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02
October-2011

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.

Smart Homes in Dubai Region - Smart Home and Real Estate:

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.

  • 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.
  • 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.
  • 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.

Smart Home – Market Segments:

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.

Smart Home and Telecom Providers:

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.

Smart Home and Telecom Providers Chart

Analysis

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.

Data Analysis

As a part of the primary research, data about consumer preferences, perception, awareness and satisfaction levels was gathered through a questionnaire. The questionnaire was designed to gather the following information

  • Demographics of the customers
  • Awareness quotient and perception of smart homes
  • Customer preference of adopting smart homes and associated features
  • Major reasons not to adopt smart homes

Further, specific questions were asked for people who wished to adopt smart homes about the major factors they would take into account while selecting a smart home.

Specific questions were also asked of existing Smart home users and their satisfaction quotient was checked. Acceptability of new features of Smart Homes was also examined.

Data Analysis - Demographics

Bottom up approach in sampling helped us to achieve the right mix of age group and nationalities.

Of all the respondents, about 40% were Arabs. The remaining respondents were divided equally between Expat Asians and Westerners.

age group and nationalities

The age range of the individuals was chosen such that they would be the potential buyers or existing owners of smart home solutions.

Income Range Distribution

Respondents having income less than 10000 AED/month were filtered out. Out of rest of the respondents 11% belonged to the middle income segment, 30% were from upper middle income groups, about 35% from higher income groups and about 25% represented the High Net- worth Individuals (HNI) segment.

Dubai has one of the largest expatriate populations in the region. Hence permanent and self-owned houses are les sin number when compared with rented or company provided accommodations. About 40% of the respondents fell in the former category whereas the rest fell in the latter category.

We also see that the types of accommodations that are available in the region are mainly of 4 types:

  • Independent Villas
  • Independent Flats
  • Society Villas
  • Society Flats
kind of accomodation

From the data gathered we see that a major chunk of the respondents resided in flats which were either in standalone high rise buildings or were society flats. Almost 80% of respondents lived in flats whereas only 20% lived in Villas, as villas are much more expensive to own and maintain with the income ranges of our respondents. Also, most of the company provided accommodations are flats, with villas being provided to a very few executive level officers.

Type of accomodation

Data Analysis - Awareness and perception of Smart Homes

Smart Home technology in the Dubai region has been around for quite a while now with a large number of home automation players operating in the region. In-spite of this, the awareness quotient for smart homes wasn’t very impressive with only 47% responding positively when asked if they were aware of the technology.

Awareness and perception of smart homes

Based on secondary research, it was identified that Smart Homes are typically systems which have complete integrated solutions rather than just having individual automations of either entertainment, HVAC, curtains etc. Based on the data we collected, only 16% perceived of this technology as a completely integrated solution whereas the rest were either not aware of this technology (as seen above) or thought it to be more like an automation system.

Data Analysis - Acceptance of Smart homes

Of the 105 respondents that were surveyed, only 25% had some form of automation in their homes. This shows that the concept is still not common in the region despite some market players offering the best of solutions. Even out of the 50% who were aware of Smart Homes, only about half had it installed. This indicates to the fact that there is some kind of a hindrance in letting people go for this technology.

smart home customer statistics

When asked if the respondents were willing to adopt the smart home technology at their homes, we see that only 33% outrightly refused. 6% of the respondents had no doubt in their mind and wanted to go for a Smart Home solution. Rest of them, about 60%, either had some kind of a solution installed or said they’ll consider adopting it if appraised of its benefits, and given a proper demonstration. This shows that generally people are not averse to this technology and are likely to adopt it if made aware of the same.

Willingness to buy

We then tried to find out what inhibits people from adopting Smart Home solutions. The top two reasons that people cited were their tenancy status and the high installation and maintenance costs. Since all smart home providers currently have a one-time fixed charge, people who are staying as tenants did not want to incur these high costs. Moreover, these respondents also stated that they were unsure of the maintenance and overhead costs for these systems. If these concerns of the respondents are addressed, a large proportion of those who outrightly refused to adopt the technology could end up adopting these solutions.

Willingness to buy as a function of Nationality and Income

We believe that the willingness to buy a Smart Home solution differs for people from different nationalities and also varies with their income levels.

Willingness Vs. Nationality

Nationality:

We can see that a very high number of Arab nationals responded by saying that they might consider adopting a smart home solution given a proper demonstration of the product and its benefits. Moreover, none of the Arab nationals played down the idea of getting a Smart Home solution. This indicates that Arabs form a high-potential untapped segment for the automation players.

We also see a very high number of westerners saying they had some form of automation in their current homes and were open to exploring solutions which would give them added benefits. This can be attributed to the fact that they are more aware of the Smart Home technology and its benefits, given that these kinds of products had been launched in their respective countries a few years back.

Income:

When we analysed the willingness to buy as a function of incomes of the respondents, we notice an interesting trend with growing incomes.

  • The adoption rate for respondents over the entire income range was fairly constant for those who were willing to adopt the smart home solution upfront.
  • For the respondents who were willing to consider the Smart Home solutions on proper demonstrations, the adoption rate consistently increases with income (35% to 38% to 54%).
  • For respondents who were averse of adopting smart home solutions, their percentage consistently declined with the increase in income range (42% to 34% to 29% to 25%).
Willingness to buy as a function of income

Respondents who were open to adopting smart homes either on personal choice or on getting proper demonstrations were asked for the factors they consider important while selecting a smart home solution.

Factors influencing decision making for adopting smart home solutions

Based on the data, it was found that the respondents perceived the amount of masonry work to be the most important factor when selecting a Smart Home solution. They feel that it would disturb their daily routine and would be very inconvenient. The next two important factors which were very given high importance by the respondents were the ease of use of the solution and the customizability as per their needs. This shows that even though people want to use the latest technologies, but still they would prefer a system that is least complex.

The respondents were then asked to rank various features of a smart home they thought were most important or must haves. Looking at the Dubai region and the weather, it was no surprise to see HVAC to be the most important feature in a smart home solution. Entertainment automation was close second as people preferred to have centralized music/audio and television control.

Factors influencing decision making for adopting smart home solutions

At the same time we see that automation of curtains and blinds was perceived to be the least important by most of the people along with lighting automation which includes mood based lighting, timed lighting, action trigger lighting etc.

The respondents were then asked to choose a favourable payment plan for their smart home solution. The three payment plans that were proposed were:

  • One time Installation and payment
  • Fixed installation amount followed by use based periodic fee
  • Monthly EMI’s for installation and use

A vast majority of the respondents chose the 2nd option, an option that is provided as home automation solutions provided by Telecom companies in a few countries.

preferred payment

When asked whether the respondents would like to go for a solution which is completely integrated and offers all the feature or they would like to customize what they need and get automation to their homes as per their budget and requirements, the bulk of respondents chose to go in for individual automated solutions like security, lighting, HVAC etc.

preferred solution

Data Analysis - Existing owners of Smart Homes

Even though a limited number of existing Smart Home owners responded to the survey, we still managed to draw a few meaningful inferences from the data we got.

We see that most of the smart home owners got their smart homes pre-fitted at their homes either during construction phase or when they bought a new house whereas a much small number of people actually got the smart home solution installed in their residences at a later time, i.e. got it retrofitted. This shows that people are hesitant in getting these solutions retrofitted.

Consumer installations

We then examined the sources where current smart home owners were made aware of their existing smart home solutions. It turns out that word of mouth advertising was the source of awareness for most of the owners. The fact that smart homes are perceived to be a luxury, and thus people get more influenced when getting positive feedbacks from your friends and social circles.

Source of awareness

This was followed by Real Estate brokers and consumer exhibitions / fairs. One interesting fact is that TV/Radio commercials did not contribute at all in spreading awareness which shows that there is a lack of advertisement of these solutions.

The various features that current home owners with smart home solutions have are HVAC and Entertainment automation which was also reflected above in the expectations of prospective owners of these solutions. Contrary to popular belief and comparing with the global trends, Security is not the most popular feature whereas globally it is the single most important automation that people have in their homes.

popular features

The respondents also put across comfort and convenience as the single most important factor when asked about what they thought was the highest benefit of their smart home. ‘Ecological benefits’ was viewed as the second most important factor.

advantages of existing customers

With a lot of furore around the world about global warming, people are getting conscious about the energy they use and their carbon footprint. They are using technologies like Smart Homes to help conserve energy, water and contribute to whatever extent they can.

Data Analysis - Customer Satisfaction with existing Smart Homes:

To understand the customer satisfaction of the existing smart home owners, the respondents were asked to rate their overall experience and also their satisfaction on 6 different parameters. These were regressed against the overall factor to find out which factors contributed to what extent in the overall satisfaction. We achieved a R-square value of 0.64 which shows a decent level of correlation between Overall and parametric satisfactions.

We see that ease of use is the most important factor while taking into account the overall satisfaction but the performance on this factor is as low as 30.8%. Similarly, the next most important factor is Value for money which contributes a healthy 24% to overall satisfaction and performs better at 38.5%.

Satisfaction factors

If we consider the standard industry performance to be about 70%, the current market players are lagging far behind on their performance. Since there are a handful of players, they don’t really care about their performance as far as they have their solution installed.

table
Features desired by exisintg customers

We see that people prefer to have a single unified controlling entity for the entire house to control all the features. This was closely followed by the desire to monitor and control the house remotely via the use of Smartphones and internet.

*DISCLAIMER: The aboe report was of a research project Shifra Smart Homes participated in. This research project is credited to Mr. Nikhil Batra and Mr. Peeush Purohit as part of the Global MBA program at the S P Jain Center of Management.