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Summary

In September 2016, O2 UK started to push further into the home with a new market proposition based on AT&T's Digital Life platform. Just a little over one year later, the company has announced the closure of its smart home business due to a disappointing response from customers and poor market performance. O2's situation illustrates the difficulties many operators face in the smart home market and some of the main lessons to be learnt.

O2 has planned its exit from the smart home market to minimize brand damage

The following factors explain why O2 has not been able to consolidate its position in the smart home market despite its efforts to expand its footprint in the IoT industry:

  • Platform: Initially, AT&T's Digital Life platform seemed a solid base for O2 to build its smart home proposition. However, the fact that AT&T has not successfully propelled Digital Life in its home country, the US, has been detrimental for O2, not representing a good sign. Ovum estimates AT&T has a limited client base of approximately 500,000 subscriptions compared with Comcast's 1.08 million subscriptions as of October 2017. In addition, rumors that AT&T is exploring the potential sale of this business unit to pay down debt after its planned acquisition of Time Warner have also prompted O2 to rethink its strategy for the smart home, causing a chain reaction with severe consequences for the UK-based operator.

  • Use cases: AT&T's almost exclusive focus on the professional home security market has restricted its ability to bring on board other use cases. It also has a limited list of partners and a relatively closed approach to third-party developments. This situation left O2 alone to build its own ecosystem and try to sign partnership agreements with smart home vendors that are more well known in Europe, such as Tado. Despite traction at the beginning, O2 has not been able, or perhaps willing, to secure many new partnerships. To a certain extent, O2's wait-and-see attitude restricted its chances to enhance the smart living experience for its customers.

  • Innovation: It has been hard for O2 to keep up with innovation and make an effort beyond AT&T's basic offering. Voice has become a key enabler of the smart home experience, and even though AT&T has just recently announced integration with Amazon's Alexa, O2 should have approached this issue earlier.

  • Pricing: O2 has struggled to show good value for money. The subscription plans offered were too expensive for the UK mass market – especially as O2 wasn't delivering a professional home security element. Also, offering a closed smart hub with limited flexibility to integrate solutions from third-party vendors was never sustainable in the long term.

O2 is just another company joining the list of operators that have failed to survive in the fast-paced smart home market. SPs such as Verizon, Charter Communications (Spectrum), and Swisscom have also closed their smart home businesses. However, not all hope is lost for these SPs if they are clever enough to find a sweet spot in the smart home industry and make smart home an element of their core consumer strategy. For example, despite discontinuing its smart home security proposition due to poor market performance, Swisscom has found a niche by addressing the needs of elderly consumers willing to invest in assisted-living technologies to live independently at home. The key to Swisscom's success was introducing SmartLife Care as a flexible, subscription-based solution for elderly care. SmartLife Care is now a spin-off of Swisscom, working independently with Helvetia, one of the leading insurance companies in Switzerland.

Communicating why or how a company ceases to operate in the smart home space represents another important factor to be taken into account. O2 is trying to be organized and informative in its withdrawal, offering detailed information on critical and sensitive matters such as payment refunds and product functionality once service delivery is terminated. Besides showing appreciation for the trust and investment received, explaining to customers how the different devices they've acquired in the past will continue working in the future is the least a company can do.

Ovum expects this market approach will help O2 to protect its brand image, especially as it wants to explore other business opportunities in the IoT space, such as connected cars. The closure of the smart home business is not necessarily the end of the road for O2 in this space. However, O2's experience shows how important choosing the right allies and articulating a flexible and cost-effective business model are to succeed in the smart home industry.

Appendix

Further reading

Smart Home Case Study: Smart Home Case Study: Swisscom helps seniors to enjoy their independence without sacrificing safety, TE0003-001019 (May 2017)

Author

Mariana Zamoszczyk, Senior Analyst, Consumer Services

mariana.zamoszczyk@ovum.com

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