Skip to Main Content

Strategic Business Insights (SBI) logo

Connected Homes December 2016/January 2017 Viewpoints

Technology Analyst: Michael Gold

2016: The Year in Review

Suppliers made significant progress in developing markets for virtual reality, ultra-high-definition TV sets, and connected speakers that provide access to virtual assistants that recognize speech and control appliances. Unknown adversaries disabled devices and networks by exploiting software bugs and other cybersecurity vulnerabilities, and security researchers demonstrated new vulnerabilities. Home-automation products included several new offerings for food preparation and air-quality monitoring. Audiences continued to increase the range of different network-delivered sources for video, but they appeared also to be increasingly distracted by social networking and generally by mobile platforms. Sections below detail some of these and other top stories concerning commercialization of connected homes during 2016.

Virtual Reality

Full-featured virtual-reality head-mounted displays appeared in retail markets for the first time, namely Facebook's Oculus Rift, HTC's Viv, and Sony's PlayStation VR—three platforms that find use mainly inside homes. Google improved smartphone-based VR by evolving its Cardboard platform, yielding the upholstered Daydream View. The search giant also helped developers create VR models of real-world spaces by releasing a developer-edition Project Tango tablet, which includes a depth camera and evolved location technologies. Microsoft also demonstrated software that will reportedly allow partner companies to introduce a new crop of VR headsets in 2017. The VR market leader was probably Samsung, whose Gear VR (retailers started selling the unit in late November 2015) achieved the milestone of 1 million monthly users. Apparently no other vendor sold as many as 1 million units. Late year forecasts called for between 1 and 2 million VR headsets sold worldwide during 2016. Relatively modest sales performance for virtual reality in and out of homes may have been a result of users being distracted by mobile augmented reality: About half a billion people downloaded a Pokémon Go smartphone app during the year.

Cybersecurity

Many of the top stories in home networking related to cybersecurity risks, and there was no good news. Unknown parties transformed webcams and digital video recorders into rogue cyberweapons, creating vast botnets and ultimately causing service outages in the United States. During September, one such botnet reportedly included 150,000 webcams. Unknown parties used similar software to cause another type of outage by infecting and disabling home-network routers, including some 900,000 in Germany, at least 100,000 in the United Kingdom, and some number in Brazil. Home-automation users were alarmed when security researchers published findings about vulnerabilities in Samsung's SmartThings router and in Comcast's home-security systems, and also about vulnerabilities in ZigBee, one of the most widespread types of wireless connections for home-automation technologies (some developers and other parties knew about the risks before 2016). Door locks and security systems are among the types of ZigBee hardware that are in use, and few if any defenses against the potential attacks against ZigBee were in place by the end of 2016.

Connected Speakers and Virtual Assistants

Large companies promoted conversational computing during 2016, greatly raising awareness of the possibilities for chatting with and talking to computers. By the end of the third quarter of 2016, Amazon's Echo connected-audio device, which features the company's Alexa speech-recognition assistant, surpassed cumulative sales of 5 million units since the product was released during late 2014, according to a survey by Consumer Intelligence Research Partners. Analysts and product reviewers expected very brisk sales for the 2016 year-end holidays. Echo gradually gained various new abilities to control third-party services during 2016, for example enabling users to arrange transportation using Uber by speech recognition rather than touch-screen interface. Google introduced a competing unit, Google Home, which (unlike Amazon's product) supports speech-controlled ability to route audio to multiple units in multiple rooms. Google also updated its speech software, which it now calls Google Assistant, to offer limited support for a back-and-forth style of conversational communication. For example, a Google Assistant user can ask for a reservation at a specific restaurant, and the Assistant can ask clarifying questions, such as "what time?" Various companies exhibited concept products or were rumored to be working on products that would compete against Amazon and Google, as detailed below under "Look for These Developments in 2017."

Progress for Ultra-High-Definition TV

Households greatly increased purchases of 4K TV sets. According to a November 2016 forecast, the Consumer Technology Association expected that relative to 2015, 2016 sales of 4K TV sets in the United States would rise 40%, to about 10 million units—nearly half of all TV sets sold nationwide. Manufacturers introduced many models of 4K sets that render an enhanced range of colors and improved contrast relative to conventional TV sets. Some models merely accepted the new color formats but lacked capability to deliver improved pictures, creating market confusion; other models presented noticeably better and brighter pictures. All major video-streaming services offered limited libraries of 4K content, and a new 4K-only streaming service, Love Nature, launched in 32 countries. However, the great majority of recent major motion pictures remained unavailable in 4K formats, and only a minority of titles exercised the new sets' enhanced color capabilities.

The Evolving Audience

Other developments during 2016 largely confirmed long-standing trends. A preliminary study by Nielsen seems to suggest a declining quality of attention paid to TV programming because of audience use of mobile devices while watching video. A study by the advertising agency Anatomy indicated that about two-thirds of "young millennials" (age 18–24) in the United States used both ad-blocking software and various means to pirate video, noting that the ad-blockers were remarkably effective for avoiding video ads. In another study, eMarketer reported double-digit growth in use of ad-blocking software. Regarding the so-called cord-cutter phenomenon, the vast majority of US households continued to subscribe to both pay-multichannel and fixed-broadband data services. The aggregate number of US households that subscribe to conventional pay-TV services (multichannel video distribution services, as distinct from streaming services) from cable, fiber, satellite, or other sources dropped slightly. But there were still more pay-TV subscribers than the aggregate number of households that used broadband cable, DSL, or satellite modems. Most Netflix users continued to live in households that also have conventional pay TV. And most users of Amazon Prime and of Hulu (the latter discontinued the free version of its service during 2016) continued to use Netflix as well.

Connected-Products Developments

Logitech overhauled the software for its Harmony Hub wireless router, which now lets users control TV channels, sound levels, lights, and appliances from the user's choice of a handheld remote control or a smartphone app. Start-up Ring, which makes a connected doorbell and video camera for exterior use, raised more than $60 million in venture capital investments. Barbecue grill maker Weber acquired iDevices' iGrill brand and product line of wireless thermometers, part of a trend that favored greatly increased availability of connected food-preparation appliances, including connected tea makers and coffeemakers, weight scales for food preparation, and several wireless thermometers for preparing sous vide dishes. And following on a trend that started in 2015, by the end of 2016 more than a dozen companies were selling connected indoor air-quality sensors, and at least four companies, one of which was acquired by Unilever, were selling connected air-purification filters. Also, at least two companies reported working on development of connected doghouses.

What Did Not Happen in 2016

Companies did not provide consistent support for the Internet of Things. Inexplicably, Nest Labs (Google acquired the company in 2014) failed to expand or substantially improve its product line during 2016, and moreover, the company permanently disabled its customers' Revolv home-automation controllers. Nest founder and CEO Tony Fadell resigned (Fadell was also one of the key designers of Apple's original iPod). Samsung did not introduce TV sets integrated with the company's SmartThings hub as promised in early 2016. Announcements left TV buyers uncertain whether the sets would ever appear or if Samsung would pursue an alternative road map that would rely on user-installable USB peripherals. The US communications regulator announced its intention to force pay-TV services to publish electronic program guides, which would have helped users search across multiple services to find desired content; but last-mile services objected, and the regulator apparently abandoned the planned rulemaking.

Look for These Developments in 2017

Augmented Reality

Smartphone-based AR applications like Pokémon Go could steal thunder from wearable AR. But developers of wearables are likely to demonstrate progress and clarify future directions during 2017. For such developers, indoor use cases will remain the norm because of the challenges of integrating mobile wearable AR. In 2016, Microsoft released a developer kit for its HoloLens wearable, which connects via Wi-Fi and thus emphasizes home and office applications. And a video demonstration of Magic Leap's hardware depicted a home office that doesn't need a computer monitor because images can appear on any convenient surface. (Magic Leap's other major demonstration video appeared in 2015 and also depicted indoor applications.) Events during 2017 could reveal the types of applications that HoloLens developers are concentrating on (for example, games, socializing, productivity, learning, and so on); whether developers can look to Magic Leap or another promising new platform for augmenting the entire visual field (HoloLens augmentations tend to reside near the center of the lens); and whether the AR-development community will continue to anticipate a need to develop indoor markets before overcoming the challenges of mobile integration.

Next-Generation Virtual Assistants

Watch for new products that are based on or inspired by concept products that appeared at trade shows in 2016, along with leaks and rumors that appeared in news media. The success of Amazon's Echo product line promises to inspire a great deal of additional competition beyond Google Home (which appeared in late 2016). Samsung demonstrated a concept product that had limited speech abilities but included a camera with pan-tilt-zoom capability. Samsung also acquired Viv Labs, likely ensuring an improved speech platform for a range of products that serve as channels for virtual assistants. Sony demonstrated a range of concept appliances, indicating that the company might produce virtual-assistant appliances with some combination of speech recognition, gesture recognition, cameras, flat-panel displays, and downward-facing tabletop video projectors. Sony is apparently developing its own speech software. Camera assemblies on both Samsung and Sony concept products resemble robot heads; although demonstration units had fixed bases and required AC power, imaginable products might revolve in a specified direction to let a user participate in a video call from any position in a room. Also, other rumors or leaks hold that Apple is working on a Siri appliance for homes; Microsoft will use Windows 10 tablets and PCs to deliver benefits similar to those of Amazon and Google connected appliances; and Amazon continues to develop new virtual-assistant appliances, including one that contains a touch screen. Also, late in 2016, Japan-based startup Gatebox started taking orders for late-2017 delivery of a $2500 virtual-assistant appliance that includes a pseudo-holographic animated display of a female cartoon-character "robot." Gatebox's plan seems fanciful but other suppliers might well animate their virtual assistants.

Business Ecosystems for Virtual Assistants

Watch for the growth of new business ecosystems that revolve around speech interfaces that Amazon, Apple, Google, and Samsung control. Amazon has succeeded with a business model that recruits diverse companies to connect to and improve its Alexa speech assistant, for example to order local food, rides, and other services. But Viv Labs and its founders had been promoting the same idea for some years. Samsung's October announcement of its acquisition of Viv Labs endorsed the idea of third-party development and partnerships for a "broader service ecosystem." Also during October, Google announced that third parties would be able to integrate services with Google Assistant. Apple also opened Siri to third-party development during 2016. Watch for expedited ways for businesses to integrate their own operations with new smartphones, appliances, and web services from Amazon, Google, and Samsung. Diverse retailers that compete with Amazon might enable speech-activated e-commerce using Google Assistant during 2016. Also, watch to see what steps speech-platform owners take to avoid potential security problems and deter pranks (use of speech to generate spurious e-commerce transactions, disable security alarms, or tamper with connected appliances).

Robots in the Home

A number of companies hope to release social robots in 2017 that will interact with people at home or accompany individuals through their day. Such domestic robots will not help with household chores but will instead provide entertainment and companionship. Examples of such robots include Asus' Zenbo, AvatarMind's iPal, InGen Dynamics' Aido, and Nippon Telegraph and Telephone's Sota. Digital personal assistants such as Amazon's Alexa, Microsoft's Cortana, and Google's Assistant are becoming increasingly capable but are currently embedded in smartphones, laptops, and speakers. Robots may provide physical bodies for such virtual assistants to better connect and assist users. As indicated above, some prototype appliances for virtual assistants have pan-tilt-zoom cameras that are designed to resemble robot heads and that could in theory facilitate hands-free videoconferencing by tracking a user who resides in any position in a room.

A Megamerger in the Making

The outcome of AT&T's intended merger with Time Warner is highly uncertain, but regulators have approved similar vertical integration efforts before, notably Comcast's merger with NBC Universal, which played out during 2009–13. Time Warner is one of the five largest entertainment studios in the world, and its iconic media properties include CNN, HBO, Turner Broadcasting System, Cartoon Network, and Warner Bros. Entertainment. A megamerger would likely disadvantage medium-size and independent studios, because two of their largest distribution partners (Comcast and AT&T) would also be their competitors (in NBC Universal and Time Warner, respectively). Generally, AT&T's enhanced market power would translate into reduced market power for competitors, program suppliers, and possibly AT&T customers.

A Possible East–West Trade War

As of late 2016, the president-elect of the United States had signaled a "get tough" policy on China that left open the possibility of a trade war starting in 2017. The incoming administration is apparently considering the imposition of a 45% tariff on goods from that nation to stimulate US manufacturing activity. If it materializes, such a tariff would have very large effects on the supply and demand of connected goods.