The Connected Home is Where the Heart Is
The connected home market hasn’t come to fruition the way many originally anticipated it would. The utopian view of an alarm clock waking you up to a pre-warmed bathroom and a fresh brewed cup of coffee ready for you as you step out of the shower hasn’t come to fruition. Instead, to date, we have siloed smart devices that make certain experiences within our home better but the home has yet to be “seamlessly connected” in the way we previously envisioned.
However, we at Sway Ventures believe there is reason to be optimistic about the future of the Connected Home. As we have seen time again in the tech industry, we tend to overestimate what will occur in the near term, but drastically underestimate the impact in the long run. The development of AI and voice as a platform very well could prove to be the glue that makes this all work. Developing vertically integrated hardware products is something that is very difficult to do, the skillset typically requires more experience, and it requires a lot more capital than pure software companies. Part of what we love about investing in this space is it is such a hard technical problem to solve.
We as a firm continue to evolve our thesis on the connected home. As part of that, one thing has proven to be true, having a focused, well designed product that solves a specific problem within the home is a far better way to build a company rather than a more horizontal approach to the home. It is our view that while it will be hard for any startup to compete in the automation layer for the connected home, we expect to see more large companies built through integrating hardware and software to solve different pain points. Point solutions will continue to be the path in which the next successful consumer products in the home are built while Amazon, Google, and Apple battle it out for the voice interaction platform that sits on top of all these point solutions.
And we aren’t alone in this thinking. We’ve talked with numerous other friends and investors including Rob Coneybeer from Shasta Ventures who invested in Nest and further agrees that “point solutions in the home are likely to remain in silos. Even if they interact, they are their own solution serving their own function.” Josh Elman and Greylock Partners have made great investments in this space as well with a recent announcement around Otto. “We believe that over the next decade, our homes will become as digital and connected as our phones are now.”
Today, many of the major problems in the house are already solved by specific products including Nest (thermostat), Ring (doorbell), August and Otto (locks), Eero (connectivity), and Eight* (sleep). And while many of the opportunities in the home have been addressed, there are still a few more we are excited about re-imagining. More on that in future posts.
After a number of years of not living up to its potential, we think now is the time the connected home market is poised to take off. With the continued adoption of products such as Nest, Ring, Eero, and others, Markets and Markets research expects the global smart home market to reach $137.91 Billion by 2023, growing at a CAGR of 13.61% between now and then**. The increase demand for convenience, the lower barrier to distribution by going direct to consumer, along with the growing familiarity of digital devices in general continue to fuel this category.
What will be most interesting to watch in the coming years is the continued M&A activity. As Amazon, Google, and Apple battle for supremacy in our living room, we anticipate continued acquisitions in this space. Google’s 2014 acquisition of Nest for $3.2 billion and the long rumored interest that Apple has in acquiring Sonos proves that these technology companies view the home as a major future revenue stream. Don’t be surprised if there are a few more large acquisitions in the coming years.
At Sway we are excited about the future of the home. We all spend significant time at home and we believe that it should be just as an amazing experience as using a smartphone or riding in a Tesla. We look forward to continuing to partner with entrepreneurs who are just as excited as we are about reimagining what the home could be.