Transcript
Dean Wehrli:
Welcome to New Home insights, with John Burroughs Real Estate Consulting. I’m your host Dean Wehrli. Today we have another extraordinarily special guest, it is Todd Tomalak from John Burns Real Estate Consulting. Who is the national, no, no, no. international guru of building products. Todd, please say, hi.
Todd Tomalak:
Wow, Dean. Thank you. Hi.
Dean Wehrli:
Hey, you’re international. You’ve done work in Canada, I’ll bet.
Todd Tomalak:
Canada counts, I suppose.
Dean Wehrli:
There you go. There you go. So, today we’re going to be talking about smart homes, what they are, what they really are, I think, and what they mean. How smart are they, and how smart can they be in the future? So, buckle up. Let’s start off with basics, Todd. Just, let’s sort of define what really is, how is a smart home defined and how it should really be defined right now?
Todd Tomalak:
Yeah, I think it’s important to get that answer right. So, smart homes are defined right now, as some home that has features that makes your life easier, but they’re also connected. So, you can go online, you might be able to use your phone. Ideally they talk to each other. We might think of those as internet of things, types of devices. There’s plenty of products that are out there that being labeled smart products. But, maybe they’re just electronic and we don’t really think of them in the smart category, but you got to be connected.
Dean Wehrli:
So, that interconnectivity, that is what really makes you smart?
Todd Tomalak:
Yeah. I think the ability for interconnectivity allows devices to learn, and do new things, and interact with you in ways that were beyond what the original manufacturers had originally penciled in. So, and we’ll talk about that probably more later on, but we saw that with the iPhone.
Dean Wehrli:
Yeah. Yeah. We’ll talk about that in a minute. But, there are some things out there that maybe advertise themselves as smart, but aren’t all that smart. My personal favorite is the smart toilet. How smart really is that, and how smart do we want our toilets to be? Maybe, am I being paranoid?
Todd Tomalak:
You know, so I’ve used some of those products, and I really liked them. First of all, they were phenomenal experiences where toileting goes.
Dean Wehrli:
Well, okay, do tell.
Todd Tomalak:
I don’t know that there’s smart though in the sense that they’re connecting themselves to your other features in your home. So, right now, some of those smart products are more like the TV with the remote control, it’s a feature, it’s electronic, but it doesn’t make it a smart TV. It’s got to be able to dial up and connect to Netflix and do other types of things. So, that’s kind of where the dividing, some of them are riding the line.
Dean Wehrli:
Okay. But, I mean, not to belabor the toilet thing. But again, do we want our toilet to be interconnected with the rest of our house? I’m not sure.
Todd Tomalak:
I think actually, I’m a believer.
Dean Wehrli:
Okay. Okay.
Todd Tomalak:
We can talk about why, but I think the opportunity in the future, or maybe there’s something there, it’s not there now, but who knows.
Dean Wehrli:
I see. Okay. Well, okay. I think at some point in this conversation, by the way, you’re going to scare me. I’m just going to warn you ahead of time. How about this idea of, how does something, how does a new smart device related to the home become excepted? What’s the process, or he timeline for something to break into that smart home environment.
Todd Tomalak:
When we look at major breakthroughs in technology, so the internet, microwaves, things like that, we typically see the same shape happen and some consultants will refer to those, the S curve of adoption, or there is very slow adoption. And then, you get to about 20% of households that have this in their home. And then, there’s this fairly rapid growth once you get to 20% to about 80% adoption. That’s where high speed internet is today, is 80% adoption.
Dean Wehrli:
Okay.
Todd Tomalak:
But just to give some perspective, smart speakers right now are hanging around 21% adoption. So, just turning that corner and if we rewind and look at some of the other big breakthrough products that we’ve adopted and now they’re part of our life. Microwave’s took about 10 years to go from 20% to 80%. Mobile phones, you’re looking at about 11 years. Tablets, we’re not quite there yet, but that’s about 12 years. So, let’s say it’s about a 12 year average, internet was a little bit longer, so that means that we’re probably about, with smart technology where we were with microwaves in the early eighties.
Dean Wehrli:
Wow. Yeah. Yeah. You don’t think of that, that microwave’s took that long. It seems like they’re there and then everyone had one, but no, there’s a process there. I’m not going to lie, by the way. What is a smart headphones, or smart speakers.
Todd Tomalak:
Oh, I think that’s one of the more interesting categories. So, we see Amazon and Google have each put out some of these products where it’s a couple hundred dollars. You put this speaker in your home and it listens to you.
Dean Wehrli:
Oh, you mean like Alexa and Echo? Is that? Okay, okay. Gotcha. Okay. I say that I don’t know what that is, and have an Alexa in my house right now, so I didn’t realize it’s called that. I just call it Alexa and she responds with annoyance to me. But, that’s between me and Alexa. I don’t want to, it’s kind of personal. I don’t want to get into that. We don’t like each other, but, I mean that’s something that’s really on the cutting edge, right? I mean, will that be almost a focal point of a smart home, do you think?
Todd Tomalak:
I think that there’s a lot of evidence that suggests things are going that way. You know for a long time we saw all these building product companies. If you went to the builder show this year, I was this year, you saw all these building product companies coming out with smart products and the thing was they were a great innovations. Some of them had cool electronic features, but they didn’t really talk to each other particularly well. Some, of them had you might think of as your own operating systems, and they didn’t really want to link up with other operating systems. What these, call it a smart speaker, or a personal assistant, or Alexa, or whatever it might be. It seems that one of the common threads that we’re seeing is that these companies, which are not really building products companies, I mean they’re tech companies are incorporating that through your speaker you can heat up your shower, or through your speaker you can lock your door, or you can do these other things. So, it seems like it’s going that way.
Dean Wehrli:
Okay. Okay. That’ll be interesting. Let’s talk about that more in a minute in terms of control. But first, let’s talk about just, what do you see as some of those smart features that really are things that proverbially people will pay for? In other words, I’m sure there’s tons of stuff out there, that sounds neat, but I’m not going to pay for it. What do you think out there is really going to become, or is already those bread and butter that people will put some money down for?
Todd Tomalak:
Yeah, so we’re seeing some of that already happen. Here’s a couple of examples. So, there are smart remote controlled thermostats where you can set the temp from your Alexa, or from your phone, or from someplace far away. When we had our huge survey of new home shoppers, 60% of new home shoppers say that they would spend extra to get one of those thermostats in their home. That’s huge. I mean, to put it in perspective, if we asked the same question, same group of people, these are active new home shoppers, about 70% say that they’ll pay extra for an oversized kitchen. And, I don’t think that we think of as oversized kitchen as this exotic, who’d of thought-type product in the home. It’s pretty, it’s pretty accepted. It’s pretty standard. It’s just your budget.
Dean Wehrli:
Yeah.
Todd Tomalak:
So yeah, I mean the fact that almost that many are saying that they’re going to pay that for thermostats, we see similar things for like heating and cooling management. It’s almost 60%, slightly less. Locks, the smart locks and security, which most of those new smart homes claimed to have. They’re really easy to retrofit. The number one group of all the consumers that are shopping, that wants to put those in is seniors. They’re the most willing to pay the extr. So, and that’s not usually the group you think of as being the early adopters, but not the case when it comes to security. That’s, they’re doing it.
Dean Wehrli:
Tell our listeners what a smart lock does for folks.
Todd Tomalak:
Yeah. So, a smart lock, mechanically, the insides probably don’t look any different then a regular lock. But, how you open it is, you could drive up to your home. As you approach your home, the lock senses that you are someone else’s there, it opens. So, it’s there for you when you leave and if you forget to lock your door, it knows that you left in a locked in for you. And, what’s really nice about it is that, let’s say you have a contractor coming, or someone else visiting the home and you really don’t want to give them a key, but you want to let them in one time. There is some locks out there that you can send them to their phone, a passcode and it pushes you a notification that, “Hey, you know, uncle Ted has entered your house,” and you know he’s there to feed and water your cat. And, when he leaves, if you don’t feel comfortable with uncle Ted being in your home, then you can say, we’ll let that key go away.
Dean Wehrli:
I don’t want uncle Ted in my home at anytime. Not even once. I think most people would agree with me if they know uncle Ted. So, but wouldn’t that be embarrassing though, as you. You know, uncle Ted says, “Hey, I came by again and you locked me out, what’s going on?” That can be awkward. So, I don’t know.
Todd Tomalak:
What’s interesting about the security, so of the categories we ask about in our survey, about three out of four buyers, say yeah, they’ll pay extra for some sort of wireless security system.
Dean Wehrli:
Wow. So, that’s pretty huge.
Todd Tomalak:
That’s huge.
Dean Wehrli:
Okay. Yeah. No. Okay. I told you I was going to get paranoid, but do you get any sense from consumers? I mean, this is something that unlocks the door. Could that be mimicked? Could that be, is that a security concern with some folks?
Todd Tomalak:
Yeah. So, my wife and I just had this exact conversation because we were thinking about putting in, and we’re trying to choose which lock we wanted to put on our house. And, I imagine that there’s some, if you have some Russian hacker that’s that skilled that can break into anything. Then, yeah, okay. Maybe. But, if you’re really worried about uncle Ted who already has a key to your house anyways, because he’s come by several times, what’s your worry? And, I think that’s probably the way to think through that. That, like anything else, it can be hacked. But, so can mechanical locks. It’s just the choice of, I like the push notification that tells me that someone went into my home, or that my kids are home safe, or that type of thing.
Dean Wehrli:
Gotcha. That’s a good, yeah, you’re right. That’s a good idea. So, if it’s just you went, so in other words, you walk into your home, it’s going to tell you someone just walked in your home. You know it’s you and you’re good to go. But, if it’s not you, then you call the police and get uncle Ted put back in prison where he belongs. How about in terms of, you mentioned that smart lock is a fairly easy thing to retrofit. So, what does smart homes mean for new homes specifically? Does it give this advantage to new homes? Because, I tell a lot of clients you need to keep innovating because that’s what separates… Like ceiling heights became eight foot to nine foot, and the resale folks, they can’t compete with that. Will smart devices give that kind of advantage to new homes, you think?
Todd Tomalak:
Well, it’s funny that you say that. I mean, the potential is definitely there because when you’re building a new home you can put anything in. You can put in a electronic thermostatic valve that can be controlled by Alexa. That’s hard to retrofit. That said, when we look at the big builders that are building smart homes today, a lot of the products that they’re choosing to put in are products that are pretty easy to retrofit. You know, the lock, you don’t have to have any mechanical skill. You can install that smart lock in probably 20 minutes.
Dean Wehrli:
I would take an hour. My wife could do it in 20 minutes. I would ask my wife to do it in 20 minutes, but go ahead.
Todd Tomalak:
But, we see that trend. It seems like the smart features that some of the new home builders are putting in are some of the easiest retrofit ones, but it doesn’t have to be that way. There’s a lot of products out there that are within the wall, a lot harder to install if the builders are thoughtful about it though, the opportunities to make those products smart, which is, think about how much harder it is to tear out your plumbing and to install a smart valve inside the wall then to do something that’s like a bulb, or a lock, or something that’s very easy to do.
Dean Wehrli:
Anything else that stands out? That’s a good point, so smart valve, something internal. Anything else that stands out as something that would be hard to retrofit?
Todd Tomalak:
Well, the HVAC system can be retrofitted, but it’s expensive to do. So, it’s expensive to put in a new HVAC system in a new home, but it’s extremely expensive to put an HVAC system in an old home. So, I think, the opportunity is to just, if you’re making the choice on all these new products that you have to put in the home anyways, realizing that most of our respondents. I had mentioned seniors, but one of the things that jumps out too, when we look at this incoming wave of first time home buyers, that they placed a lot less value on the brand of the building product that were in there. I mean, it used to be the case that you’d really focus on, let’s pick on plumbing, the fixture brand, or maybe the lighting brand. But, they place a lot more value on the features, than necessarily the brand. So, this is an opportunity since you’re paying for the product anyways, to just select one with the features that happens to integrate to the rest of what they’re looking for.
Dean Wehrli:
Maybe it’s the new home, what the new home builders need to focus on is making, just sort of having as many systems as possible are smart and interconnected when that buyer first walks in the door, because the more you got going, the less likely they’ll be able, a resale environment will be able to retrofit multiple systems within a home to be as smart as a new home is. Is that possible?
Todd Tomalak:
That’s exactly it. You know, we don’t know how smart homes will interact with people three years from now, because the amount of skills that will be taught, but we want to make sure that it’s not something that can be easily duplicated on the resale market. And that’s what we’re seeing right now, that home Depot and Lowe’s and some of these other companies, there’s just a whole ton of smart products that are there for a reason, because they’re easy to retrofit. But the builders have a big advantage that everything’s bare, now’s the time to install it, and we know that consumers will pay more for that breed of product, particularly the first time buyers that a lot of builders are pivoting towards.
Dean Wehrli:
Definitely. Definitely. Let’s pivot ourselves to the idea of control. Because this is kind of fascinated me, as you have a Alexa and you have Echo, and that’s why I mentioned the question a minute ago about, will that be the focus? Who is going to control the overarching technology of the smart home environment? I mean will it be Amazon or Google and leaving builders and product manufacturers to sort of develop some partnerships to be part of that environment, but they’re not guaranteed. It will be very competitive and they’re not the ones that control. Is that the future, or will be more open than that, you think?
Todd Tomalak:
Yeah, I think it’s leaning that way. Here’s how to think about that. Take yourself back in time to 2006 and 2007, and look at the major mobile phone carriers that were, Blackberry was out there and you had a number of so-called smart phone providers, and they all had their own operating system, which means that they didn’t really interact with each other. There was definitely no consensus on who used what. That’s kind of what we’re seeing happening now at building products and housing where a whole bunch of product manufacturers make their own thing, but they don’t play together well. What we’re seeing happening with Google and Amazon is they’re spending a whole lot of time and money trying to add skills, which you might even think of the smartphone equipment will be an app. If we didn’t know who Blackberry was, or who Apple was, or who Google was, we could predict who won that adoption race by looking at who had the most third party developer apps.
Dean Wehrli:
Oh, okay.
Todd Tomalak:
Because, the iPhone when it first came out, there’s this beautiful Steve job pitch that now is memorable. But it was just an an iPod with phone and internet. But, when we think of the universe of apps that causes it to do all sorts of other things outside those three functions, those were built by other people. So, we’re starting to see Amazon stretch the amount of skills. I think Amazon’s got about 30,000 skills that the Alexa can do. That’s roughly equal to where Apple was for their iOS in 2009, right now Apple has about 2 million. Google has about 4 million apps that you can download. So, it’s definitely going that way. Here’s one thing that’s interesting, when we look at the categories that Amazon is paying developers to build, it’s education, health and fitness, productivity. There’s all these categories that you don’t really think of as a building product that’s there, but will be brought to the home in the future. So, that’s there. They’re building it.
Dean Wehrli:
So, they’ll be, is it going to be? So, that sounds, that’s going to be probably a good thing. So, I mean, I remember there’s that famous video of, I think it was Steve bomber with Microsoft sweating crazy profusely, and screaming the future is all about developers, developers, developers. How they had put their money on, we want to be as open as possible to developers to make our products, to realize our products and make them more exciting for as many people as possible. Is that what Google and Amazon will do with smartphone? They’ll open it up and let the smart people sort of define the future.
Todd Tomalak:
Well it seems like they’re pushing adoption among their developers for skills and they’re rewarding the developers based on how many people are using it, and how they’re rating it. There’s this great article of this 22 year old guy who claims to be making $10,000 a month off Amazon, Alexa. I don’t even, I bet you he doesn’t even own a home, but it’s all from services and products that are in the home.
Dean Wehrli:
Really.
Todd Tomalak:
So, that’s where that universe is, we’re seeing that go. So, the fact that Amazon is paying for that, is really encouraging because it means that even if the building product manufacturer, say you make a light, or say you manufacture appliances, your internal engineers don’t necessarily have to figure out the perfect optimum way for it to interact with consumers. As long as you let it interface appropriately, and you create all these neat tools, and ability to inter… Another developer may figure it out and you happen to play the best, it’ll help if you push yours.
Todd Tomalak:
But yeah, we’re seeing that, that’s the direction things are going. An intuitive way to think about it is when we saw smart product adoption in, say TVs. Go back 10 years, it caused a wave of, people got rid of their old tube TVs, and they bought flat panels. Eventually they bought smart connected TVs, but it really didn’t benefit the TV manufacturers as much as it changed how we consume media. So, Netflix is alive and born, some of these services that are alive and born. So, it enables the change of revenue from selling a onetime good to selling a stream of services.
Dean Wehrli:
Huh, okay. Well, okay, so will a lot of these building product manufacturers need to partner up? Again, if it’s Amazon and Google, and the app developers are controlling that world, are they going to need to either get involved in app development, or need to partner up with one of those big controlling companies to protect their market share? I mean, like you said, you said lights for instance, we won’t name names, but if major light manufacturers don’t get in a partnership with one of the biggies, will they be in trouble down the road?
Todd Tomalak:
Well, we hope there’ll be okay. But, I guess I would pose it to you this way. If you were Blackberry 10 years ago and you asked yourself, do we need to work on our app selection? The answer is really obvious, that’s the only way to survive. They have great hardware, phenomenal hardware that some engineers might say is better than the competitors, but where are they? And, I guess I would even point to using that same analogy for the builders that which of us would go to a cell phone store and purchase a unit that didn’t have the ability to be connected and it didn’t have the ability to have the apps. It just, so we’re seeing that, the ability to stay up to date is going to be just critical.
Dean Wehrli:
So, it’s going to be universal. I mean, we’re not too far where you, it’s not so much the smartphone is, I’m sorry, the smart home is setting you apart as a builder, as you better have the smart home, or you’re non-existent.
Todd Tomalak:
Well, if we follow the same adoption curve, 10 to 12 years from now, we’ll be at, can you imagine building a home that has any other 80% adoption category and trying to sell it without high speed internet? Or, say we don’t offer microwaves, or we don’t offer washers and dryers. That’s where it will be because we’ve just turned the corner at 20% and adoption is growing rapidly. We’re at where Apple was in 2009.
Dean Wehrli:
That’s a great analogy actually. So, okay, so let’s look in your crystal ball and where do you see smart technology going in the future? Is there something else you see it going? Anything on the horizon that you see changing what we think of as smart homes?
Todd Tomalak:
It’s interesting, because your home is your most personal place. Think about this wave of aging consumers. John and Chris, our demographer, have done a whole lot of work on seeing this, over the next 10 years, this enormous wave of senior buyers. Healthcare is not going to become irrelevant, and you have the opportunity here for it to be the most comfortable, least disruptive experience all from your home, if the tech can catch up. And then, other things we think about like entertainment and I had mentioned education, and food and drink, these are the segments that Amazon is incentivizing developers right now to write the skills for.
Todd Tomalak:
So, eventually, assuming that any one of these developers does a good job, we’re going to see connectivity go that way. And then, it’s just a matter of getting the products in the home. The apps tend to point the way towards how the product gets used. When I think about how you interact with your phone, it’s integrated. It’s so part of your life because someone came up with the social media feature of the phone, it wasn’t the tech. And, that’s where we’re seeing that that investment begin to move on the new homes.
Dean Wehrli:
Well when I can go on the app on my way home and have my home pour me a delicious ice cold IPA. So, it’s there when I get there, then I’ll be impressed.
Todd Tomalak:
I’m with ya. It’s funny, at the last builder’s show there was one of the booths that I was especially entertained by, showed a Tesla and they had a feature in the Tesla that from, as you’re driving in your car, you push the button and it prepares a cappuccino for you so that when arrive. [crosstalk 00:24:42] You know, cappuccino’s not far away from IPA, we’ll get there.
Dean Wehrli:
It prepares the cappuccino, or lights up a blunt for a Elon Musk. I’m just kind Elon so, well this has been a delight, Todd. This has been eye opening in some ways. I think, you’ve walked me off the edge a little bit with my innate paranoia about smart homes. I hope, I feel a little bit about them. I like your analogy about the security assist thing. These things can be done analog as much as they can be done technologically. It’s just a transition more than it is a radical change. Well thanks Todd. I appreciate that. I’m going to do a quick recap. Todd talked about smart homes and features and that they say a smart home is something that makes your life easier, but is also interconnected that interconnectivity is critical.
Dean Wehrli:
It allows devices to learn and do new things. Some, of the major tech breakthroughs throughout history have followed this kind of S curve adoption process and smart homes are at the beginning of that. Their 20% usage rate that typically is followed by an explosion in adoption afterwards up to about 80%. People will pay for things like smart thermostats, heating and cooling management and smart locks. Smart tech is going to need to get better at talking to each other and things like the smart speaker, like Alexa or Echo, are likely to be the focus of that kind of activity.
Dean Wehrli:
We have smart home innovation is going to be critical for new home builders to maintain that difference with resales and be smarter, and be more connected, and be more holistic in their smart systems, because that’s going to be hard to match in the resale environment. And then, we talked about how Google and Amazon are likely going to be more or less in charge of the overall smart home environment, and we’ll focus on things like education and health and fitness and entertainment, and pouring drinks into the future. Todd, thank you very much.
Todd Tomalak:
Thank you, Dean.
Dean Wehrli:
Until next time, please join us in a couple of weeks. We’ll see you then.
