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Industry Insider: Why H.A. Manufacturers Fail

03.01.2006 — Did you see this press release: "[XYZ Company] Launches Industry’s First Affordable Home Automation System for Mid-market"?

Or are you just confused because you’ve seen a dozen more claims just like it in the past week?

Unfortunately, if history is anything to go by, it seems the startup is doomed to fail. In the 12 years I’ve been covering this industry, only two or three automation startups have succeeded in North America—at least according to my barometer, which is two years of unqualified success with a strong indication of future viability.

Yet hundreds have tried. Why do virtually all new H.A. manufacturers fail?


Too many features

Almost all of today’s successful automation vendors started with systems that did one thing really well—lighting, security or A/V, for example—and then slowly added new features to their products, once a trusting base of dealers was established. Today, newcomers try to offer too many features at once, making their products costlier to roll out, and riskier for dealers to employ.


Software-only models

How many times have we heard it: "We’re a software company. We’re hardware-agnostic. The dealer should be able to select the hardware of their choice." Bad recipe! The fact is, regardless of how "standards-based" your automation software is, it will work with some pieces of hardware better than others. Integrators don’t want to mess around with finding and testing all of the components that work best with a piece of software. Like their customers, integrators want a complete solution.


Misguided recurring revenue plans

Shell Homegenie was one of the more visible flops. But several other companies like Shell have based their business models on recurring revenue (a good idea) without letting installers in on the action (a bad idea).

In the security business, dealers get the overwhelming majority of recurring revenue, which encourages them to buy lots of product at full price, and discount it for their customers. The security manufacturer wins! On the other hand, H.A. manufacturers think they’re giving dealers a good deal when they offer 2 percent of the monthly take. I don’t think so.


All IP

Internet protocols are nice to incorporate into an automation system, but folks from the PC industry erroneously assume that TCP/IP is the best and only standard for whole-house communications and control. All you need are run-of-the-mill IP adapters to connect legacy components to the whole-house network, they say.Who do they think is going to write the drivers? And, by the way, IP is a poor protocol for distributing audio and video throughout the house. Furthermore, WiFi is a poor vehicle for controlling components. It takes too long to wake up and connect.


Money

Ultimately, H.A. vendors fail because they simply run out of money. It’s an expensive proposition. Forget about trying to design, create, beta-test, manufacture and ship product. It takes about two years to gain a following among home systems integrators. It takes a lot of money to generate awareness, get discounted products into dealers’ hands, set up training, and establish sales and tech-support departments. Regardless of how good the product is, most startup manufacturers cannot commit to a two-year sales cycle.



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Comments

Posted by eloy paris  on  07/09  at  02:12 PM

Hi Julie,

I disagree with the “All IP” point - these days everything is networked, and the predominant protocol is IP. In my opinion the world would be a much better place if we didn’t have all these different protocols (X10, Z-Wave, etc.) competing and fighting for supremacy and instead we’d have a single, open protocol on top of TCP/IP. I do understand that embedding a TCP/IP stack on a small device is a lot harder than embedding a X10, Z-Wave, etc. stack. However, I do believe that is the direction things should go, if technically feasible.

Today you must use TCP/IP to transmit multimedia data, and this will not change. You say “IP is a poor protocol for distributing audio and video throughout the house”. In my opinion your are wrong on this point - just look at what most people use these days: digital TV, voice over IP, personal video recorders like TiVo/MythTV/Windows Media Center, etc. Everything using the a TCP/IP infrastructure. Why not take this one step further and use TCP/IP to talk to your sensors and actuators as well instead of using yet another control protocol? This is what protocol convergence is all about. Let’s just look at how successful the Internet has been.

You say “folks from the PC industry erroneously assume that TCP/IP is the best and only standard for whole-house communications and control”. My experience has actually been very contrary to this - I’ve seen support for lots of different things (X10, Z-Wave, etc.) but *not* TCP/IP. I am actually looking for TCP/IP-based solutions since my house is completely wired for TCP/IP on top of Ethernet so if you could share some links to “folks from the PC industry” that offer TCP/IP-based solution I’d be grateful.

Finally, my prediction is that companies that offer end-to-end solutions to home automation and services based on TCP/IP are the ones that will survive in the long term. Someone needs to integrate everything that is out there (voice, video, control) and to me the logical glue to use is TCP/IP.

Cheers,

Eloy.-

Posted by I know more than Eloy  on  07/09  at  03:45 PM

Eloy,

A little late on that one bud.  That was from 2006.  What have you been doing?  Trying to get your TCP/IP convergence to work properly...Hmmm

Posted by IkmtE is smarter than me  on  07/09  at  09:12 PM

Yeah, definitely late. I just read the article above today, though. It was mentioned in the Smart Home Blog a couple of weeks ago (http://smart-home-blog.com/archives/661), and I was surprised to read the negative comment about IP. Hence my comment here.

I am curious to know if, more than a year later, Julie Jacobson still thinks that HA vendors that embrace TCP/IP are bound to fail, and whether she still thinks that TCP/IP is a bad choice for distributing voice and video wink

Posted by Julie Jacobson  on  07/10  at  06:07 AM

It is never too late. Thank you for your comments. I started to reply, then realized I was writing more the history of IP-based home automation, rather than a mere comment.

So if you can please be patient, I will respond to all of your questions in an illustrated mini-novella later today.

Thank you for your very good questions. I received some flak even back then, but I think my notions about IP-based home automation in early 2006 (that editorial would have been written 1/2006) will make sense with some further explanations.

Thanks for your patience.

Posted by Julie Jacobson  on  07/10  at  02:39 PM
Posted by Jim Hayes  on  07/11  at  12:06 AM

I focused on this topic in a recent article I wrote and I have a different analysis.
1. There needs to be more focus on what people want and will use.
2. A fully integrated system is needed from one vendor and installed by one group to ensure compatibility.

You may be interested in what I wrote in the end of the article. It’s based on what I want and bet others do too.

Personally, I wonder why I can carry a remote in my pocket that locks or unlocks, turns on the lights, opens windows and even starts a $20,000 car but don’t get a similar device for a $500,000 house! And that same car has dozens of microprocessors connected on networks to monitor the auto’s engine and transmission, braking, and performance to optimize energy use and reduce pollution. It even already has wiring installed that allows adding or upgrading sound and video systems, navigation systems and built-in cell phones.
Certainly cars are mass produced and the design is controlled by one company, but the components come from numerous suppliers. Could the same idea apply to houses, if a standard design were agreed upon by the industries involved? With the US alone building one million new homes (+ MDUs) each year, the market for such electronic integration is enormous. But standardizing on anything requires more cooperation than one often sees in industry, witness the replay of the “Beta vs. VHS” battle of two decades ago with today’s “BluRay vs.HD-DVD” fight!

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