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US Consumer IoT Market: Key Penetration Rates Creeping Toward 30% in 2023


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US Consumer IoT Market: Key Penetration Rates Creeping Toward 30% in 2023

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The internet of things is driving a great deal of investment from both the technology and telecommunications industries, although penetration rates in key consumer IoT segments in the U.S. market continue to be modest.

The percentage of U.S. consumers who use a wearable technology product, have a connected car or a smart home is stubbornly hovering around 20%, with only slight growth expected in 2019. Despite increasing demand in some product segments, convincing consumers that there is real value in IoT-enabled products and services remains a challenge.

To gauge the growth of the U.S. IoT market, Kagan focuses on three primary consumer IoT market segments:

  • Wearable technology.
  • Connected cars.
  • Smart homes.

By year-end 2019, approximately 21% of U.S. consumers are projected to be wearable technology users. Most of these consumers are wearing a smartwatch or fitness tracker, although an increasing number are using "hearable" devices such as Apple Inc.'s AirPods.

The number of smart homes is also growing, but with only 21% of all homes in the U.S. forecast to be "smart" at year-end 2019, overall penetration remains relatively low. The percentage of connected cars on the road has also grown slightly over the past year, with 18% of vehicles projected to be connected by late 2019.

Wearable technology

Wearable technology products are compact electronic devices designed to be worn. While some of these products have been around for years, today's wearable products offer a greater range of features and are much more consumer-friendly than past iterations. Wearable products today take advantage of advanced technologies that have markedly improved important components in the products, such as displays, processors, batteries and input/output systems.

The recent improvement in the overall wearable technology experience, particularly in consumer acceptance and demand for differentiated products, has attracted a growing number of new vendors to the market. In 2019, vendors with announced wearable technology products range from Fortune 500 firms with multiple devices to start-up companies with a single product. Some well-known examples include:

  • Apple, with its market-leading Apple Watch and AirPods wireless earbuds, or "hearables."
  • Fitbit Inc., a leader in fitness tracker products.
  • Samsung Electronics Co. Ltd., with its Gear-branded smartwatch and fitness tracker products.
  • Seiko Epson Corp., with its Moverio line of smart glasses.

Generally, people in the technology and consumer electronics industries think of wearable technology in terms of electronic products that extend the functionality of a smartphone or provide sensor-based information about a user's physical status or health. Most of the widely available wearable tech products fall into five broad categories:

  • Fitness trackers.
  • Smartwatches.
  • Head-mounted smart glasses.
  • Hearable devices (wireless earbuds).
  • Other products, including smart clothes and connected jewelry.

Despite historically uneven growth and some significant challenges to the fitness tracker product segment, the wearable tech market is still a growth market. The explosion in demand for wireless earbud products over the past year underlines the dynamic growth potential of wearables.

A significant challenge to long-term growth continues to be the true "value add" of wearable tech products. Consumers who have either owned or use a wearable tech product often note that the devices are "nice to have," but are in need of further refinements before they can be deemed "must-have." In addition, a large percentage of other consumers simply show little or no interest in owning any type of wearable tech product.

The penetration rate of U.S. consumers using a wearable technology device is projected to rise from 21% in 2019 to 30% at year-end 2023.

Connected cars

The market for connected cars in the U.S. is growing, although at a somewhat plodding rate. Driven by large telecom service providers like Verizon Communications Inc. and AT&T Inc., the total installed base for vehicles with embedded in-vehicular cellular (3G or 4G LTE), which is our definition of a basic connected car, is expected to reach 18% of total U.S. vehicles, or 49.2 million, by year-end 2019.

Cars with 5G wireless technology are in the testing phase, and with low latency and faster downloading speeds, the connected car could be one of the biggest beneficiaries of the new wireless standard. But first, local administrations and telecom companies must build the infrastructure for 5G to prosper. 5G is still a few years away for connected-car manufacturers that want to provide the technology in their vehicles — a hybrid 4G/5G system is more likely.

While 5G networks' transmission speeds help vehicle-to-vehicle, or V2V, and vehicle-to-anything, or V2X, communications by boosting efficiency and safety, the auto industry must innovate around the technology for mass-market adoption. 4G LTE is expected to be the primary connected-car wireless network, which we estimate should surpass 78% of total in-vehicle cellular systems in 2023.

The percentage of U.S. consumers with a connected car, including cars using aftermarket connectivity solutions, is forecast to rise from 18% in 2019 to 33% in 2023.

Smart homes

Despite the growing popularity of several smart home applications and products, most U.S. homes are still not "smart," according to Kagan's definition.

Kagan estimates that the number of U.S. smart homes will grow to over 26 million at the end of 2019. While this total equates to only 21% of total U.S. households, that percentage is forecast to grow to 32% by 2023.

While the utility and benefits of the smart home remain questionable to some potential adopters, the broader desire of consumers to connect and exercise more control of electronic devices in their home is a positive long-term trend for the smart home.

When using the term "smart home," a key industry issue is agreeing on what exactly makes a smart home "smart." Kagan defines a smart home as one equipped with network-connected products — or "smart devices," connected via Wi-Fi, Bluetooth or similar protocols — used for controlling, automating and optimizing functions such as temperature, lighting, security, safety or entertainment, either remotely by a phone, tablet or computer or by using a separate system within the home itself.

To be categorized as a smart home, the property must have either a smart security feature that controls access or monitors the property or a smart temperature feature, in addition to a reliable broadband internet connection. It also must include at least two additional features from this list:

  • Lighting, such as smart light bulbs and lighting systems, smart plugs.
  • Safety, such as smart fire/carbon monoxide detectors and nightlights.
  • Entertainment/information, such as smart TVs and smart speakers.
  • Appliances, such as smart refrigerators, washers or dryers.
  • Heating/cooling, such as a smart HVAC system, smart fans or vents.
  • Outdoors, such as smart plant sensors and watering systems.
  • Security, such as smart locks, smart alarm systems or cameras.
  • Temperature, such as smart thermostats.

With its requirement for a home access/security feature or a smart thermostat product, this definition is more restrictive and narrower than others used across the industry. However, most smart home industry participants believe it offers a better description of the current smart home as opposed to a broader definition that might, for instance, designate any home with an installed smart speaker as a smart home.

The future of the U.S. consumer IoT market

While we are projecting accelerating growth over the next several years for each of these consumer IoT market segments, we are not forecasting the penetration rate for any of the categories to reach 30% until 2023.

As a large percentage of U.S. consumers continue to be skeptical about the benefits provided by consumer-based IoT products and services, especially when considering the added costs that can come with their usage, growth throughout the forecast period is expected to remain incremental.

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