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Thursday, May 17, 2012
Department: April 2007
Home Economics
The commercialization of the digital home represents a large market opportunity
Story by Jack Crawford Jr. and Jacob Jorgensen
We saw the future almost 40 years ago. It happened at Disneyland in the late ’60s. More precisely, it was in the Carousel of Progress, a co-production of the General Electric Co. and Disney that was a preview of the all-electric, fully automated home. The show ended with a live demonstration of nuclear fusion — a manmade sun!
It has been assumed for at least four decades that it was only a matter of years before we would enjoy the comfort, security and ease of a fully automated house. Imagine returning from a weekend in Tahoe, looking forward to extending your mini-vacation by relaxing at home. With your smartphone, you remotely signal your home that you would like it to be prepared for your arrival. That may mean you want the house warmed up, the hot tub turned on, and mood music to be piped out to the hot tub area.
Your digital home might have already automatically notified you via e-mail, instant message or voicemail that a security camera detected some unexpected motion in the backyard. You would then have had the option to review the security camera video remotely on your PC, or even on your BlackBerry or Treo device. This scenario is now realizable with presently available technology.
Automation concerns the management and preprogrammed control of a variety of tasks in the home. These tasks can be organized into major categories, including the automation of communications, heating, cooling, lighting, audio, video — even pool pumps, sprinkler systems and coffee pots.
Obviously, the primary benefits of automation are improved convenience, control and recreation. However, automation also provides economic and environmental benefits because automated controls can dramatically improve energy savings, water conservation and home security.
The wide commercialization of this technology represents a very large market opportunity. Sales of home-system controllers (just the devices that control all the other in-home devices) in the U.S. are projected to grow from $2.5 billion in 2006 to $3.2 billion in 2009, says George West, senior analyst at Mountain View-based West Technology Research Solutions.
Imagine driving home from Tahoe. With your smartphone,
you remotely prepare your house for your arrival.
Jonathan Gaw, an analyst with research group IDC, estimates the number of households with a network-based home-automation system will increase from just over 4 million last year to 16.8 million by 2010, representing almost one in eight U.S. homes. A growing number of companies have focused on supplying home-system controllers, such as Exceptional Innovations, based in Ohio, and AnyComm, a startup technology company based in El Dorado Hills.
The digital home sounds very attractive, but it requires a substantial amount of technology infrastructure. Only very recently has this technology become economically viable for the masses. In the past, a home-automation system for a moderate-sized house could cost up to $100,000 or more to install. Now, such systems are being installed for $5,000 to $20,000.
The catch, though, is that most of these systems needed to be installed during home construction. Specialized wiring needed to be installed throughout the house, which included network wiring for the transport of audio, video and data signals, and wiring to send control signals to all the light fixtures and other controllable devices, although more and more common household devices such as light fixtures are now available with wireless controls.
Special wiring also was needed for security cameras, intercom signaling, etc. The requirement to install during construction presented a barrier to affordability, and formerly limited the potential market size for digital-home suppliers to homes under construction.
But several wireless technologies are now playing an important role in making automation economically feasible for already constructed homes with the use of specialized wireless technologies. Without the requirement for retrofitting the home with complex and expensive network cabling and specialized signaling wire, a complete digital home can be achieved with a minimal amount of rewiring work and significantly lower labor costs.
Venture capitalists, recognizing the size and growth of this market sector, have begun backing several technology startups addressing the needs of the new digital home market.
An example is Ruckus Wireless — backed by venture capital firm Sequoia Capital of Menlo Park — a Sunnyvale firm that provides wireless technology to allow the creation of networks in already constructed homes where the post-construction installation of network cabling would be expensive and disruptive. Folsom-based Riavo Systems is a startup also developing wireless networking systems and technology for the already constructed home.
Because of the recent progress in technology, the digital home is already beginning to play a significant role in the construction and retrofit segments of the home market — and playing an important role in reducing energy consumption, improving security, providing distributed entertainment, and creating a more responsive and integrated indoor environment.
Jack Crawford Jr. (jack@velocityvc.com) and Jacob Jorgensen (jacob@velocityvc.com) are general partners at Velocity Venture Capital, the seed-stage and early-stage venture fund exclusively focused on the Sacramento region.
