The Internet Home Alliance’s third bi-annual Digital Home Leadership Conference explored several possible futures for the connected home market and the practical realities companies face in realizing the most desirable scenarios. This heavily interactive conference gave participants the opportunity to brainstorm about how to best capitalize on emerging developments in three connected home ecosystems—entertainment, family and career. Attendees were clearly energized by the unique format, which took full advantage of the Alliance’s cross-industry network of leading companies. In the spirit of mutually beneficial innovation, attendees explored potential improvements to consumers’ experiences with home technology throughout the product life cycle, identified new value chain opportunities, and formulated new Internet-dependent product or service concepts. The result was a series of important observations about innovation management and a number of inspiring and imminently viable business opportunities.

1. The best connected home business models help consumers do what they do today— only better.

Historically, products that have facilitated existing consumer behaviors have met with greater market success than those that have required substantial changes in routine. So-called ‘behavioral inertia’ tends to work against products that undermine current practices. The electric stove took decades to achieve significant market penetration, in part, because consumers were accustomed to preparing meals with wood or coal burning stoves and distrusted the taste or healthfulness of food prepared using the new device. Despite the fact the electric stove represented clear advantages over less sophisticated ways of preparing meals and was functionally equivalent to the old alternatives, it still met with consumer resistance in the face of consumers’ ingrained habits.

The notion that the best connected home business models explicitly recognize current consumer behaviors and in fact, improve on them emerged during the entertainment ecosystem panel. James Gist, Director of Business Development for Control 4, a maker of affordable home automation products, pointed out that business models for digital music are starting to emerge that promise to give consumers what they want without requiring substantial behavioral changes. He cited the recently launched Dell Musicmatch online store as an example due to its ease of use, reasonable fees and comparatively liberal digital rights management policy. “Instead of looking at the customer as an enemy,” he said, “we’re starting to develop workable business models that appeal to consumers where they live.”

2. As traditional media distribution channels fragment, consumers will increasingly be defined by their interests.

The mass audience that once enjoyed network television is no longer. What was once considered ‘television content’ is now consumed across an expanding array of media. It’s being burned onto DVDs, time delayed by digital video recorders (DVRs), broken into fragments, piped on-demand over the Internet, downloaded to mobile devices and syndicated around the world. The most significant impact of this evolution of the medium is audience fragmentation.

Jonathan Cluts, Director of Consumer Prototyping & Strategy at Microsoft, explored some implications of this trend during the entertainment ecosystem panel. He pointed out that there are two types of television— real-time and recorded. The former consists of breaking news and special events like the Super Bowl that make ‘live’ viewing essential and accordingly, demands a large, concurrent audience for the signal. The other type, however, consists of scheduled programming that can be recorded and enjoyed at a later time with no loss in value. He painted a near-future scenario in which consumers care less and less about when content first appears and where it comes from. “Rather than having access to 400 channels,” he speculated, “consumers might have access to a half-million programs. Wouldn’t you rather type in a subject, find content you had a subscription to, or could pay extra for, and then watch it?” One group of attendees proposed a product concept based on this premise called Pandora’s Box, a portable media player that would allow consumers to download, play and distribute video and other content directly from content providers rather than from mediating institutions like television networks.

The implications of this scenario go well beyond the changing role of traditional content providers and distributors. It means consumers will be increasingly defined by, and marketed to, based on their interests. Demographics, psychographics and all of the traditional ways of segmenting consumer markets may fall by the wayside in favor of an experiential segmentation scheme based on what consumers actually watch, listen to and play.

3. Industry collaboration is critical to developing the family ecosystem.

Alliance-sponsored research shows that the nascent family ecosystem, which encompasses home automation and related controls, offers some of the most promising business opportunities. Unlike the entertainment or career ecosystems, however, this one lacks any widely adopted connectivity protocols or user interfaces. According to Dave Robinson, Alliances Manager for GoodWatts at Invensys, the number and variety of competing standards makes it challenging for any company working alone to advance the market. As he put it, “Invensys doesn’t want to introduce the Betamax of home controls.”

As a way to develop an initial level of interoperability, Robinson proposed first focusing on “rather mundane” devices like thermostats. “We should work on making devices like thermostats more flexible so they can work with different applications and perhaps, share information with major appliances. What if you could see the temperature from your kitchen range?” The other panelists reinforced this idea, noting that some basic level of interoperability is necessary to realize the mass market potential of the home automation market.

4. In a ‘free agent nation,’ the best use of technology is to facilitate collaboration, ideally, in ways that allow for spontaneous interactions.

As documented by Dan Pink in Free Agent Nation (2001), fixed loyalty to corporations is morphing into a new independent model of working. In a free-agent world, people serve their work ideals and personal needs rather than a specific company. Over 25 million Americans are now self employed, and fewer than one-in-ten works for a Fortune 500 company. Upwards of 30 million more are mobile or remote workers who have significant freedom to determine their own daily schedules. This major shift in employment from the traditional ‘organization man’ popularized in the 1950s to today’s ‘free agent’ has profound implications for the way business gets done.

During the career ecosystem panel discussion, Doug Bazuin, a researcher for Herman Miller, said he accepted this trend as a particularly critical design challenge: “One of the most important questions for us is: ‘How do you maintain water cooler conversations in a world of free agents?’ What is the virtual equivalent of a water cooler?” The collective answer appeared to be compelling collaborative work tools and environments, though particular visions for these products and spaces varied. Some panelists imagined collaborative scenarios facilitated by next-generation smartphones, while others pictured scenarios premised on ‘intelligent furniture.’ Regardless of the exact technologies employed, however, panelists agreed that collaborative work tools and environments should allow for spontaneous interactions. The consensus opinion was that any successful collaborative solution will allow for, if not encourage, the type of serendipitous interactions that often lead to breakthrough ideas and business improvements.

5. Easy to use products are more important than ever in both new and mature product categories.

As evidenced by the wildly successful iPod and associated iTunes Music Store, product design can be a strong source of competitive advantage— even in markets with plenty of product choices. Despite the fact that Apple was a late entrant into the MP3 player market, the company now commands more than 70% of it. In the PC industry, there’s an unwritten rule that hardware manufacturers take three tries to get a product right. Apple doesn’t live by the version-three rule. While the first iteration of its products may not be perfect, they are often close enough to the ideal that the difference is insignificant.

In talking about their purchase criteria for consumer electronics (CE), the conference’s consumer panelists emphasized the importance of simple design and easeof- use. A number singled-out the iPod as the CE device that had most recently caught their attention. And in reviewing a series of newly-launched products, they invariably asked about ease-of-use. Among early adopters, ease-of-use is typically a secondary or even tertiary concern provided basic operational needs are met. But based on this group discussion, it appears that ease-of-use may be an increasingly powerful differentiator in the early days of a product category.

About Internet Home Alliance

Internet Home Alliance is a cross-industry network of leading companies advancing the home technology market. A non-profit organization, the Alliance provides companies with the collaboration, research and real-world testing opportunities they need to launch their home technology products more quickly, successfully and costeffectively. Members of the Alliance come from a variety of industries and include such leading companies as Cisco Systems, Inc., General Motors, Hewlett-Packard Company, Invensys, Microsoft, Panasonic (Matsushita Electric Corporation of America), Procter & Gamble, SBC Communications, Inc., Sears, Roebuck and Co., and Whirlpool Corporation. For more information, visit .