Open for Business: Future Flexibility for Smart Home Services

A Parks Associates Whitepaper Developed for Calix All rights reserved | www.parksassociates.com | © Parks Associates Competition Heats Upfor Connected HomeServices for Smart Home Services for Smart forOpen Business:Future Flexibility brand provider value asaservice beyond merely providing apipe. canhelpstave importantly, home services Most off commoditization their smart by fortifying built-in flexibility built-into deliver flexibility on tomorrow’s demands as well. usecasesconsumersare thevaried responding solutions to to serve aretoday, offering turnkey new withthe providers to develop andmaintainontheirown, vendors are emerging to particular, meetthisneed. In vendors platformA future-flexible isacritical component for success intheIoT. for lift While itcanbeaheavy service isparamount. opportunities new anything, toward haveto pivot theability quickly butifpastefforts taughttheindustry to market, home services iteasierthanever smart to bring companiesare andotherconnected making Partnerships makers withdevice assets to revenue develop new streams anddifferentiate from competitors. asaway to leverage theirexisting homeservices providers canlookto Broadband thesesmart service services. strong moves home to becomethetrusted homeandcapture advisorintheconnected valuethrough new smart of intheresidentialWith sector, oftheInternet therise Things (IoT) many players are across making verticals for smart home services to leverage homeservices theirexisting assets.for smart players ofusescases to avariety are2022, industry looking to products—set exceedentertainment 520millionunitsby home, health,mobile, connected andconnectedsmart With consumer salesofconnected devices—including © Parks Associates Q42018Forecasts

Consumer Interest and Willingness to Pay for Connected Home Services Security and Peace of Mind Historically, security and safety have generated the most At the end of 2018, 24% of compelling consumer interest among all uses. More than half of professionally monitored subscribers US broadband households have at least basic interactivity with their security system. subscribed to professional Interactivity and support for home controls have enabled an increase in recurring monthly revenue for security monitoring. © Parks Associates providers in recent years. New subscribers pay an average of $55 per month, $5 higher than the average for all security subscribers.

In addition to the traditional security providers, new “do-it-yourself” (DIY) security systems with optional monitoring, video recording, and storage services, and flexible contract options are positioned to expand security into the 70% of households that do not have a security system. Owners of DIY and professionally installed systems show strong interest in add-on services such as cybersecurity, personal emergency response services (PERS), vehicle monitoring, and smart tag tracking.

Interest in Add-Ons for Home Security Systems by Installation Method US Broadband Households with Professional Monitoring

Self-installation Professional installation

50% Open for Business: Future Home Services Flexibility for Smart

25%

0% Cybersecurity Video Personal Vehicle Smart Tag Independent Veri cation Emergency Monitoring Tracking Living Response Assistant Service © Parks Associates All rights reserved | www.parksassociates.com | © Parks Associates Independent Living Independent Networked Cameras opportunity withtheseservices. opportunity providers may findmuchmore market Service no dominantplayer themarket. capturing place solutionsare stillintheirinfancy, with segment, independentlivingandaging-in- thehighlycompetitive security Unlike provide peaceofmindto caregivers andmore independencefor elders. response monitoring,emergency systems (PERS).Activity medicationadherence, andaccesscontrol falldetection, andsafetyare devices supplemented bysecurity health-related sensors, medicaldevices, connected andpersonal aging populationsintheUSareRapidly creating where demandsfor new smart independentlivingservices, among consumers whoown cameras. networked have driven interest incloudvideostorage services recentIn years, peace ofmindor “soft” usecases security 40% 80% *Small sample base, results provide directional information only information base,*Small sample provide directional results 0% for an independent living system that has their must-have features. The ofconsumers majority 50+are willingto pay $30permonth Networked Camera withNo Owners Video Storage* 1.9Mnh$9.99/Month $14.99/Month Networked Camera: Willingness to Pay for Video Storage Service $5.99/Month © Parks Associates $2.99/Month

% Willing to Purchase at Speci ed Price for Their Must-Have Features 40% 60% 20% 0% Heads ofUSBroadband Households50+Considering One orMoreOne Must-Have LivingFeature Independent $29.99/Month delivery personnel. delivery suchasnannies, housekeepers,and services for children, monitoring pets, andhome camerasare increasingly popularNetworked • • Willingness to Pay for Home Independent LivingSystem per month. days ofstorage while74%would pay $2.99 willingness to pay $14.99permonthfor 60 paying for storage, abouthalfindicate a Among cameraowners notcurrently per month. video storage, with59%paying $11ormore ofcameraowners pay forAbout one-third camera. least onenetworked households own at 10% ofUSbroadband $39.99/Month © Parks Associates © Parks Associates $49.99/Month © Parks Associates Open for Business: Future Flexibility for Smart Home Services Very likely Very Likely Neutral Not likely © Parks Associates © Parks Nearly 60% of consumers are willing to purchase purchase willing to Nearly 60% of consumers are subscription supporta comprehensive service for $9.99 per month • $19.99/Month $29.99/Month $14.99/Month Smart Home Device Intenders with Speci ed Price Presented Smart with Speci ed Price Intenders Device Home $9.99/Month 0% Likelihood to Pay for Smart Support for Device Home Services Pay to Likelihood 75% 25% 50% In planning for smart home services as diverse as security, smartIn planning for home services as security, as diverse support, tech and living, serviceindependent providers quick and easy will enable that with vendors align need to of applications. a wide range across integration 100% Consumers who paid a one-time fee for technical technical one-time who paid a Consumers for fee support services in the past 12 months paid $50 or one service for more event. • These supportThese services services, cybersecurity,with related can also be bundled and data as warranties, such backup services. Consumers show interest in a variety interest of support show Consumers servicesThe services smart on-demand include for home devices. support and technical and subscription consultation ongoing services setup, initial installation, to from tasks for purchases. future for Premium Tech Support Services Tech Premium All rights reserved | www.parksassociates.com | © Parks Associates Support Services Support DIY Products Provider for” in“Service Putting” the“Service Opportunities frequently loserevenue to retailers. managementanddatasecurity, area fornetwork ofconcern akey consumersandanarea where providers Given theseadvantages, providers to address are recurrent well-positioned over inparticular concerns Wi-Fi to have intodeliver services. homenetworks morenetworks addedvisibility robust support for initialinstallsaswell assubsequent self-installeddevices. Those thathave adopted software-defined and configuration services. They alsohave the resources to provideservices ongoing technical support providersBroadband service are uniquelypositionedto roll truckswithtechnicians for installation can deliver convenience andtechnical support. the way toward demandfor that professional services technical assistance. This consumerpreference points 41% indicate they would prefer someform of install future (regardless devices ofthecostinvolved), toWhen DIYconsumersarehow would they like asked and configuration. frustration over problems installation,setup, during Associates findsconsumerscontinue to experience has increased significantly in recent years, but Parks Adoption ofself-installed, self-monitored (DIY) devices homestruggleisreal forThe consumers. smart providers theiruniquepositionto relieve inotherchannels, needtopressing they assert consumerpainpoints. providersAs seekto broadband compete manufacturers, withendpointdevice service DIYsystems, and service • • • problems goingunresolved in2018. technical owners homedevice report 12% ofsmart processdevice difficult”“very device. the returned home 1 in5consumerswhofound thesmart difficult. setup process asbeingdifficultor very the owners homedevice report and 28%ofsmart owners device entertainment 16% ofconnected once aweek and another20%report Wi-Fi coverage problems. 37% anunresponsive27% report device. problems, experiencing homeconsumers whoreport Among thosesmart two years. homedevice customers forleading issuefacingsmart thepast devices to connecting therouterDifficulty hasremained the of Wi-Fi their householdsreport Wi-Fi seems slow at least 33% reported a loss of connectivity and alossofwirelessreported connectivity (DIFM) ofreasons: consumersfor avariety for-MeMany DIYconsumersmay evolve into Do-It • • • • for desirableusecases. home control offer compellingvaluepropositions andfeatures builtontop ofbasicsmart Services younger adopters into professional services. prices may lead affluenceanddeclining Rising and unifiedcontrol. systems that provide more reliable interoperability increases, to DIYconsumersmay pro-installed shift As thenumberofdesired inthehome devices inconvenient. iseithertooSelf-installation difficultor too © Parks Associates

Open for Business: Future Flexibility for Smart Home Services

© Parks Associates © Parks one-half of US broadband households are “very “very are households broadband about the hacking of concerned” and the historical their devices on them. data Almost Almost Service providers can bundle premium Wi-Fi and and Wi-Fi Service can bundle premium providers cybersecurity services with other smart home offerings truly differentiated services create to in the smart other competitors from home space. Absence of Wi-Fi solutions from service providers is driving service is driving from solutions providers Wi-Fi of Absence in service though are even providers retail, to consumers issues these solve position to Solid, reliable Wi-Fi Solid, their network address security. expect be best able to Wi-Fi Consumers to their networkreliable provider from differentiators and can servekey as offerings IoT future building blocks for securityand network are other smart home services. Parks Associates finds more than three-quarters finds more Associates concernsParks access of their about unauthorized have of consumers personal data. The lack of a carrier-grade, whole-home managed Wi-Fi solution contributes to consumer perceptions of poor of poor consumer perceptions solution contributes to Wi-Fi of a carrier-grade, lack The whole-home managed internet service, which can act as a barrier of new adoption connected to services drive and potentially customer churn.customer securityNetwork embedded on customer Wi-Fi like (CPE), equipment premises in security concerns can address gateways, security than endpoint way robust a more solutions alone. Since service the leading source are providers solutions that hardware of CPE, they can offer with network associated the problems address and security, network congestion, coverage, of devices. onboarding To address these network connectivity issues, 22% of US broadband households have purchased Wi-Fi extenders. extenders. Wi-Fi purchased these network address have households connectivity US broadband 22% of issues, To Service know connectivity providers of these devices that most do not solve 11% of US broadband Another issues. mesh networking a whole home gateway the carrier-provided purchased have households that relegates system mode. “bridge” to Privacy and SecurityPrivacy All rights reserved | www.parksassociates.com | © Parks Associates as a Smart HomeChannel as aSmart ProvidersService Have a Window ofOpportunity love, applicationplatform, by afeature-rich willhelp. supported among consumerwhogravitate toward option.Partnershipsbrandsconsumers withthedevice aDo-It-for-Me thatwould drivetheirshare remains, ofthebusinessupward,home services especially buttheopportunity difficult Until new entrantsnow, for togaintraction. providers have not service offered muchinthe wayofsmart from tech asthoserapidlycomingto giants—it market systems willbecomeincreasingly are inplace—such for growth thatwillbenefitplayers whogeta homebrands andfoothold inthehome. Once foundational smart providers’Service considerationsignals relatively theneedto domore low to top-of-mind reposition themselves providersservice theirchannelofchoice. Parks Associates research findsapproximately 10%ofUSbroadband households consider broadband are ofconsumers,Retailers for themostappealingpurchasehomedevices but channelfor themajority smart Most AppealingMost Purchase Location/Installation/Maintenance Option 100% security, broadband andindependent services, contractors. purchase providers channel, including service inhome Roughly 40% 60% 80% 20% 0% US Broadband HouseholdsPlanning to Purchase HomeDevice at Least Smart One Purchase one-third one-third Installation of consumers prefer anon-retail Maintenance A retailer providerA homesecurity providerA broadband service powerAn electric company An insurance provider Myself/family/friend technicianIndependent © Parks Associates © Parks Associates Open for Business: Future Flexibility for Smart Home Services The position of service providers is strengthened position of service is strengthened The providers more—more for more ability their offer by to per user. revenue services more valuable capture to Sales of devices with on-bill financing and bundling with other services support smartHardware for home services to reduces costs that simplifies the user experience in the CPE and consumers Installation services upsell opportunities enabling initial products, for support connected devices and optimizing the for Technical services Wi-Fi Premium Cybersecurity Services and entertainment broadband content for controls Parental network and device management Proactive • • • • • • • • Service providers can offer more value than retail and security value than serviceService bundled solutions more by offering can offer providers providers fronts. easier on several lives that make customers’ per user: the opportunity revenue comes more capture creation to value more With Service providers as a group fair even better as channels for installation and maintenance, though preference preference though maintenance, and installation for as channels better fair even Serviceas a group providers point furtherThis opportunity the underscores services both activities. broadband for at 10% for for is steady services that they can deliver perception consumer service a strong beyond cultivate broadband to providers offering. their core All rights reserved | www.parksassociates.com | © Parks Associates Long-Term Investments inFlexible Platforms are Needed the future, they willbeopenfor business. providersBroadband service have more optionsthanever for leveraging sothat, in technology partners directions. new seamlessly support providersexperience. needtechnology Broadband solutionsthatwon’t service disrupttheirbusinessbutwill thatneedto beintegratedvalue chainofpartners into anorchestrated ecosystem thatdelivers aunifieduser require typically a homeservices emerging healthsolutions. connected smart to New support want to partner Today, providers independentlivingsolution,buttomorrow may may they launchasecurity-based service platform inthefaceofrelentless technological changeandcomplexity. havetheir businessinanotherdirection.Most lost theappetite for buildingandmaintainingaproprietary for providers aspecificusecaseandthenhad to completely have apartner picked service retoolSome to take long-term investment. homeisa The smart partnerships. obsolete advantageofnew or are cannottake sorigidly inflexible thatthey providers notinvest thatthey are concerned come. intechnology rightly platforms Service thatwillsoonbecome homeusecasesandvaluepropositions are stillevolving andwillcontinuedownSmart thatpathfor decadesto Flexible Technology Tasks business withoutbeinglimited by pastpartnerships. providersprovide withfreedom service to letstrategy drive their Open, cloud-basedplatforms andhardware-agnostic technologies • • • • • application programming interfaces (APIs) application programming interfaces through standardized andservices devices Integrate andorchestrate third-party segmentation, maintenance,advanced marketing andpredictive modeling and capturesacross intelligence activities thecustomer baseinorder tofor applyartificial Leverage dataaggregation amicroservices platform thatscalesfor millionsofdevices though applicationsare installedindependently Centralize themanagementplaneto manageallapplicationssimultaneously, even containerized architecture withready-builtImprove applicationintegration timeto market tools usinga ofpopularhardwarethat canrunonawidevariety brands Provide applications layer andservice anabstracted ofsoftware

Open for Business: Future Flexibility for Smart Home Services unmatched Wi-Fi performance and coverage, thanks to the latest and greatest ‘Wi-Fi 6’ technology (802.11ax) technology 6’ ‘Wi-Fi and greatest the latest performance thanks to and coverage, Wi-Fi unmatched the hardware (PUF) built in to cutting-edge Unclonable Functions like security Physical with features always-on operation, making network disruptions a thing of the past optimal performance all connectedensure devices to advanced instrumentation and analytics for • • • • Smart and manage the smart deliver to Home Enablement Services ready people and processes get your help you playbook— customized your develop to operations team get with your We’ll subscribers. your home experience for called a Smart Guide—that Home Customer service and covers and workflows, delivery architecture system use cases, Services installation lock down to onsite team will work with your Professional best practices. Calix deployment system best practices people in actual scenarios. deployment and troubleshooting and assist your customer Smart Services Home Enablement Empower your marketing and support marketing your teams Empower vision of a smart opportunity subscribers’ your a revenue home into By while tacklingTurn complexity. the chaos and service Cloud, the Calix through providers the network/behavioral analytics and machine learningleveraging delivered with smart issues associated churn. satisfaction as address Equally and reduce can proactively increase home devices to newimportant, subscriber that help service services insights into behavior offer Cloud can provide the Calix providers ARPU and marketing subscriberthat match needs and maximize ROI. Want to offer the world’s most advanced smart most advanced home systems? world’s the offer to Want cutting Now, looked the consumer electronics industry to consumers have cutting-edgeHistorically, for technology. their serviceedge comes from provider. smart premium they are home not typical gateways; BLAST are residential and GigaSpire MAX new GigaSpire The Calix featuring: systems Are you ready to re-invent ‘smart home’ for your subscribers? your for home’ ‘smart re-invent to ready you Are standards-based, only hardware-independent, modular, is the world’s (EXOS) Experience Calix System Operating The always-on smart home operating system. service can quicklyEXOS, providers newWith services deploy smart a range of pre-integrated that leverage home solutions and thousands of smart Service devices. can quickly providers their services change and adapt embrace to needs of their subscribers. and meet the evolving new technologies For subscribers, the smart home shouldn’t be a confusing mix of connected sensors and devices. Ita confusing mix of connected be sensors and devices. the smart be a should subscribers, home shouldn’t For seamlessly. that works together ecosystem and robust manageable of the broadband services products and on top created being delivered that are companies have Consumer-brand and chaos turndisorder, confusion, time has come to the potential The network that service built. have providers all subscribers. is accessible to that ecosystem with the smartassociated secure and open, managed, an home into waste. is no time to But there It start is time to new smart offering services home pace with the market. that are keeping to bring possible these It’s compelling new services opportunities, the essential position as new revenue and retake your market to create quickly, enabler of the smart future. home of the Smart Calix The service Home and Business solution enables of the smart unlock the full potential to home. providers The GigaSpire MAX also features built-in Alexa functionality and support for universal Internet of Things (IoT) Alexa functionalityThings built-in and support Internet universal also features of for MAX GigaSpire The first! it a world’s Zigbee and Z-Wave—making as , technologies—such Turn smart revenue into home complexity Turn All rights reserved | www.parksassociates.com | © Parks Associates About The Author About The winning service providers oftomorrow.winning service For more information, visittheCalix website atwww.calix.com. assurance. Together, providers to transform enablecommunicationsservice theirbusinessesandbethe they for access, withCalix Cloud, innovative experience cloudproductsfor dataanalyticsandsubscriber network Accessthe subscriber. combinesAXOS, ofIntelligent systems andsoftware portfolio platform therevolutionary Its Calix, (NYSE:CALX) Defined Inc. pioneeredAccess andcloudproducts and Software focused onaccessnetworks About Calix Twitter ID:@bradrusselltech aM.Div.also earned andaD.Min. collaboration. withconcentrations inethicsandcross-cultural fromBrad received of theUniversity degree andmarketing hisBachelorofScience inadvertising Texas atAustin. He For more information, visitparksassociates.com usat 972.490.1113 orcontact systems andsecurity. consumerapps, consumerelectronics, advancedadvertising, energyservices, management, andhomecontrol support digital health,mobileapplicationsandservices, andtelevision services, gaming, Internet homenetworks, The company’s of digital and mediaandplatforms, includestheInternet entertainment expertise Things (IoT), conferences, subscriptions. andannualservice studies, consumerresearch, custom primary research, reports, through market workshops,start-ups executive Founded in1986, Parks Associates creates research capitalfor companiesranging from Fortune 500to small responsibility for any inadvertent errors. foranyinadvertent responsibility United States ofAmerica. ofthisbookmay bereproduced,No part inany form orby any from means, inwriting thepublisher. withoutpermission Printed in the ATTRIBUTION—Authored by Brad Russell. Published by Parks Associates. ©Parks Associates, Addison, Texas reserved. 75001.Allrights D is cl ai me r — P arks Associates has made every reasonable effort to ensure that all information in this report iscorrect. to ensure We thatallinformation inthisreport reasonable effort assumeno hasmadeevery arks Associates background in marketing communications, andonlinemedia. background technology startups, inmarketing practices.Hehasa insights thatleadto more astute businessstrategy andvalue-generating research andscienceofmarket strategies.. to generate Bradbalancestheart and go-to-market sizingandforecasts,includes market ecosystem andcompetitive landscapes, channelanalyses, applications, Brad’sand security, andplatform services. data-driven custom research work IoT homenetworking, dataprivacy andservices, homedevices home—smart in theconnected Brad leadsParks Associates’ issuesconverging leading-edge hometeam, connected exploring Brad Russell,Research Director, Connected Home, Parks Associates consumer technology andservices. products research andconsulting company specializinginemerging Parks Associates isaninternationally recognized market / [email protected]

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