Smart locks: a market overview. A Cleantech Report by Adam Lesser

Transcription

1 A Cleantech Report by Adam Lesser

2 12/19/2014 Table of Contents 1. Executive Summary 2. The advantages and risks of smart locks 3. Differentiating technologies 4. Market possibilities 5. Key takeaways 6. About Adam Lesser 7. About Gigaom Research 8. Copyright 2

3 1 Executive Summary The rise of the smart home over the last few years can be attributed to a number of emerging devices. Besides the connected thermostat with Nest as the obvious breakout success here a large number of other home appliances have been targeted for connectivity. Garage doors, lighting, water heaters, and wall plugs all factor into this conversation. Then there s the development of platforms/hubs like SmartThings and Lowe s Iris that provide a gateway for connecting a diverse range of devices. The most promising offering among all of these over the next couple years will be security and smart locks. Nest s June 2014 acquisition of cloud-surveillance provider Dropcam was another vote of confidence to this area. Meanwhile, the leading home automation and monitoring company in the U.S. is a security company: ADT, which is itself eying strategic investments in the smart home. Smart door locks are not an entirely new industry. We ve seen attempts to innovate the traditional lock and key with numerical keypad locks. But the ubiquity of smartphones and lowpower communications protocols, along with improved technologies related to geo-locating an individual, have created a new opportunity to present a user experience that is preferable to the 1,000-year-old lock and key. In addition, consumer behavior has continued to shift toward wanting all functionality absorbed into the smartphone, a trend most recently exemplified by the introduction of Apple Pay. This report examines the nascent smart-lock market, its potential end markets, and the differentiating factors involved in the technology. Thumbnail image courtesy of Maxiphoto/iStock. 3

4 2 The advantages and risks of smart locks The smart-lock market is at an inflection point, largely because of broader technological trends that have enabled the entire smart-home market. The most important factor, however, is smartphone penetration, which is expected to reach domestic saturation points in the next 24 to 36 months. Declining costs of cloud infrastructure and ubiquitous mobile broadband have also aided in allowing users to easily remotely monitor and control any device, be it a smart lock or a smart thermostat. Finally, analytics capabilities, both locally and in the cloud are reaching a point of market acceptance. In evaluating the potential value proposition of a smart lock for a consumer, a number of factors come into play. Advantages EKeys. Smart locks allow users to grant others access to their locks, directly from their phones. This has obvious application in terms of allowing service repairmen, houseguests, dog walkers, and friends to easily access one s house without having to make a set of keys. Most smart locks allow for one-time access or scheduled access. This has special value for customers like Airbnb hosts who are frequently giving lots of different people access to their homes for scheduled amounts of time. Convenience. There is an undeniable convenience of being able to walk up to a door and have it automatically unlock without having to reach for one s keys. It also makes quick trips (going for a run) outside of one s apartment key-free adventures, particularly in urban car-free households where keys aren t otherwise needed. Locksmith avoidance. In the world of smartphone-controlled smart locks, the equivalent of losing one s keys is losing one s phone (or having the battery die). Many smart-lock providers allow users to log into their account by downloading the app on another s phone and authenticating that phone. Borrowing a phone from a friend or neighbor when one has lost their keys should prove to be a simpler and cheaper solution than calling a locksmith. It also eliminates the need to replace locks or rekey to block access, a typical scenario that occurs with lost keys. Challenges Market perceptions around the phone. One of the key challenges for smart-lock providers is the issue of one s phone potentially dying. In addition to authenticating another phone, almost 4

5 all smart locks allow for analog key access, so in the event of a dead phone a physical key still works. Kevo, made by Unikey and Kwikset, is an example of such an offering. Still, this issue will have to be addressed from a marketing perspective and will require some consumer education and general comfort with new electronics devices, which can take time. Market perceptions around security. Because phones and back end clouds can be hacked, there remain real and perceived security risks related to smart locks. At the early stages of the market, it will be critical for startups to invest heavily in security since the headline and publicity risk is largest in the early market. One negative story could set back the market significantly. Once the market is more established, however, the public will likely be much more reasonable in assessing the realistic risks of having their smart-lock accounts hacked and their homes broken into. To put it another way, the public still uses ecommerce and Apple s icloud despite evidence that they aren t always secure, mostly because they are now accustomed to using them. Batteries required/power usage. Smart locks require batteries typically 4 AA batteries to power Bluetooth low-energy chips that are passively communicating with phones. These batteries last 6 to 12 months and most smart-lock developers have been diligent in having their apps send notifications prior to battery failure. Still it s a small layer of complexity that is added to entering one s home that did not previously exist. 5

6 3 Differentiating technologies The early smart lock market is populated by a number of players including Kevo, August, Lockatron, Goji, and Danalock. Traditional lock leader Schlage also has a keypad lock that integrates aspects of smartphone tech but still relies on older punch code technology. Kevo and August are the early companies to watch as both are well funded with solid retail distribution plans at Home Depot and Lowe s in addition to ecommerce strategies. August is also now in the Apple store with in-store displays. Still, it s very early in the market if the market takes off, traditional lock makers will jump in and other startups could secure funding to push their development and marketing harder. Key differentiating technologies Capacitive touch versus passive entry. Kevo employs a capacitive touch sensor on the lock itself that unlocks the door when touched while most other smart lock makers use a passive unlock system. Kevo believes the intent to open is part of ensuring that locks aren t opened unnecessarily and believes it will provide a better consumer experience. If this sounds odd, consider the complaints from car owners when passive-entry keys were introduced. Many said that every time they walked past their car, it opened, regardless of whether they wanted it to do so. On the flip side, the passive unlock systems like those used by August allow for unlocking without using one s hands and thus have a built-in convenience factor. Whole lock replacement versus add-on smart lock. Most smart locks are simple, at-home installable devices that fit over the thumb turn of a deadbolt contained on the inside a door. The benefit here is DIY installation. Kevo requires actual replacement of the deadbolt itself. This is an obvious barrier. It may, however, open the company up to additional markets looking for a complete and reliable system replacement since every door is slightly different and the add-on system works but isn t flawless for every single door. Wireless unlocking and consumer experience. While it may not be immediately apparent, any smart lock must know at all times whether someone s phone is inside or outside of the home. If it gets confused, it could mistakenly unlock or refuse to unlock a door. There are various strategies here. August employs two-stage geofencing technology. Kevo employs directional antennas on both sides of the door. Kevo notes that its first design in 2010 was an interior-only replacement that relied on GPS that was ultimately too unstable for its purposes. I mention this because while there have been many early positive consumer reviews of smart locks, and when there are complaints they revolve around these types of issues. One reviewer of the August smart lock noted that if he entered the home via his garage and walked by his front door, it unlocked. Other reviews expressed concern over lag time in Bluetooth communications. These 6

7 are not insurmountable barriers, but companies that have the most stable and consistent wireless experiences will prevail. Marketing and design. If there s been one lesson from Nest s success with the thermostat, it s how important design is, particularly if you want to break out of the early-adopter market. Spending $200 on a smart lock is still a luxury for the average residential customer. August cofounder Yves Bears designed a number of high-profile consumer products including the JAMBOX before tackling smart locks. Many of the smart-lock designs available are much more attractive than your average lock, including the Danalock and the Goji. Companies with great design will have an edge, though overall smart-lock awareness is likely to help the entire market, and favors those startups with the capital and sales teams to get through the early years. 7

8 4 Market possibilities The current price point for smart locks is in the $179 to $249 range, a significant price premium considering the fact that some versions like those from Lockitron and August are not actually locks but devices that fit over locks. But there are potential savings in the long terms as they reduce the need to rekey or change locks. August founder Jason Johnson noted that he met with multiple traditional lock makers who advised him that while half the market for new deadbolt/lock sales is new homes and remodels, the other half is homeowners replacing locks for cosmetic reasons or because it s cheaper than rekeying a lock. This data suggests more frequent lock turnover than one might expect, which provides an additional cost avoidance incentive for employing a smart lock. As for market possibilities, the initial direct-to-consumer model favors the residential market. Similar to other smart-home products, startups have used Kickstarter and company websites to generate sales as an initial step before launching fully into retail outlets like Lowe s, Best Buy, and Home Depot. Other startups like Unikey have partnered with Kwikset and will use that relationship to more quickly push into the retail channel. In terms of the residential apartment market, there may be appeal for property managers in being able to rekey apartments less frequently and also as a tool for handling access to apartments during evictions. Outside of the consumer market, the hospitality industry is the most promising market. Increasingly we see a trend away from interacting with service employees when checking into hotels. Smart locks allow travelers, especially business travelers, to skip check-in and authenticate a key on their smart phone. Airbnb is another prime example: Property managers can allow guests access to their homes without having to physically meet them. In Airbnb s case, there s also peace of mind for the homeowner in that they don t have to hand over a key to their home and can rather grant clearly defined and temporary access. Longer term, the automotive sector is a potential market for companies with broader smartlocking visions. But an automaker s product timetable runs a very long time as long as 10 years out in some cases. If smart locks are to break into the automotive arena, they will likely be seen first in high-technology vehicles like electric vehicles, which have company cultures more attuned to integrating new technology in the vehicle. 8

9 5 Key takeaways With connected thermostats being the first breakout success in the smart home, smart locks have a chance at reaching more broad adoption due to the conveniences they bring such as keyless entry, ekeys, and avoiding costs associated with locksmiths. The ubiquity of smart phones, low-power communications protocols, and back-end cloud services has created an environment in which developing tools for the smart home has gotten significantly easier. Early risks in the smart lock market include consumer education surrounding questions related to dead phones, software security, and battery replacement. Potential end markets for smart locks begin with the residential sector, while there s a strong opportunity in hospitality with compelling use cases for Airbnb hosts and longer term for standard hotels. The early market includes a number of players with differing degrees of funding. Differentiating technologies include lock replacement versus add-on smart locks, antenna/ GPS/geofencing systems for locating a phone s position, and product design. 9

10 6 About Adam Lesser In addition to being Gigaom Research s Cleantech curator, Adam Lesser is an analyst for Blueshift Research, a San Francisco based investment research firm dedicated to public markets. He focuses on the intersection of technology and energy consumption, and he has expertise in green IT, the share economy, the smart grid, and renewable-energy generation. Lesser s career began as an assignment editor for NBC News in New York, where he worked on both the foreign and domestic desks. In his time at NBC, he covered numerous stories, including the Columbia shuttle disaster, the DC sniper, and the 2004 Democratic Convention. He won the GE Recognition Award for his work the night of Saddam Hussein s capture. Between his time at NBC News and Blueshift, Lesser spent two years studying biochemistry and working for the Weiss Lab at UCLA, which studies protein folding, which has implications for diseases like Alzheimer s and Cystic Fibrosis. 10

11 7 About Gigaom Research Gigaom Research gives you insider access to expert industry insights on emerging markets. Focused on delivering highly relevant and timely research to the people who need it most, our analysis, reports, and original research come from the most respected voices in the industry. Whether you re beginning to learn about a new market or are an industry insider, Gigaom Research addresses the need for relevant, illuminating insights into the industry s most dynamic markets. Visit us at: research.gigaom.com. Giga Omni Media "" is a trademark of Giga Omni Media. For permission to reproduce this report, please contact research-sales@gigaom.com. 11