Connected home players should look to innovative business models like micro-transactions in the nascent sector, a joint report from Deutsche Telekom and Strategy Analytics has claimed.
The report has shed light on the European market in particular, predicting significant new revenues for those who succeed.
Across the continent, the connected home market will be worth up to €15.5 billion annually by 2019, according to the report authors.
Almost 50 million homes in Western Europe will have installed such technology in that timeframe, led by Germany, the UK, France, Italy and Spain.
The good news is that lot of the market value will equate to real growth, although choosing the right business model will be key, the report says.
It considers six that providers could rely on; these include hardware sales, loyalty, regulation and subscription-based models, product as-a-service, and service bundles.
However, business model innovation is needed and the report suggests gamification, micro-transactions and freemium as potential options that could be looked at further.
Further, the market value is forecast to move from one sector to another as the balance of power shifts between telcos, utilities, insurers, retailers and manufacturers, the report warned.
At the same time, there are many challenges to overcome.
Market-to-market differences are significant, meaning telcos cannot wheel out the same service across borders as they are used to doing.
Security and safety-related applications are the most valued currently because they meet a clear need, according to the report, but there is a “growing interest” in energy and home automation services, such as control of lighting, blinds and music.
More widely, the report claims the connected home market is still to be defined and consumer awareness remains low.
It says that just 0.06 percent of things that could be connected to the internet currently are.
The lack of industry-wide platforms or consistent standards remains another concern.
To succeed, telcos must partner with all the other players who want to play a role in the connected home.
Holger Knoepke, VP Connected Home at Deutsche Telekom, used the report as a call to arms to European businesses in the space.
He said: “Global giants have their sights firmly set on our markets and the value that can be extracted from many diverse industries.
“The opportunity is now, global competitors will not sit around and wait for European players to fully prepare their strategies and product development plans".
He added: “To date, this market has been too focused on technology for technology's sake, and overlooked the customer and their needs.
“Beyond this, there needs to be greater willingness to partner to realise growth.
“The winners will be those that are prepared to innovate, to take risks, and be willing to lead in a nascent market".