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Connected Homes December 2015/January 2016 Viewpoints

Technology Analyst: Kyle M. Whitman

2015: The Year in Review

More people than ever before appeared to be trading their fixed-line broadband connections in for mobile ones in 2015: Fixed-line broadband penetration growth began declining globally and in some major markets—including the United States—while flattening out in most other major markets. Online streaming-video services multiplied, capitalizing on hypothetical new markets of young people who have never known anything but streaming video, and have multiplied even in the face of looming business changes that could threaten streaming-service growth severely. And home automation had another mediocre year overall, except one major new player, for which 2015 proved to be positively awful. The paragraphs following detail some of these and other stories that emerged from connected-home developments during 2015.

Broadband Connectivity

Various reports during 2015 appeared to show that fixed-line home-broadband-penetration growth had entered a plateau phase in markets throughout the world. In the United States, a 2015 Pew Research Center survey actually showed a slight decline in fixed-line home-broadband use: Only 67% of surveyed US adults reported being fixed-line home-broadband users, down from 70% in 2013. In the same survey, some 13% of US adults reported that they used smartphones only for all their personal broadband-connectivity needs, up from 8% in 2013. In July 2015, the Organisation for Economic Co-operation and Development (OECD), released its latest broadband survey results covering its member nations through the end of 2014. Those survey results showed that fixed-line broadband-penetration growth was continuing to flatten out among OECD countries, and some nations, such as Japan and Italy, continued to show little to no significant penetration growth. Wireless broadband penetration simultaneously showed significant increases in OECD countries. According to World Bank statistics during 2015, worldwide fixed-line broadband subscriptions had declined from 10 per 100 people to 9.6 per 100 people. The World Bank does not yet track mobile broadband subscriptions, but a report from the International Telecommunications Union claimed that global mobile broadband penetration reached 47% in 2015 (the same report claimed that fixed-line broadband penetration grew globally by 7% from 2013 to 2015).

It seems self-evident that as fixed-lined broadband penetration declines (seemingly in favor of mobile broadband use at home), connected-home applications will suffer. But not all connected-home applications depend on broadband connectivity. The first home-automation systems predated broadband by decades, and even today, many of the most elaborate home-automation installations depend on broadband connectivity only minimally or not at all. Certainly, wide-area connectivity helps make many kinds of home-automation applications much more useful—particularly applications involving home energy management and home security. But markets for such advanced applications are vastly smaller than existing fixed-line broadband markets; thus, even if those markets continue to have flat or declining growth, advanced home automation still has plenty of room to continue to grow. Conversely, the market for online video streaming already is very large and is continuing to grow, and online video streaming absolutely depends upon fast and reliable home broadband connectivity. Mobile broadband providers generally sell metered connections only, which means that irrespective of connection speed and quality, a user is strictly limited in how much data the user can consume each month before incurring expensive overage charges. Thus, the kind of "binge" consumption of vast amounts of streaming video that is so popular among home video-streaming service users is prohibitively expensive—or impossible outright—for a typical mobile user.

Streaming-Video Services

Currently, streaming-video services are driving major developments in both hardware and service markets. Television makers have been aggressively marketing "4K" sets that can display content with a resolution of up to 3840 x 2160 pixels, and prices have come down to the point at which most midpriced—and even some budget-priced—sets offer 4K capability. As of the end of 2015, streaming-video services were among the only major sources of 4K content; Netflix, for example, produced and streamed new episodes of much of its original programming in 4K, and pay-TV providers likewise used their own in-house streaming services to deliver 4K content (mainly select movie titles) to customers. Some pay-TV providers are slowly beginning to roll out broadcast support for 4K (satellite provider DirecTV, for example, plans to begin some 4K live broadcasts in 2016), but meanwhile, TV manufacturers are already beginning to debut 8K sets with support for up to 7680 x 4320 resolution—some 16 times as many pixels per frame as in conventional high-definition video. When 8K content does become available, streaming-video services will again likely be the first major distribution channels for such content.

Streaming-video services have also become a major disruptive force in the conventional pay-TV industry, to the extent that content producers have moved away from a long-standing practice of trying to limit access to their content on streaming services and toward offering their content on such services—or offering streaming services of their own. For example, in March 2015, HBO began offering a streaming service—HBO Now—that allows users to stream HBO's content library (including current and past episodes of its original shows). Previously, HBO content was available for streaming legally only if one also had a pay-TV subscription that included HBO (that service, HBO Go, is still active). Conventional broadcasters and pay-TV providers have other reasons to fear streaming services, including the phenomenon of cord nevers, a term that first appeared in a 2011 Los Angeles Times article describing children who were growing up having never had exposure to conventional television, instead receiving all their TV-media content via streaming video services. The existence and nature of such individuals remains mysterious. A 2015 survey from Forrester Research defined cord nevers as "people who have never subscribed to a traditional pay-TV service" and found that some 7% of US adults ages 18 to 31 fit that definition. Although the survey appeared not to address why these individuals did not come from pay-TV households, the 7% figure was nonetheless larger than the number of cord cutters—people who used to subscribe to pay-TV but have since canceled the service—in the overall US population. Whatever the truth may be, conventional media companies do not like the idea of losing viewers—particularly young viewers—to streaming services, where many aspects of conventional television business models (such as advertising support) do not easily apply.

Connection Metering

Perhaps not coincidentally, Comcast, the largest pay-TV provider (and largest fixed-line broadband provider) in the United States began experimenting with metered access in several test markets during 2015. Metered fixed-line broadband access has long been commonplace in many major markets around the world, and streaming-video providers have indeed had difficulty in entering markets (such as Australia and many parts of Canada) where metering is particularly strict. In those markets, streaming providers generally provide lower-quality streams by default, reducing video quality to far below what is available from a pay-TV provider. This inferiority obviously deters some adoption but also deters streaming services from offering 4K streams and similar high-quality offerings in such markets (because a majority of users would be unwilling to accept the data transfer necessary for the stream). Comcast has attempted unsuccessfully to introduce monthly data-transfer caps (a form of metered access), and its current effort is once again garnering criticism among network-neutrality advocates, who are particularly troubled by Comcast's decision to exclude its own streaming services from metered access. Many other pay-TV providers who also provide fixed-line broadband services are likewise choosing to exempt their own streaming services (and those of business partners) from metered access—a fact that can induce people to prefer those services over competing services that are subject to metering. Such practices, which analysts often call "zero rating," are also becoming common in the mobile broadband industry. Although such practices do not constitute traffic discrimination per se, they nevertheless arguably violate principles of network neutrality, and consequently, jurisdictions including Chile, Slovenia, and the Netherlands have instituted various bans on zero-rating practices.

The year 2015 was somewhat of a troubled year for home automation. Despite a significantly greater presence at retail stores and the wide availability of new solutions to make home automation easier for normal people to use, once again no indications were that home automation had broken into the mainstream during 2015. Samsung and Apple, both of which had announced new home-automation ecosystems during the previous year, were both slow in introducing those ecosystems to the public. Samsung, which had purchased home-automation company SmartThings in 2014 and had made the company's products a key part of its own home-automation plans, delayed introduction of the second-generation SmartThings home-automation hub device until September 2015. Despite the delay, the device reportedly worked poorly upon release and did not offer the easy cross-ecosystem compatibility that SmartThings had promised. Instead, as they did with virtually all home-automation controllers before it, users had to expend considerable time and energy in configuring and troubleshooting the new SmartThings hub to make it work with their devices. Apple, meanwhile, barely developed its HomeKit home-automation ecosystem in 2015. HomeKit uses an iPhone as a combined user interface and control hub for home-automation peripherals, which Apple must certify before manufacturers can advertise HomeKit compatibility. As of the beginning of 2016, only a handful of vendors and devices appeared on Apple's list of supported peripherals.

Greater misfortune befell users of the Wink hub, Quirky's low-cost home-automation control device that had acquired a good reputation for its unusually high level of peripheral support and ease of use. Despite enjoying relatively good sales figures, in March 2015, Quirky had begun soliciting acquisition offers; the company reportedly had trouble servicing its sizable outstanding debt obligations and urgently needed to raise capital. Less than two months later, a flawed firmware update that installed automatically on broadband-connected Wink hubs rendered all those hubs unusable. Quirky claimed that a subsequent remote update, delivered later that same day, had fixed the problem on "a majority" of hubs, but conceded that an undisclosed number of hubs—perhaps 100,000 or more—would need a return to Quirky for a replacement. Users with such "bricked" hubs also received offers of a $50 voucher for Wink software and hardware. Following the debacle, many users lost confidence in the Wink hub, and negative online reviews and forum chatter began to crowd out formerly positive impressions. In combination with the capital problems, the costs associated with the flawed update doomed Quirky, which filed for bankruptcy in September 2015. Together with announcing the bankruptcy filing, Quirky announced that Flextronics, the contract manufacturer that assembled Wink hardware and Quirky's largest unsecured creditor, would be acquiring the Wink hardware and software business for about half of what Quirky had been seeking originally. In a separate press release, Flextronics announced that it would allow Wink to continue under its existing management structure for the indefinite future but that it would also seek to "leverage Wink's platform" in helping to grow its own branded "Intelligence of Things" ecosystem. As of early 2016, details about what this planned ecosystem will look like or how Wink will fit into it remain nonexistent.

Not all home-automation developments during 2015 were negative. Google, which has been struggling for years to break into the home-automation market with little success, released a new version of its Chromecast media player optimized for audio, not video, playback. The $35 device—Chromecast Audio—essentially acts as a bridge between a Wi-Fi network and an audio system by way of a combined RCA and S/PDIF port, thereby ensuring compatibility with virtually all home-audio gear. Like Apple's AirPlay, Chromecast Audio offers significantly longer range and much higher-fidelity audio than is possible via Bluetooth wireless connectivity, but Chromecast Audio also includes the ability to stream music at higher bit rates than AirPlay can and is compatible with a much larger number of devices (AirPlay support is limited mainly to Apple products or products that Apple has licensed). Users report very high satisfaction with the audio version, as they do with Google's first Chromecast. Google also released a home broadband router and Wi-Fi access-point device that includes latent support for home-automation control (see the September 2015 Viewpoints for details). Also during 2015, Amazon added support for several new home-automation product and service ecosystems to its Amazon Echo device, which allows a home user to perform a wide variety of actions via speaking with a cloud-based AI. Among other offerings, Echo added support for IFTTT (which integrates many devices and services via user-configurable automation scripts), Belkin WeMo, Philips Hue, and various Wink-compatible bulbs and switches. And in October 2015, Logitech released a new peripheral for its popular Harmony Hub device that expands device support to include ZigBee and Z-Wave products from a variety of manufacturers.

Look for These Developments in 2016

  • Expect considerable debate in some markets, particularly the United States and the European Union, about broadband metering and zero-rating practices for both fixed-line and mobile connections. Paragraphs above explain how such practices can create a competitive disadvantage for some streaming-media companies and favor incumbent pay-TV providers, who may have less motivation to offer new types of services (such as 4K or 8K streaming) than independent streaming-media companies have. Additionally, individuals who are not interested in conventional pay TV may have less of a reason to pay for a fixed-line broadband connection if that connection can no longer support high-quality video streaming sufficiently. Thus, more individuals may switch to being mobile only for their home broadband needs, which will in turn make it more difficult for connected-home stakeholders to offer certain kinds of services that depend on fixed-line broadband connections.
  • Expect virtual reality (VR) finally to have its mass-market debut, with uncertain consequences. After years of delay, Oculus VR is finally set to release its first consumer-grade VR headset in 2016. The company announced that the device would become available in the first quarter of 2016 at a price of about $600. The inclusion of a price and public demonstrations of near-final hardware appear to make this release-date announcement much more credible than previous ones have been, although it is possible—perhaps likely—that Oculus will end up releasing the headset later in the year than it planned. Sony has also announced that it will release its VR headset—PlayStation VR—in 2016, and Valve Software has done likewise for its headset, which the company has codeveloped with HTC. Among these releases, Oculus has the lead in terms of hardware and software quality, as well as the list of game titles, nongaming VR software, and VR video that is ready for immediate use on the device, considering that versions of Oculus VR have been available to developers for so many years (allowing ample time to prepare and refine content for use on the final device). But Oculus VR is coming to market at a very high price point, not merely for the VR headset itself but also for the high-end gaming PC necessary to run it. Sony's product promises much greater accessibility, given how much cheaper a PlayStation 4 console is compared to a gaming PC, as well as because a new PlayStation VR user need not have the technical knowledge and patience necessary to configure the device for use (as will be necessary for using Oculus VR on a gaming PC). Regardless of which company releases what hardware when, VR is very unlikely to become a mass-market hit in 2016.
  • Do not expect 2016 to be the year during which home automation finally breaks into the mainstream. On the contrary, expect many stakeholders to scale back involvement in the home-automation market, which now appears to be in the declining phase of a recent hype cycle. Physical retailers in particular may reduce floor space and reassign personnel allocated to home-automation gear, reversing a relatively short-lived trend that likely peaked early in 2015. Likewise, investors were already showing signs of wariness of home-automation companies in early 2015, and such trends are all but certain to continue through the end of 2016 and possibly beyond. Of course, it is always possible that an unexpected development may revive the home-automation market and fuel another hype cycle. Possible sources for such developments could include Google's and Apple's mobile operating-system-upgrade announcements (which generally occur in May and June, respectively).