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TV core of Telefonica’s renewed attempt to crack smart home

Like other multiplay operators, Telefonica is having another crack at conquering the smart home now that the big internet players have set up their stall there and started to bite. The early history of digital home services like security and heating control is littered with corpses of failed first-time offerings from the big players. Telefonica is on that list having shut down its O2 Smart Home service in the UK only just over a year ago in January 2018 after poor take up. Other terminations include Verizon’s Home Monitoring and Control and BT’s Home Monitor, while AT&T’s Digital Life, Orange’s HomeLive and Belgacom’s Home Control Home View are no longer actively marketed and are either expiring or awaiting resuscitation in some new form.

This raises the question why these operators do not just give up and leave the field to the likes of Google, Amazon and Apple which seem much better placed with their established ecosystems and leverage from different positions. Google in particular has its virtual assistant embedded in Android and does not rely on an app, except in the iOS environment, while also having a sizeable installed base of thermostats and other devices as a foundation for building what has been dubbed the home computer ecosystem. That enabled Google to start closing the gap on Amazon even though its Home smart speaker and the Google Assistant came later than Alexa.

It was Alexa that propelled the smart home into a second era, having begun with disconnected islands such as security, environmental control and of course entertainment. It was assumed at that time lack of standards was impeding the integration deemed necessary to deliver greater benefits though interaction between these islands. But the real pinch point was lack of unifying UIs that would allow consumers to control all their devices and services conveniently from a single point. Even though the smartphone was becoming an obvious focal point, the rise of the voice-driven digital assistants proved to be the galvanizing and unifying force for the digital home.

Far from giving up, broadband and pay TV operators realized they could not just relinquish their turf to Google, Amazon or Apple since the connected home was a great opportunity for them to exploit their existing customer base and the established billing relationships. Telefonica therefore was working on its second-generation home services well before it pulled the plug on O2 Smart Home and kicked off by collaborating with Huawei, which has been in the news lately for different reasons.

It was in fact at MWC 2016 that Telefónica announced this collaboration to develop smart home products and services in Latin America. This was to exploit Huawei’s cloud-based smart home platform to develop products in several smart home categories, but this again turned out to be premature, at least in some of the relatively undeveloped Latin American markets. As a result, the Huawei partnership in Latin America shaded into smart metering, with the first deployment in Chile of domestic water meters a year later.

By a year later, still in March 2018 Telefonica and Huawei had lurched more towards enterprises by launching a Big Data as a Service (BDaaS) initiative marketed under the brand of LUCA, the Telco’s data unit. Just a month earlier though, at last year’s MWC 2018, Telefonica had unveiled its Aura platform and started talking about its AI-based partnership with Microsoft in a move that was high on aspiration but rather lower on detail, mentioning blockchain, 5G and edge computing. The emphasis on customer service was clearly stated with indications that Telefonica had learned hard lessons from earlier failed smart home ventures.

Some of these lessons should have been obvious enough, such as the need to invest adequately in training support staff to help customers self-install what can be tricky devices of various types. Poor promotion of smart home services and failure to exploit existing retail and online channels to market have also dampened sales, as in Telefonica’s O2 case. Positioning of that service was also misguided, being offered as a separate service hardly related to the existing broadband or pay TV offering, rather than as a coherent add-on.

Such considerations have persuaded Telefonica to place the TV at the hub of the home ecosystem, particularly in Spain where it has over 4 million pay TV customers. So, while its Aura operates as a branded app in Argentina, Brazil and Britain, while being available via Facebook Messenger in Chile and Germany, it runs on Telefonica’s pay TV platform in Spain.

It has also been integrated with Google Assistant, with Microsoft’s Cortana coming last despite the partnership. Another lesson from the past though was the need to work with key partners to build the ecosystem, which even the tech giants have had to do.

Telefonica and Microsoft have now announced the next phase of their partnership, which is to zoom in on particular use cases that sell the concept to consumers under the banner of what they call Living Apps. One of the apps is for smart WiFi running in the set top with the primary focus on delivering high quality video around the home. This is aimed at enhancing the value of some specific video apps resulting from partnerships, for example with the soccer team Atletico Madrid. There are also partners on the retail and travel side, with the department store El Corte Ingles, and Air Europa for example, running on Telefonica’s 8-inch display Movistar Home device based on Aura. This will allow the retail or travel partners to display products or services with more features than those companies’ web sites.

At this stage the offering is confined to Telefonica’s existing customer base with little prospect of reaching out and competing with the big tech players on neutral ground. This means the move is mostly defensive for now but does at least open up new revenue streams through the partnerships. Telefonica believes that it does have one advantage, the trust of its customers, which has two components. One is the trust in the service provider to respect privacy and not abuse customer data, where Google and Facebook in particular are deemed to have a poorer reputation. The other aspect is enforcement of rigorous security to protect customer data from hacking, which is obviously related, but also perhaps the greatest source or risk in the wake of GDPR, which has ensured all operators adhere to common regulations over privacy. After all some operators such as TalkTalk in the UK have sustained significant reputational damage as a result of hacks.

It is worth pointing out though that not all the internet giants are rated badly for trust, while equally telcos do not always rate highly. While Amazon may have a poor reputation for the way it treats suppliers and its own workers, it has an almost unblemished record for customer service, which filters through into trust where it quite consistently comes top. For example, survey results announced in November 2018, by VPN provider ExpressVPN, found that while 49% of participants nominated Facebook Portal as the least trusted of the major smart home brands, only 17% said the same of Amazon Alexa.

In another survey by Seattle based smart home project specialist Porch, Amazon came top and Apple bottom. Microsoft itself has been trumpeting its commitment to trust but is generally ranked below Amazon and sometimes also Google in surveys, so Telefonica may do well not to overplay that card. Telefonica is also playing the AI card, but did not respond to our request for more details of how that will enhance customer service through data analytics, subject of course to privacy constraints.

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