LAS VEGAS – Last month’s International CES could have aptly been renamed the Connected Electronics Show, as home automation, wearables and all other manner of Internet of Everything devices reached critical mass.
That the CE business has reached a new inflection point was hardly lost on the leading industry merchants who gathered for TWICE’s annual Retail Executive Roundtable at CES. The participants represented all classes of channel and trade, but were singular in their conviction that once past the interoperability hurdle, opportunities will be infinite in a connected world.
In the meantime, the panelists also shared their early experiences and best practices as they stake their claims on this still nascent business. An edited transcript of the discussion follows (see the group’s assessment of Holiday 2014 here.)
Mehrdad Akbar, VP, wireless, tablets, wearables and connected home, Walmart
Stephen Baker, industry analysis VP, The NPD Group
Ryan Ciovacco, president, connected solutions & CE, Sears Holdings
Brian Coupland, business development VP, Staples
Noah Herschman, COO, DHgate
Tom Hickman, electronics senior VP, Nationwide Marketing Group
Laura Orvidas, VP CE, Amazon.com
Michael Schwab, co-president, D&H Distributing
Fred Towns, president, New Age Electronics
Evie Wexler, president/co-founder, The Little Guys
David Wexler, VP/co-founder, The Little Guys
David Workman, president/COO, ProSource
TWICE:Sears has placed a huge bet around connected solutions. What was the thinking?
Ryan Ciovacco, Sears Holdings: It’s very difficult in a video or on a box on a shelf to really show why you should buy a $250 Wi-Fi thermostat. Unless you use it as intended, it’s not any more special than a $30 thermostat. It’s one thing to say you can turn it on and off from your phone. It’s another thing to say, “When my 4-year-old leaves the window open for 20 minutes, it triggers my thermostat to shut off and save me money,” or “When my carbon monoxide detector senses carbon monoxide, it will shut my HVAC off through my thermostat.”
Those types of use cases are very difficult to show in a retail setting, which is why we have launched three test stores in Chicago, which are more experiencetype centers. They are about 2,000 square feet. We have seen a lot of success there, and we are now expanding to 200 stores. Then in midyear we will launch our 4,000-square-foot big experience center in San Bruno. That is where we are really going to show how these products work.
Again, it’s not just about how your smartphone works; it’s having a kitchen vignette and a living room to show how your smartphone controls your thermostat, which works with your camera and appliances. It’s about anything from a basketball that shows you how to improve your arc to a connected treadmill. All of that stuff is really important and is something that you need to show.
TWICE:How are you demonstrating that?
Ciovacco: If you look at our kitchen vignette, it’s an actual full-working kitchen, with a connected dishwasher, thermostat, HVAC and cameras. Everything will be fully functioning and working because, again, it’s one thing to see Nest and another thing to see how it actually connects to other products, especially within the Nest family.
A big part of this is how these products work together, and being able to show it within an ecosystem. If you were at the Samsung keynote [at International CES], a big part of it for Samsung, BMW and everyone is focusing on keeping a very open ecosystem, just to reduce the anxiety and confusion over what products work with each other. Being able to show that Nest now works with Dropcam, works with Honeywell and works with smart things is going to be the key.
Mehrdad Akbar, Walmart: Ryan is spot on. One of the key things about the connected home is that consumers are starting to adapt to do-it-yourself point solutions. It’s easy to set up. The mass adoption is going to arrive when you have service providers coming in and creating multiple hubs.
I was happy to hear the CEO of Samsung promising at the keynote that they would keep it open. When you think about Qualcomm, Intel and at some point even Apple or Samsung, the key for mass adoption to happen is that these hubs have to be open. We have to make it simple for the customers to be able to leverage the technologies.
In our environment we don’t have the service to tell people about these technologies the way some other retailers can. To Ryan’s point, we have to be able to show it through a sign, and we have to make it emotional and give them a reason buy. If you tell them, “Look, if you have a leak, you are going to know via your phone,” that is important. Or if your dog gets beyond a certain distance or your child gets beyond a certain distance, you want to be notified about that.
The problem is that if you have hubs that are closed and there are multiple hubs, the customer is going to shy away. They are not going to be able to adapt to the technology. This is critical, and this is the year that we are really going to find out from Qualcomm or Intel or Apple or whoever it is, how big of a mass adoption we are going to get by having this big hub that everyone can tie their devices into. That is critical to the success of this industry and for us to be able to really make it explode.
It is up to us as retailers to come in to help demystify and simplify and let our customers know why they need something like this in their lives.
TWICE:Should retailers be pushing for a common platform?Is Walmart?
Akbar: We all have to. There are different consortiums that are being built; our preference is that there is one consortium for all retailers, all of the OEMs and all of the back-end technology guys. There needs to be one.
Samsung’s claim at the keynote was that you can plug anything into their platform. They had Jawbone up there and BMW, and the whole concept behind it is the fact that you can bring all your devices and tie into the hub. The question is whether that is really the case. Can I go buy a Nest product, be it a Dropcam or a thermostat, and tie it into the smartphone?
Michael Schwab, D&H Distributing: Or the Belkin WeMo product.
Stephen Baker, NPD Group: There will be openness when consumer demand forces openness. Right now if everything is a point solution, you don’t necessarily need to have an open platform to connect stuff.
The reason everyone is starting to talk about “open” is because we are getting pretty close to the hockey-stick piece of home automation. At CES, if it’s not a wearable, it’s a home-automation product, and pretty soon people will actually think there’s a value in having a Bluetooth lock on their house or a Wi-Fi lightbulb or whatever.
When they get up to three or four point solutions, consumers are going to ask, “Why can’t I make these things work together?” That’s when the retailers and the supply chain are going to have to go back and put pressure on the marketplace to say “Now is the time that all of those things have to talk to each other.”
We are in a good spot, but to get to the next level we need more sales of point solutions to force the industry to be more open so that those things can get connected.
Akbar: Simplicity and value are the two key words to really drive home, and that applies to anything with technology. In our environment that works like a charm. Make it simple and give the customers a good value. That drives a lot of transactions for us. That is key in this space.
Brian Coupland, Staples: That is certainly the feedback we have been hearing. With all of the new protocols out there, having one unified solution and one app is what we are hearing, and is really what drove Staples Connect. Customers didn’t want to go into multiple apps even though each individual experience may be great. They wanted one unified experience.
To your point, Mehrdad, what is really exciting is taking out the complexity. We have heard already some exciting use cases. We are experiencing that each customer is individualized, whether it’s consumer or business. It is exciting to be learning as the consumers are for these ever-increasing use cases daily. We are going to see exciting products to help support the new ecosystems that are emerging.
Fred Towns, New Age Electronics: There are companies and manufacturers that we work with today that were using the Apple Air sharing-type product, and they are now converting over to Bluetooth because so much of the feedback from consumers is, “Well, now I have to buy an Air in order to make this share, and I don’t want to do that.”
And it does have to be simple. It’s complicated enough to try and hook your phone up to your car. We’re seeing that even the decision to go with either Wi-Fi or Bluetooth is still confusing for consumers, and going to everybody’s proprietary application store to bring down the software is a real challenge.
But the manufacturers are looking at standardizing, they’re starting to choose, and in some cases are changing their brands to go that way.
The Pros And Cons Of Complexity
David Wexler, The Little Guys: Our perspective is different. We thrive on confusion. We want it to be as complicated and as confusing as possible.
I get that to get the mass numbers you need simplicity. That’s fine. Keep figuring it out and adding more systems. That’s what we make a living from because people don’t need to know how it goes up, and they don’t need to know which one goes with which and how it connects. They only need to know how to use it, and we can show them that. We can show them how to use it, take advantage of it, and make their lives simpler without having simple systems.
Akbar: It doesn’t have to be complicated, even as service providers. AT&T is a great example of that – their Digital Life platform. They send folks like The Little Guys out there to do the stuff for them, but it has to be simple and it has to work together. Unless it is like that, the mass adoption that we are all looking for in that space is never going to happen.
Ciovacco: It has to be simple, but it also has to be reliable. It’s one thing for there to be latency when I turn my Sonos speakers on and off, but it’s an entirely different thing when the door lock doesn’t work or the lights don’t turn on.
Wexler: That’s the difference in having an expert create a network for you that is reliable and durable and set up correctly.
Ciovacco: That’s true, but there are a number of other reasons. Some of the products just aren’t at the point where they are reliable enough.
Schwab: I think The Little Guys has a long runway [laughter]. If you think about Bluetooth as the standard, or Wi-Fi as the standard, you don’t have anyone dominant enough in the connected-home space to proliferate the standard. I do think we are going to have Samsung, Intel, Qualcomm and everybody venture out with different viable solutions. Maybe it is a hub that takes it all and can consolidate it and make it work together. There will be disparate technologies that people have in their homes for locks, lights and everything else.
TWICE:Does Staples offer in-home services?
Coupland: Yes, there is the option to have an inhome set-up, up to and including certified electricians. We do have the ability to go to locations and set that up.
It’s interesting. You have the do-it-yourselfers, but the more complexity there is the more there is going to be a great opportunity for both going forward. We find that as people get into their connected ecosystem, their confidence also increases and we are seeing a lot of in-app purchases.
When they buy their first connected device, they buy their hub and download the app. Then almost monthly they get more and more engaged in building up their smart ecosystem. It’s not just a one-time buy for one use case that is solved. They get engaged, and the acceleration has been exciting.
We are finding that our customers are engaging up to 12 times a day with the Staples Connect app. It is a very sticky, engaged customer in the smart arena, whether for home or business. And the more they learn the more they expand and solve use cases, which is great for all of us.
TWICE:Staples was one of the first in the category. What were some of your other learnings?
Coupland: Early in 2014, we expanded after testing. It’s now in 550 stores and online. We have been very excited with it. When we initially went in, the drivers as I noted were having one aggregate hub with all of the protocols future proof. We worked with Zonoff, and we are very excited with what we have.
What we have found, as I said earlier, is a number of use cases and just how personalized they have become for customers. It allows them freedom to leave their business. They see in their app that the delivery driver is there; they open the door, it triggers the camera, they talk to him, he puts the package down, walks out and locks the door. We hear feedback that they would have otherwise been stuck at their business waiting for him.
Talking to a consumer, we think, is very creative. Rather than walk out to his garage and find a raccoon in the trash because his kids didn’t shut the garage door, he gets a notification: shut the garage door. It’s an example of how many different things we are learning as we go. It is a highly engaged consumer, and we are learning along with them. It has been exciting that way.
The key is simplicity and ease of use. Getting people started in the space, and seeing as we go how they are learning to accelerate their ecosystems, has been an exciting learning for us.
TWICE: Do you have dedicated sales associates for the sections?
Coupland: They are all trained on it. We also have a dedicated landing site at Staples.com to educate the consumer. The use cases can be very complex, but they don’t have to be. The key is to get people started in the system with ease of use, simplicity and value.
TWICE:Are you planning further expansions?
Coupland: We continue to look at it, and we have a team here to continue looking at the product assortment and what will suit the customers’ needs. We have a forum on Staples Connect as well, and it’s great to have regular feedback. It has helped us accelerate our involvement as well.
TWICE:Does Sears have dedicated sales folks in its stores?
Ciovacco: We do.
TWICE: Are they your own employees or provided by third-parties?
Ciovacco: They are our own, and they are specially trained. They need to be because it is a different type of product. They have to be able to understand the basic questions on connectivity and interoperability.
Automation For The Masses
TWICE:Walmart recently rolled out connected-device sections within its electronics departments. What is your early read on it? Is the customer getting it?
Akbar: They are. Today we are focused predominantly on do-it-yourself types of things, the WeMo’s of the world, and we launched Insteon on a 4-foot section. It’s creating awareness, and we are learning. We keep asking the questions. We keep soliciting feedback from our consumers and figuring out the best way to engage the product in the stores. It’s an evolving technology and an evolving space. We have close to 1,500 stores where we have both wearables and connected home.
It is doing well for us, but there is much more room in the space. Honestly, we are not even close to what we think we could be doing and should be doing for our customers, but we are learning from the experience. I am looking forward to learning a lot at the show [CES], about how they are conveying the product to make it easy, so that the customer gets emotional about it and says, “I want that value proposition.”
If we can bring that value proposition in our stores and do it at the best price that we are known for, it’s a win/win for us. It is an evolving space for us and a fast-growing space, and we are going to continue to go after it.
Towns: I still think there is a real need for the education aspect. We are looking at how we can help the retailers that we service to provide the education, to get out there and train their floor people on using the product. We are pushing manufacturers to provide the information so that we can give it to them in a very simple form to help educate online. That is a challenge.
And there are different levels of sophistication. I gave my daughter a security device for her college apartment. That device for her application is perfect. It is not always a whole-home solution that we are looking at. We have to look at the wide array and keep it simple.
David Workman, ProSource: In this industry we tend to focus in on a product. Connected home is a solution. It is a multiple of products, and generally speaking it is very difficult to get mass awareness around a solution because you can’t pinpoint a specific thing that you can beat the death out of on price.
Solutions are different in the way they develop. Simplicity and standards are table stakes. If you expect the audience to widen, you can’t have, “Hey, we’ll tell you later if it’s going to work or not. And, by the way, you can buy a product today, and maybe five years from now it will also work with whatever else is coming.”
We also have seen time and again products that have been attempted on end-caps, where the manufacturer, who is an engineer with 17 degrees, said, “I get it, and when I put this out on an end-cap the consumer is going to immediately get it too.” They fail miserably, or their market penetration is miniscule.
Eventually the market will develop around the DIY stuff, but there will always be those who even though they own a lawnmower may not want to mow their grass and will hire somebody to do it. Both markets can co-exist very successfully into the future.
We have a lot of work to do in both broadening the awareness and getting the standards. We need leadership in that area, but the potential in this category is enormous.
Service And Support Imperative
TWICE:Are you concerned that at some point it will be completely plug-and-play?
Evie Wexler, The Little Guys: Computers are still not plug-and-play, so I don’t think so. It’s in its infancy, and it’s going to take a long time for some manufacturer who partners with other companies to come up with a wholehome solution. That is what people will buy, but there will be several, just like if you go and buy a computer.
We used to build computers. Now they are already built. You pick one, and if you try to add a program to it or whatever, you have to find a person to actually do it. This will go the same way.
We even know yet why we want things connected. We always talk about the refrigerator that is going to nag you about buying milk. I don’t think consumers know exactly what they are going to want connected in the future. It is going to take a long time.
David Wexler: With the music part of it, we have people walk in the door and ask to buy a CD changer. If you ask them how many CDs they have, and if they have a smartphone and Internet in their house, you turn that into a Bluesound vault and distributed music and the add-ons that go with that.
Getting audio and music throughout the house is still important. We will be fine. We need you guys to spread the word because the more big places that are putting out the information, the more it becomes more common and the more that people expect it.
Workman: With all of the devices we are now sell-ing to the consumer, the constant is a stable network in the home. But we continue to shove more and more devices into these Wi-Fi networks inside the house, and at some point the thing rolls over on its back and croaks. “I’m tired. Don’t put another device on me or nothing will work.” We are seeing that.
Just to get in the game with all of these devices, you have to go in and upgrade the network in the customer’s home. You don’t even want to begin the job unless you upgrade the network.
That is a solution, and customers don’t know how to get that done. It is almost a requirement for the class of dealers who are going out and doing the installation jobs. But there are some very elegant and much more affordable solutions to do that now.
David Wexler: We won’t install a control system if we don’t own the network. We tried it the other way, and it does not work.
Workman: Exactly, and then you end up with customer complaints. And if it’s not a great experience, it is not going to go very far.
Schwab: Particularly if they are cutting the cord and doing downloads and streaming. Trying to stream high-definition content across the Wi-Fi network is troublesome, and people get buffering. They don’t know if it’s the router, the bandwidth or the distance to the router. They are at a loss, whereas having some education and an opportunity to improve from a solution standpoint is meaningful.
David Wexler: Latency is the killer. It creates animosity and a negative attitude towards everything. Then they don’t evolve to the next level.
It’s not the product; it’s the experience. Stop showing somebody the thing. Show them the experience. Show them what happens, how it works. I applaud Walmart’s experience centers, not that other big guys haven’t tried that before. But if you can pull it off, that is what is going to make it work. That is what is going to make you succeed if you can do it on an in-store basis.
Akbar: As a mass retailer, our job is to demystify and simplify for the customer, which goes beyond the product on the shelf.
It takes a lot of different things to come together to make this work, but you are only as good as that weakest link. We could have the best hubs out there that are open to everything, but going back to your point David, if your router isn’t a good router, or if you don’t have a DOCSIS 3 modem and your modem is bad, it doesn’t matter how good of a hub you have or how many wonderful devices you connect. You are still not going to get the experience. And what is going to happen? The customer is going to bring back all of the wonderful devices and say, “This doesn’t work.”
None of us want returns, and that is what is going to happen. There needs to be this consortium that everyone is talking about here at CES or anywhere else. You have to have players who are providing services. You have to have the Qualcomms and the Intels and the Samsungs of the world. Everyone has to come together and say, “How do we make this simple for our customers so that the overarching experience is a really good experience?”
It goes beyond the product on the shelf. It goes beyond the signage. It’s a lot of people coming together. And, again, it comes down to simplicity, bringing good value and making it emotional. Do that and they are all over it.
Ciovacco: No matter how simple the products become, I would be willing to bet that most people in this room wouldn’t pull their thermostat off the wall and replace it or change the lighting. There are parts that even if you consider connecting them DIY, installing them will still be a big service portion.
Towns: I don’t think everybody can afford to pay to have a solution guy come into their house and set up their home for connection. As much as we like to look at the services that you offer, not every customer in the U.S. can walk in and pay for that level of service.
There needs to be a simpler way to still have components of it and to upgrade, modify and enjoy some of these things.
In a lot of cases, the retailers that we sell to don’t have a full-suite solution or a customer base who can pay to have that custom installed in their home. We are talking about a low percentage of America who can afford it. They need a solution and a way to get involved with some of these products. Simplicity is still a big part of it.
Workman: That is where you bounce back and forth between open standards, which I think all of us like, but open standards are messy. They are like a democracy. It may be the best system, but it’s a little messy. The closed networks are a dictatorship, where: “t’s our way, we will make sure it works, and we’ll control the user experience from head to toe.” You have to fight against those two forces. It’s great to hear that a leader like Samsung is going to embrace open standard, but ultimately what Fred is saying is true.
We need to develop a benchmark. The market will never grow if some guy in a van has to come out and do it for you. There has to be a DIY component for it to grow to the level we are all hoping it will, but there has to be reference points or standards where a customer can easily reference that “This is what my network has to be, boom, boom, boom,” so they are not just trying to figure it out on a one-off basis.
There are a lot of moving pieces. It is multiple components all being brought together, and everybody is supposed to play nice in the sandbox somehow and work. That is going to be a long journey for us. The potential is enormous.
The E-Commerce Connection
TWICE:Laura, we talked about the importance of in-store presentation and the complexity of the category. Does Amazon feel disadvantaged because it is online only?
Laura Orvidas, Amazon.com: We have a homeautomation story. We have a number of videos and content that helps explain to the customer the different protocols that are used, what types of systems you can have, and we also have the advantage of a wonderful network of customer reviewers who tend to be very technologically savvy.
If you go on and read some of the reviews, they will help you with the troubleshooting of the devices. We also have a question-and-answer section on all of our products. If someone has a question about the product, it will email all of the owners of that product who purchased it through us and request an answer. It’s generally very quick for consumers to get a response.
From an online perspective, it is different, and consumers can shop in a number of different ways. Some consumers will want to touch and feel and see how things work, and some are very comfortable reading about the technologies, looking at videos that help to educate them, and reading what real customers have to say about their actual use cases.
We feel good about the home-automation store. I agree with a lot of the panelists here that it is still the early days. A lot of things that we are seeing in home automation are the point solutions on locks, security cameras, thermostats or LED lightbulbs. Those tend to be things that consumers can wrap their heads around, and as the market continues to grow, we will continue to see more sophisticated devices. We are well-positioned to be able to explain to customers what that ecosystem will look like. Workman: This is, however, a category where the education process is going to have to occur at brickand- mortar retail. The Internet has become a great resource for everybody to educate themselves, but they do so typically on a product. You don’t tend to use the Internet to research a solution either because you don’t know where you have to go.
That is why it is going to have to happen at the touch point as we evolve and create awareness through the national storefronts out there. Any time you are dealing with a solution, you are going to have to put the burden of that experience on the backs of brick-and-mortar.
Towns: The younger demographic that grew up swiping a pad and expanding a screen may be more apt to play with this stuff than the users in this room. So let’s not discount the fact that they are just far more comfortable using digital tools and resources to go try it.
We have to have a lot of different ways to educate because the 16-year-old already has LED-controlled lighting with the speaker in her bedroom, and she put it in herself. There have to be many different solutions because I guarantee that my son would pull the thermostat off the wall and install one himself without even thinking about it, whereas I would probably bring an electrician in. We’re playing with live wire.
Orvidas: That is where community is really important. The younger generation looks to community for a lot of their advice and research and are used to using social media and all sorts of networking to get the answers that they need for their solutions.
The confab continues online where our panelists perform a Holiday 2014 post-mortem. Follow the discussion at TWICE.com.