How to Make Money from Connected Home Products

Connectivity

Return on

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“ Smartphone ownership has more than doubled in two years. ” Source: Nielsen

“ By 2020 there will be

50 billion connected devices. ”

Source: Ericsson

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Consumer Safety. Protect home investments with affordable remote monitoring. Savings. Save money by decreasing energy usage from home products. Comfort. Maximize time with remote home product and appliance management. Smart Service. Take advantage of remote diagnostic testing and advanced customer service programs. Green. Reduce energy consumption and protect the environment.

Connectivity Trends Driving Business and Consumer Benefits

Business Diversify. Diversify revenue strategies and earn income from new sources. New Markets. Engage current and high potential mobile customers. Efficient Diagnostics. Save money with remote product diagnostic testing and monitoring. Quality Customer Service. Provide best-in-class customer service with new product information and advice. Brand Reputation. Build brand reputation for product innovation and leadership.

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Connected Economy: Consumers Consumers are leading the charge to connectivity across the globe. With soaring mobile web usage rates, the products of the future must be connected or risk obsolescence. Mobile apps offer brands an opportunity to engage target customers where they are actively deciding, controlling, learning, and purchasing.

“Nearly half of consumers interact with brands online.” Source: IBM

“The movement to mobility is at full throttle.” Source: Accenture

“Smartphone sales in Brazil grew by 165% in 2011.” Source: Nielsen

“49% of smartphone owners in the US frequently use their device while shopping.” Source: Nielsen

“62% of smartphone owners have downloaded apps, 87% of which have used daily deal websites.” Source: Nielsen

“Over half of 45-54 year olds act on mobile ads in South Africa.” Source: Nielsen

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Connected Home Armed with smartphones, consumers are eager for products and apps that enable them to monitor their homes from anywhere and save money on energy bills. Manufacturers and retailers are responding with connected products, features, and apps to meet the emerging demand.

“8 billion devices will be connected on the home network by 2015.” Source: Parks Associates

Lowe’s launched Iris in 2012, a customer portal and mobile app for their connected products.

“Smart appliance market to be $26.1 Billion by 2019.” Source: Pike Research

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Connected products offer manufacturers, retailers, and service providers monetization opportunities. The next few slides will show how today’s most innovative companies are earning money from connected home products and mobile applications using these five revenue strategies:

Revenue Strategies for Connected Home Products

Premium Product Sales

$

Mobile Advertising Revenue

$

Complimentary Product Sales

$

Subscription Revenue

$

Additional App Feature Revenue

$

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Overview Connected products command a higher price point in the market by offering new features, featuring smartphones on packaging, and enhancing customer value. A quick scan of the market proves industry leaders are already testing the market with a wide range of high priced connected products and earning a generous margin to cover new costs.

The Money Demand for smart products is pushing prices up 20-300%. If Zowie normally sells 50,000 widgets/year at $100/widget earning $25/widget in profit, a connected widget selling at the same rate with a 50% mark-up and $20/widget in profit would yield $1M or an additional $500K. This model provides for a small increase in COGS per unit, but delivers 200% more profit for a high value, connected product.

Best Practices

• Raise prices moderately to establish the product value, but ensure high volume sales. • Leverage other monetization strategies such as follow-in sales and advertising. • Great fit for connected products without their own mobile app.

“ Increase customer value with a connected product and earn 20-300% more.”

Revenue Strategy Premium Product Sales

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Smart thermostats exemplify the emerging market for mobile home energy management. One of the leading new products, The Nest Learning Thermostat, offers a sleek product and app to remotely monitor and adjust the temperature of your home. Retailing at $250, this premium product is setting a new bar for elegance, functionality, and price - breaking open a new market for smart thermostats and shifting the existing market.

Premium Product Sales Smart Thermostat

4 out of the top 10 Consumer Reports’ rated thermostats offer mobile energy management and include generous mark-ups. (See Appendix for more Thermostat prices) Nest is selling for

3-5x’s the competition.

Example:

Example

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Overview Connected products deliver data that can be translated into follow-on sales. Utilizing new data and mobile engagement points, marketing teams can identify new customer needs, develop products to meet their needs, and cheaply test ads. This strategy is focused on getting new and existing products in front of their connected customers and earning a percentage of the final sale (See Appendix to learn how to market new products using Closed Loop Marketing). Complimentary products could be connected or non-connected products - built by you or a partner.

The Money App owners with advanced targeting are able to advance additional sales with little to no cost and at least 30-40% retailer margins. This is a great way to diversify revenue and meet customer needs without increasing costs.

Best Practices

• Top revenue strategy for companies with a mobile app. • Learn, test, and evaluate new product ideas and marketing in short, fast cycles with a mobile app and Closed Loop Marketing (See Appendix). • Limit the use of outside ads if you have the opportunity to sell complimentary products for a higher return.

“Leverage data and customer interface to sell follow-on products.”

Revenue Strategy Complimentary Product Sales

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Monster Power’s suite of smart plugs and surge protectors put energy control into the consumer’s hands. The company’s Power Control App enables customers to “manage power consumption from their smartphone anywhere, anytime.” By monitoring the power consumption of devices connected to Monster Power products, Monster can inform users of “Vampire” devices on standby that are driving up electricity bills and recommend related Monster Power products that can save consumers money. The app features a built-in “Market” where users can then buy these complimentary products. Follow-on product ideas: • Garage door Thermostats • Security system Smoke alarm, sensors • Weather monitor Irrigation Control

Complimentary Product Sales Smart Home Power

Example:

Example

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Overview Demand for digital advertising is quickly outpacing the growth of traditional television, radio, and print ads. Mobile consumers are engaged and receptive to new information and opportunities. Companies with a smartphone or tablet app can open their interface to advertisers, earning money from display ads, including banners or videos, or integrated product recommendations.

The Money Advertising rates vary depending on the level of targeting. Connected home products can assume a premium ad rate between $5-10 per thousand impressions. An active app with user visits of 3x’s a week and 50,000 devices can yield $65,000 in ad revenue/year with zero costs. App owners will offer a compelling platform for anyone looking to get in front of connected home owners and renters.

Best Practices. • Utilize ads to bring in revenue from a free or freemium app. • Optimal for usage rates of at least 3-4x per week. • Accumulate demographic and usage information to ensure advertisers pay a premium for your unique demographic.

Revenue Strategy Mobile Advertising Revenue

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Highly trusted apps such as Mint.com (personal finance) are pulling big revenue from mobile advertising. Mint charges partners a premium based on lead generation (PPL) and cost per action (CPA) based on seamlessly integrated referrals. Mint is positioned much like a trusted advisor with highly-targeted, actionable data. By keeping track of usage statistics and making recommendations that help consumers save money or increase convenience, home products companies with an active user base have tremendous opportunity to create highly trusted apps like Mint.com.

Mobile Advertising Revenue Trusted Apps

Example:

Example

Trusted Traffic

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Overview Home service companies have long utilized a subscription-based revenue strategy, charging customers on a monthly or yearly basis in exchange for continued services. Common examples include home security systems, cable television, and internet. The subscription model may be extended to other connected home products, especially if the customer is receiving a regular benefit that requires a continued service.

The Money A typical subscription rate for connected products is about $9.99/yr. Rates will depend greatly on 1) how the customer perceives the value of the service and 2) the usage rates for the app and home product. Cost of services are very minimal.

Best Practices

• Strong option for companies with a service to offer. • Companies with regular monitoring could offer custom reports as a service feature. • Owners may want to avoid selling the app and charging monthly fees.

“Extend the subscription model to connected home products that provide regular benefits to customers.”

Revenue Strategy Subscription Revenue

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Companies such as ADT and Comcast have led the way in carving out stable revenue from subscription fees. Thanks to the extremely low business cost of service for connected products, there is major potential for disruption in the subscription fee market. At $8.99/month, Nexia is now offering a highly competitive connected product at a much lower subscription price.

Subscription Revenue Home Services

Examples:

Example

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Overview Once a smartphone is connected and data is generated from home products, there are innumerable features that can be added to the app. For example, a connected thermostat could offer a base subscription of $10/year, and a $5/month “learn and set behavior” premium feature that tracks usage patterns and automatically configures schedules for customers. A connected security system could turn on door locking from mobile phones.

The Money New app features can be sold from within the app store or from the retailers site. Rates will most often be smaller monthly subscriptions, but one-time rates may exist. Cost of services are very limited.

Best Practices

• Consistently offer software updates and new features to entice add-on pricing • Perfect for lower price products or apps with a freemium version • Freemium can be offered to increase usage and then sell upgrades

“Additional features are simple to offer – once your product is connected.”

Revenue Strategy Freemium App Revenue

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The Iris platform by Lowes offers an integrated suite of services and tools. Smartphone features include enhanced reporting, tracking, and mobile controls. By tracking usage rates, the company can easily help a customer optimize usage rates and electricity bills. Home products’ companies provide continuous security for people that want to stay connected and energy savings cost conscious customers. Lowes is able to charge low upgrade fees, but are counting on high volumes and control of the whole home.

Additional App Feature Revenue Lowes’ Connected Home

Example

Examples:

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New Revenue Strategies

Premium Product Sales Complimentary Product Sales Mobile Advertising Revenue Subscription Revenue Additional Feature Revenue

Business Benefits Earn more with connected products Engage mobile customers Diversify revenue streams Increase value to customers

Consumer Benefits Save money and time Protect assets and investments Monitor and manage the home Reduce energy usage

Connected home products help your business and your customers. Stay relevant. Make money. Get connected.

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Arrayent: The Platform for connected products.

Learn more about our products and services at

www.arrayent.com or email info@arrayent.com

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Appendix 1 Closed–Loop Marketing 101 - Description

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Appendix 2 Source List Consumer Trends

Europe Tops US in Mobile Ad Response Rates, eMarketer Inc, March 13, 2012 http://8.10.209.13/Article.aspx?R=1008897 Untrustworthy? How Nielsen Sees The Future of Mobile, Business Insider, Laura Stampler, June 14, 2012 http://www.businessinsider.com/how-nielsen-sees-the-future-of-mobile-display-advertising-2012-6?op=1 How Connectivity Influences Global Shopping, NielsenWire, August 28, 2012 http://blog.nielsen.com/nielsenwire/online_mobile/how-connectivity-influences-global-shopping/ Two Thirds of New Mobile Buyers Now Opting for Smartphones, Nielsen Blog, July 12, 2012 http://blog.nielsen.com/nielsenwire/online_mobile/two-thirds-of-new-mobile-buyers-now-opting-for-smartphones/ From social media to Social CRM – What customers want, IBM Institute for Business Value, IBM Global Business Services Executive Report Mobile Media Report (Q3-2011), Nielsen, http://www.slideshare.net/victori98pt/state-of-mobile-q32011-by-nielsen 2011 Year in Review, Scorecard for Mobile Advertising Reach and Targeting (S.M.A.R.T.) Report, Millenial Media, January 2012 http://www.millennialmedia.com/mobile-intelligence/smart-report/ State of the Media: U.S. Digital Consumer Report Q3-Q4 2011, Nielsen, Global AdView Pulse lite, Q 1 2012, Nielsen Service Providers and the Connected Home, Kurt Scherf, Parks Associates 5 Mobile Ad Trends For 2012, Forbes, Jim Payne, January 4 2012 http://www.forbes.com/sites/ciocentral/2012/01/04/5-mobile-ad-trends-for-2012/ Mobile Reigns Supreme in U.S. Media Consumption, InMobi Insights, Surag Patel, August 16, 2012 http://www.inmobi.com/insights/2012/08/16/mobile-reigns-supreme-in-u-s-media-consumption/ Connected Consumer 2012, Mobile Future Foreward, Chetan Sharma, http://www.chetansharma.com/connectedconsumer.htm

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Appendix 2 Source List Smart Appliances

Connected Personal Objects: Getting Intimate with the Internet of Things, Guthrie Dolin, May 19, 2012 http://www.slideshare.net/gdolin/connected-personalobjects-planningness2012 Ericsson CEO Predicts 50 Billion Internet Connected Devices by 2020, Stacy Higginbotham, April 14, 2010 http://gigaom.com/2010/04/14/ericsson-sees-the-internet-of-things-by-2020/ The Nest Thermostat: Values, Passion & Emotion – A Branding Story, Biquitous, Chris Fernandez, November 17, 2011 http://www.biquitous.com/nest-thermostat-branding-story Bundled energy management services, Fierce Energy, Tom Kerber, August 2, 2012 http://www.fierceenergy.com/story/bundled-energy-management-services/2012-08-02 Household Appliances on the Smart Grid, Smart Appliances Research Report, Pike Research, Q4 2010 http://www.pikeresearch.com/research/smart-appliances Networked Home Energy Management Devices and In-Home Connected Displays, Home Area Networks Research Report, Pike Research, Q3, 2012 http://www.pikeresearch.com/research/home-area-networks Lowe’s jumps into smart home energy market, Smart Planet, Kirsten Korosec, January 5, 2012 http://www.smartplanet.com/blog/intelligent-energy/lowes-jumps-into-smart-home-energy-market/11801 AlertMe announces strategic partnership with Lowe’s to provide Smart Home technologies to North American consumers, AlertMe Press Release, January 5, 2012, https://www.alertme.com/press-release/alertme-announces-strategic-partnership-lowe%E2%80%99s-provide-smart-home-technologies-nor Can Lowe’s Sell Easy Smart Home Monitoring and Control From Anywhere? Eric Bochtler, Innovation Point of View, August 24, 2012 http://www.innovationpov.com/can-lowes-sell-easy-smart-home-monitoring-and-control-from-anywhere/ Move over Siri. Introducing Iris, Lowe’s smart home hub, Consumer Reports, July 31, 2012 http://news.consumerreports.org/home/2012/07/lowes-introduces-iris-smart-home-management-system.html On Guard: Next-Generation Home-Security Systems, Consumers Digest, Gregory Scoblete, July 2011 http://www.consumersdigest.com/electronics/on-guard/video-surveillance-systems 21 www.arrayent.com

Appendix 2 Source List

On Guard: Next-Generation Home-Security Systems, Consumers Digest, Gregory Scoblete, July 2011 http://www.consumersdigest.com/electronics/on-guard/video-surveillance-systems Panasonic Launches Android App for Smart Appliances, Video World Insider, Tara Seals, August 21, 2012 http://www.videoworldinsider.com/topics/video-world-insider/articles/304192-panasonic-launches-android-app-smart-appliances.htm Always On, Always Connected, Finding Growth Opportunities in an Era of Hyermobile Consumers, Accenture Consumer Electronics Report 2012 LG Unveils New Line of Smart Home Appliances at CES, WebProNews, Zach Walton, January 9, 2012 http://www.webpronews.com/lg-smart-appliances-ces-2012-01 Mobile Advertising

Amazon Offers Advertising Opt-Out on Kindle Fire, Wall Street Journal, Greg Bensinger, September 10, 2012 http://online.wsj.com/article/SB10000872396390444554704577642591117657990.html When Freemium Fails, Wall Street Journal http://online.wsj.com/article/SB10000872396390443713704577603782317318996.html AdMob Network Case Study, Best, Cool, Fun Games https://docs.google.com/a/google.com/viewer?url=http%3A%2F%2Fwww.google.com%2Fads%2Fadmob%2Fpdf%2Fapps-bestcoolfun.pdf&embedded=true AdMob Network Case Study, BackFlip Studios https://docs.google.com/a/google.com/viewer?url=http%3A%2F%2Fwww.google.com%2Fads%2Fadmob%2Fpdf%2Fapps-backflip.pdf&embedded=true iAd, Apple Advertising http://advertising.apple.com/brands/ Mobile Will Grab TV Advertising’s Crown, Matt Cohler, TechCrunch, September 25, 2012 www.techcrunch.com/2012/09/25/mobile-will-grab-tv-advertisings-crown/ US to Top Japan as World’s Biggest Mobile Ad Market, eMarketer, August 1, 2012 http://www.emarketer.com/newsroom/index.php/top-japan-worlds-biggest-mobile-ad-market/

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