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Can Construction Tech Companies Win the War Over the Smart Home Market?

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Silicon Valley startup, Acre Designs, wants to change the way we buy, design and interact with our homes. Could the pre-fabricated house be to Acre Designs what the iPhone is to Apple?

Homes being built today aren’t that different from those built 50 years ago. Architectural trends have evolved and some new materials are being used but, in most ways, real estate lags other industries in the application of technology.

Over the last decade, multiple smart home devices have been introduced, from smart locks to home robots, that intend to simplify user’s daily life, reduce environmental impact or generate savings in utility costs. However, despite Alexa’s apparent success (Amazon Echo devices are in 10 million homes in the U.S.), the smart home market seems to be stuck in the “chasm” of the technology adoption curve and is struggling to enter the mass market phase of adoption. As shown by the following graph from Business Insider, the percentage of the U.S. population that had adopted smart home devices in 2015 was in the 10% range.

One of the largest barriers to mass-market adoption is the high level of technological fragmentation within the smart home ecosystem. There are a myriad of networks, standards, platforms and devices being used. This makes setting up and controlling devices confusing for users. Additionally, the complex interoperability of the devices makes it difficult for consumers to choose smart home devices and platforms. The following charts shows the current complexity of the smart home ecosystem.   

Acre Designs is taking advantage of advances in home pre-fabrication, the mass adoption of ecommerce and smart home technology to simplify the process of buying a house and change the way we interact with our homes. The company manufactures all the parts necessary to build one of their homes in a centralized facility and packages them into one shipping container. Users can choose between two designs and purchase their home online via Acre Design’s web page. Buyers have to provide their own land but once they have ordered their home, Acre Designs ships it to the site and works with local contractors to assemble it. The shipment includes everything necessary to build the house including the smart home technology. Instead of having a lot of trades working on the design and construction, Acre’s homes are designed to be plug-and-play and the whole process takes less than three months to complete.     

 

The standardization of the home coupled with smart technologies opens up endless possibilities and this is where things get interesting. The home itself becomes a product upon which smart functionality can be built into. Acre Designs’ homes have an intelligent core that is interconnected with the water and energy utilities, security systems, lighting, doors, shades, kitchen, HVAC, etc. The entire home is controlled from a single app with a user-friendly interface. It is not far-fetched to think that, just like the iPhone, the home could become a standardized product with an integrated intelligent core upon which others can add functionality.

Acre Designs could open its platform to other smart home companies so that their devices can be part of their ecosystem. Additionally, given the wide range of possible products and services, developers using Acre’s platform would find unique ways to deliver value to the end user making it more attractive to them. This would differentiate Acre Designs from other players in the space such as Alexa or Google Home allowing them to gain market share and become the standard.

All of this sounds great conceptually but, in my view, Acre Designs will have important challenges as it starts to grow.

First, how likely are people to buy a home online from a startup? Acre Designs has proven that they can meaningfully reduce some of the pain points of buying a house. However, at a price point of $300K, buying one of their homes is a significant financial commitment and it is not clear whether people will trust a startup for such a commitment.

Second, reaching sufficient scale to trigger network effects. Acre Designs’ pre-fabrication / plug-and-play approach has reduced the time from buying a home to moving in to three months but it is still a long time. Additionally, what will the adoption curve look like? As mentioned in the previous point, buying a home is something that people don’t take chances with.

Third, privacy and security issues will play a significant factor in the decision-making process. As in the case of self-driving cars, how vulnerable will people feel to hacker attacks?

Nonetheless, it seems that construction tech companies will play an important role in the future of the smart home market. A few days ago, Google announced that it has started conversations with eight pre-fabrication startups to build 10,000 homes.

 

Sources:

https://techcrunch.com/2016/02/10/acre-designs-wants-to-change-the-way-we-buy-and-build-houses/

https://www.cbinsights.com/research/offsite-construction-tech-startups/?utm_source=CB+Insights+Newsletter&utm_campaign=b6fb9f3751-FriNL_03_02_2018&utm_medium=email&utm_term=0_9dc0513989-b6fb9f3751-90261173

https://acre.co/

http://www.businessinsider.com/the-us-smart-home-market-report-adoption-forecasts-top-products-and-the-cost-and-fragmentation-problems-that-could-hinder-growth-2015-9

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