Energy-saving apps German firms tap into the smart-home boom

Germans are waking up to the benefits of smart-home appliances such as remote-controlled heating and energy-saving apps. Cash-rich blue chips and nimble startups are joining forces in this surging market.
Source: Mauritius

The smart home where your fridge automatically orders you fresh beer when you’re running low, your robot mower chases the tortoise around the lawn and your front door recognizes your face is still some way off in Germany.

The nation still lags the US, where some 32 percent of households use such applications compared with around 15 percent in Germany, according to market research by data company Statista.

But interest in applications is growing here too, particularly among digital natives who are now entering the job market. There is especially strong interest in energy-saving applications such as thermostats that keep your bills down. In the US, by contrast, a major focus is on home security.

Consultancy Arthur D. Little and Internet association Eco estimate that the German smart-home market will grow to €4.3 billion ($4.9 billion) by 2022, which implies annual growth will average 26.4 percent up to then. Deutsche Telekom has increased the number of smart-home customers by 80 percent to almost 300,000 and said it now regards the field as an “important core product.”

Voice assistants drive the boom

German startups

, as well as established players, plan to get in on the act because the technology is set to infiltrate all sectors surrounding the home, from furniture to household appliances to anti-burglary systems.

The mounting popularity of voice-assistant services like Amazon’s Alexa or Google Home is helping to drive demand, said Robert Spanheimer, an expert on smart grids and smart home technology at German IT industry association Bitkom. “They’ve been a kind of trailblazer — voice activation is intuitive and has helped reduce people’s reservations. They’ve helped users get to know the benefits of being connected,” he said.

In addition, many firms have used Alexa and Google Home as platforms for their innovations. And the price of all kinds of applications has been coming down steadily, further fuelling demand.

Big companies like energy firms E.ON and RWE and components maker Bosch have been trying to muscle their way into the market for some years. But so far they've had limited success with their comprehensive smart-home solutions. That’s because many households prefer simple individual solutions such as adhesive motion sensors for the front door, said Lars Riegel, a smart-home expert at Arthur D. Little.

Turning on the heating before you get home

The blue-chips are now seeking cooperation with partners both big and small and keeping their smart-home systems open for third-party products. E.ON recently joined forces with Microsoft to ride the smart-home boom.

A Telekom spokesman said its Magenta smart-home system was open to partners and other products with the aim of creating an “ecosystem of appliances that’s as big as possible.”

Bosch set up a smart-home division in 2016 focusing on security, indoor climate, and comfort. “The market is growing much faster than it has done in the past,” said Gabriel Wetzel, managing director of Robert Bosch Smart Home GmbH. A heating you can turn on with your smartphone while you’re on your way home, or a security system that deactivates itself by recognizing your face when you enter the house — that, said Mr. Wetzel, is the future of the smart-home market.

Startups, meanwhile, are playing an increasingly important role. “They’re often far more nimble than big companies and can drive innovations much faster,” said Peter Lennartz, a partner at EY.

Munich-based startup Tado, for example, recently received some $50 million in funding from Amazon and E.ON. It started out in 2011 developing a connected thermostat that steers heating and promises big savings. It keeps on rolling out new functions such as a service that uses sensors to measure air quality. It’s also working on an app that predicts energy consumption. Investors have injected a total of $100 million into Tado over the year.

German customers wary of experimenting

Other German smart-home startups include Berlin-based home security company Smartfrog, which has taken a majority stake in its rival Canary and plans to invest a total of $25 million in growth.

Tink, another startup, recently received more than €10 million from startup incubator Rocket Internet, Seven Ventures and Swedish utility Vattenfall. It offers an online platform for buying smart household appliances, testing products and giving advice to customers on what’s best to buy. It’s now cooperating with Vattenfall.

For many startups, specialization is the key to success, as Munich's Tado with thermostats, said Professor Birgit Wilkes, an expert on telematics and smart-home technology. “In Germany, the startups that do best tend to be the ones that concentrate on a niche and thereby only indirectly compete with the big US players,” she said.

In addition, teaming up with big companies has helped startups to gain the trust of customers, she said. “Compared with other countries German customers are less keen on experimenting with smart-home systems,” she added. “A big partner can help to build confidence.”

One area where German players have a competitive edge over US rivals is data privacy where many customers see them as more trustworthy, said Mr. Lennartz of EY.

Johannes Steger, Christof Kerkmann, Kathrin Witsch cover companies, and markets for Handelsblatt. David Crossland adapted this story into English for Handelsblatt Global. To contact the authors: [email protected]