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#DigitalSkeptic: Smart Homes Will Stay Dumb for Some Time

NEW YORK (TheStreet) -- James Coulson has got a tough question for the supposedly super smart "smart home" sector.

"Just how many homes would you consider smart?" asked the global channel and communications director for the European division of Honeywell, the global safety, security and energy management firm. "That's not sophisticated home monitoring or anything like that -- just the basics of remotely controlling one sector of the house over another?"

The London-based Coulson was demonstrating for me his company's latest, whiz-bang home control systems about a month ago at a trade demo. And no question, it was sure impressive to potentially control his Wi-Fi Programmable Thermostat with my smartphone -- or my voice. But it was also clear that even for this home automation giant, the average American home was not going to get super smart super soon.

"In England we float around at about 23 million total homes," he said. Roughly 8% of those residences are clever enough to control separate zones in their homes, and probably less than 5% can do that trick remotely, he explained. "A thermostat is still very much a distressed purchase," he said. "The homeowner gets a new one when they have to. We hope to change that with these products.

"But right now we are dealing with a small fraction of total European residences."

Coulson's questions about the size and depth of the smart home market would be just another niche, tech concern save for one critical fact: Google's blockbuster $3.2 billion deal for Palo Alto, Calif.-based smart home control maker Nest, matched with recent rollouts of intelligent home automation tools from the likes of Lowe's and Staples, has turned remotely controlling one's home from an investor afterthought into a major trick question.

It's one that apparently has no easy answer.

"We are, unfortunately, unable to provide that information at this time," said Jaclyn Pardini, a public relations manager at Lowe's Home Improvement, in an email responding to my question about the number of homes now using Lowe's new IRIS Home Management System, which remotely controls everything from heat to home security and even lighting.

The smart home sector's startups are equally tight-lipped about the number of homes it serves. Four (count em!) Nest representatives flatly refused to comment on the totalpf homes enabled with the company's technology. Analysts say nondisclosure is a fact of smart home living.

"Welcome to this industry. Secrecy is a common problem," explained Ben Kellison, senior analyst for Greentech Media, a Boston alternative energy analysis firm. Kellison estimates the number of smart thermostats sold in 2012 was 1 million, accounting for about 10% of the total 10 million thermostats sold annually.

Not hard to not be a smart home dummy
What's flat-out puzzling about the secrecy is that it's not as if investors can't piece together for themselves the rough IQ of the American house. Kellison says the benchmark figure for the total market is the 130 million residential customers who use a thermostat. If we then take his figure of 10 million total thermostats sold yearly, investors can guess easily that smart home tech makers are staring at less than 10% of the total potential home control market -- and that the actual 1 million smart thermostats sold in 2012 is barely 1% of the 130 million total thermostat customers.

That's basically a fraction of other intelligent Web-connected devices such as smartphones, or for that matter, even smart cars.

And let's not forget, friends, the smart home market is anything but easy: Of many tales of smart home suffering, the most brutal I've watched was Motorola's repeated attempts to enter the home automation world. If I recall properly, its Mobility arm began selling DIY home control tools all the way back in 2004 under the Zanboo brand. It acquired Premise Systems in 2005. And then tried again in 2010 with the purchase of 4Home. That all before Google bought the Mobility division for $12.4 billion in 2011. And keep in mind, Google itself has had its own smart home struggles. Its intelligent residence technology, the Google Power Meter, was retired from service back in 2011.

Now for sure, will more Americans buy more intelligent home control systems? Of course they do. But slowly. Kellison figures that roughly 5 million connected thermostats will come online over the next three years. At sales this small, investors have got to figure that a meaningful smart home market is at least a decade away.

That all means the Larry Pages of the world may have the billions to chase after such elusive markets. But for most other investors, the smart home is going to stay plenty dumb for good long time.

Stock quotes in this article: GOOG 
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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