Smart & Connected Thermostats in the US

Report Overview

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Smart Thermostats to Continue to Dominate Connected Types through Forecast

US value demand for smart and connected thermostats is forecast to decelerate markedly from the rapid growth of the 2012-2017 period to rise 18% per year through 2022, as demand becomes less comprised of initial product purchases and transitions to be more replacement-oriented. Demand for both products will continue to outstrip sales of non-smart types. Smart thermostats will retain a more than 70% share of the market over lower-tech connected types in 2022 based on their:

• declining prices
• superior performance
• ability to integrate with various other devices in a smart home ecosystem
• enhanced capacity to produce cost and energy savings

Furthermore, increasing consumer familiarity with smart home devices in general and optimism (however cautious) about the potential solutions they represent will underlie gains.

However, connected thermostats will continue to fill a key role in the market, appealing to consumers who may seek the cost- and energy-saving benefits of smart thermostats but are put off by their higher-tech features and/or somewhat higher price tag.

Key Findings in the Smart and Connected Thermostats Study:

Market Leaders Implement Strategies to Penetrate New Consumer Markets

As thermostat purchases tend to correspond with the end of HVAC system lifecycles (15-20 years), manufacturers are forming strategic partnerships with utilities, HVAC professionals, nonprofit organizations, and other entities to expand near-term smart and connected thermostat adoption – particularly among lower-income households. Furthermore, the already high penetration of these products in the households most likely to specify them necessitates reaching a broader consumer base.

For example, a number of utilities companies offer rebates and other financial incentives that may reduce if not neutralize the initial cost to households that install approved devices, because of the grid-wide energy savings they represent. In addition, philanthropic initiatives by manufacturers (e.g., Nest Labs’ Power Project) and marketing partnerships with HVAC contractors (e.g., LUX Products’ co-branding program) will support wider adoption.

Volume Demand Growth to Exceed that of Value Due to Competitive Pricing, Rebates and Giveaways

Smart and connected thermostat demand in volume terms is projected to significantly outpace value gains. This disparity reflects the efforts of manufacturers to penetrate new markets via giveaways, rebates, discounts, and other philanthropic and promotional efforts, which may undercut short-term revenues to an extent but will nevertheless support long-term demand gains by creating a new customer base for future thermostat replacement purchases, as well as potential consumers of other compatible smart home devices.

Technology Innovation

The ultimate longevity of the US smart home market overall, including smart thermostats, will depend on the ability of manufacturers to refine the technologies that underpin the devices in order to:

• streamline efficiencies
• harden cybersecurity
• optimize performance

Innovation will also help to lower production costs, savings that will extend to the retail level and attract more price-conscious consumers, who will also be drawn to the financial energy savings smart and connected thermostats represent, as well as the growing availability of rebates and other financial incentives from utilities companies and other organizations promoting energy efficiency.

Particularly, innovations in AI/learning algorithm and sensor technologies will help realize the mass-market potential of the IoT, while also driving replacement sales among smart device users who want to upgrade to the latest technology available. For example, new sensor technologies support key product features, including volatile organic compound monitoring in the GLAS smart thermostat forthcoming from Johnson Controls and Microsoft and room-occupancy detection in the sensors that supplement ecobee’s smart thermostat. In addition, advances in AI and graphic processing unit technologies permit faster and more reliable synthesis of algorithmic data, which is central to smart home system performance.

Study Coverage

This study analyzes the market for smart and connected thermostats in the US, which totaled $640 million in 2017. It presents historical demand data (2012 and 2017) and forecasts for 2022 and 2025 by product (smart thermostats and connected thermostats). It also features discussion of the primary sales channels used to purchase these devices, as well as detailed profiles of key product introductions and industry leaders, including Alarm.com, ecobee, Emerson Electric, Honeywell, Nest Labs (Google), and United Technologies.