Parks Points

The need for business model innovation is often cited in the smart home industry as necessary to meet the challenge of generating enough revenue to offset the costs of supporting connected products. Industry players are experimenting with hardware-as-a-service (HaaS) models, where companies sell packages that include hardware, software, maintenance, and sometimes installation for a monthly fee.

By using a hardware-as-a-service model, customers can pay for services instead of products. An example includes Vivint offering security sensors, smart locks, thermostats, and more with installation, servicing, and support for one monthly fee. This type of model generates the most interest when hardware costs are expensive and the service provides additional ongoing benefits. Parks Associates tested several scenarios for consumers to shift from a product to a service model, with the following findings:

• Consumers prefer shifting from a product to a service model for smart thermostats (valued at $249) for $5, $7, or $9 per month in a tested scenario.
• Consumers prefer shifting from a product to a service model for a smart home kit (valued at $1,199) for $29, $33, or $37 per month in a tested scenario.
• Consumers prefer a service model over a product model for HVAC only at monthly price points at or below parity with 0% financing for five years.
   

While a consumer reluctance to pay subscription fees is well-documented, HaaS models may get more traction where more value can be offered at less financial risk to the consumer. The challenge is to create a service bundle with clear value that consumers find attractive. Consumers will pay for services that they perceive as valuable and complete tasks that they cannot or prefer not to do themselves.

For more information on this topic, see Parks Associates’ 360 View: Smart Home Buyer Journey and User Experience.