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Three smart home M&A deals come as Lowe’s throws in towel

US home improvement chain Lowe’s has announced that it is quitting the smart home game and is looking to offload its Iris platform to a buyer. In the coming months, we expect to add Iris to our list of M&A activity; a list that was bolstered by three such deals recently, involving Apple, Aviva, and Legrand.

There had been something of a slowdown in the smart home sector recently, with many smaller brands struggling to align themselves to the emerging dominance of Amazon and Google. To this end, many firms have been focusing on ensuring that their devices play nicely with one or both ecosystems, which has been a good thing to see – as these giants have effectively killed off the notion of pursuing a walled garden.

Of course, Apple is something of an exception to that wisdom. It seems determined that HomePods will be a thing, even though consumer enthusiasm has been very lacking, and it still hasn’t managed to turn its Siri-powered audio systems into competent smart home hubs. To this end, its acquisition of Silk Labs, which in true Apple fashion it isn’t confirming, could provide the momentum needed to turn things around there.

Silk Labs was a startup that had origins inside Mozilla’s Firefox OS project. With around a dozen employees, the company was trying to build an operating system for IoT devices, which would make use of AI-based technologies. Formed in 2015, and emerging from stealth-mode in 2016, Silk Labs had launched a Kickstarter project for its Sense device, a system that combined security camera and smart home hub features, which raised the required funding but was then shelved by Silk Labs.

The device was somewhat unique in that it would automatically perform certain behaviors based on people it recognized, which if it were ever built, would have let people automate tasks in a smart home. In time, that could scale to things like room temperature and light settings, pre-warming ovens or other appliances, and arming security systems when a home is empty – or sounding the alarm if it sees a stranger. Of course, Sense never made it to shelves, but Apple might have an interest in building on that domain expertise.

As for pricing, Apple is saying nothing. For one of the richest companies in the world, the purchase price might equate to seconds of revenue, but it seems clear that Silk Labs had something that Apple wanted – likely the privacy-focused features that align nicely with Apple’s current branding. Giving owners complete control over the data and processing in the home would be a nice unique-selling-point for Apple, compared to Amazon and Google’s cloud-centric architecture.

Elsewhere, British insurance firm Aviva has acquired Neos, a company that was having a good crack at pushing home insurance bundled with smart home devices. Aviva was an early investor in Neos, and now wants the whole pie by the look of it, saying that it fits with the company’s strategy of building closer relationships with customers via technology.

Insurance firms are waking up to the opportunity of harnessing such technology. Relayr was bought by Hartford Steam Boiler, a subsidiary of Munich Re, for $300mn. While relayr was playing more in the IIoT realm, there are easy parallels to make between the two.

Like Silk Labs, the price here isn’t being disclosed. The minority stake that Aviva held was bought for £5mn, which means that this deal could easily be in the mid-double-digit millions range, although Aviva keeps saying ‘majority stake,’ which rather implies that it is not a 100% owner – so the price could be a fair bit lower. We are awaiting confirmation on that note. Launched in 2016, Neos now has some 30 employees.

Neos would combine cameras, smoke alarms, and water sensors, in a package that was intended to spot small problems early and prevent them becoming big ones. It’s the same principle as preventative maintenance, as with Munich’s relayr, and a trend which is proving very popular among enterprises that have to manage expensive machinery.

The third transaction saw Legrand acquire Netatmo, a French firm that has been making cameras, thermostats, and weather stations for a few years now, and now has a pretty well-rounded portfolio of devices. Founded in 2011, with 225 staff, Netatmo has around 1.3mn active products, with annual sales of $51mn. It is one of the more successful startups.

This success has attracted the attention of Legrand, which had also invested in the startup back in 2015. The purchase price is not being disclosed, but with 130 engineers in Netatmo, Legrand will be looking to flesh out and integrate the suite into its own portfolio – a firm that has moved from selling sockets, switches, and associated electrical equipment like breaker boards and power supplies, into one that is now focused on extending these with energy saving technologies. Legrand’s KNX/DALI portfolio is particularly interesting in this light, as these networking systems are foundational for smart buildings.

Founded in 1904, Legrand might be one of the best examples of how an established business can expand into the IoT. Taking small slices in promising startups, using a pittance of your annual revenue, can let you identify how such new technologies can be brought to bear on the existing product lines. It’s a small stakes game, with low risk, which if done properly, should prevent the firm from ever being blindsided by a new approach. Investment strategies are key for keeping such large companies going.

For Lowe’s, ditching smart home products from its shelves may well be evidence that bricks-and-mortar is not the right sales channel for the new trend. While e-commerce is currently a leader, we are of the opinion that smart home pricing should get to the point where regular supermarkets would carry at least a small selection of devices.

Dedicated shops seem unlikely to succeed, and for a retailer like Lowe’s, it seems that branching off from its core focus has not provided the appropriate return. Lowe’s might have been particularly bad at selling such products, but most consumers aren’t heading to DIY suppliers to pick up connected lightbulbs or smart thermostats. That might change in time, but for Lowe’s, this seems like the end of its smart home journey.

This could mean that Iris is the next name to be added to the list of almost-but-not-quite-made-it firms. Wink seems to have gone that way too, and it’s not hard to find firms that have gone pretty quiet in the past few quarters. Some of these firms might be snapped up by larger entities, but an awful lot of startups are going to be packing up and going home in the next two years.

The smart home was always a race to the bottom, and companies quickly realized that the value was not in the hardware, but rather in the software and services that could be built on them. Compounding this was the issue of walled gardens and isolated platforms, and while the likes of Amazon and Google have brought their hammers to blow here, somewhat freeing up the market from these smaller fiefdoms, there is a definite risk that the big boys are going to start trying to build their own walls, and create new strangleholds.

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