At the same time it will leverage Samsung’s global scale to support all of the leading smartphone vendors, devices, and applications; expand its base of developers and enhance the tools and programs that they rely on; and help more people around the world easily control and monitor their homes using SmartThings.

Will the acquisition of smart home start-ups by big name consumer brands—such as Google’s acquisition of Nest and Dropcam—become increasingly commonplace? How else can companies enter the smart home market? What will this mean for industry considerations such as interoperability and widespread device vendor support? How does SmartThings’ pricing model compare to established smart home services?

With the worldwide installed base of smart home services projected to grow from 5.6 million at the end of 2013, to 9.1 million by the end of this year, and 44.6 million at the end of 2018, the entrance of big names into this market—from a variety of industry segments—is not unexpected. As a result, the competitive environment is set to undergo a significant shift in the coming years.

What are the main ways consumer goods companies can enter the smart home market?

Consumer device suppliers are set to increasingly enter the smart home market in a number of ways:

1. Through acquiring existing platform or system providers (as with Samsung’s SmartThings acquisition)

2. Through the creation of their own smart home platforms (as BSH has done with its Home Connect Platform)

3. By focusing exclusively on the smart home hardware market, creating devices that can be easily added to systems or services provided by others.

What will this mean for industry considerations such as interoperability and widespread device vendor support?

Despite following very different approaches, Samsung and BSH’s entrance into the smart home market has in common the increasingly recognized need for systems to be compatible with multiple device brands. This is a step change from the smart home of old which favored proprietary systems to create vendor lock-in. Interestingly, a further commonality is the promise that these smart home efforts will be run separately to the main device businesses.

In a statement confirming the acquisition plans by SmartThings CEO Alex Hawkinson, it was clarified that the two companies would continue to be operated independently. This is consistent with the SmartThings charter of creating a “totally open smart home platform that brings together third-party developers, device makers and consumers.” This relative separation may be driven by SmartThing’s need to support multiple device vendors; critical in its quest to provide a common platform.

How does SmartThings’ pricing model compare to established smart home services?

From a traditional pricing model perspective, there are two main ways to monetize the smart home opportunity: through up-front hardware or system costs, or through recurring revenue charges. Unlike the smart home solutions from companies such as AT&T, Comcast, ADT and others, SmartThings employs the upfront pricing model, offering the hub and app for $99, without recurring fees. While recurring fees have typically been employed by companies that also offer an element of centrally monitored security, the growth in upfront-only, self-monitored smart home systems could appeal to a segment of consumers where professionally monitored security is not a critical value proposition. SmartThings, which markets itself based on home security, peace of mind and “limitless possibilities,” is positioned to capitalize on the growing demand for ‘connected home’ devices, without the commitment to ongoing service fees.

Will the acquisition of smart home start-ups by big name consumer brands, such as Google’s acquisition of Nest and Dropcam, become increasingly commonplace?

Quite what the Samsung and SmartThings relationship will look like a few years down the line remains to be seen; but like SmartThing’s claim of its platform, the possibilities are almost limitless! This could include the pre-installation of the SmartThings hub and app into Samsung Smart TVs, to “non-traditional” revenue streams, such as data monetization or smart home e-commerce platforms that enable the up-sale and cross-sale of a growing range of inter-connected devices.

With a North American consumer survey from IHS suggesting that 56 percent of respondents wanted to be able to perform at least one connected home function (as highlighted in the table below), the Samsung acquisition of SmartThings marks just one step in a process where big name consumer brands seek to define their role in the rapidly growing smart home market.

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