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The Internet of Things, or making everyday objects smart and connected, was a huge theme at the 2015 International CES, the big tech trade show that drew 170,000 to Las Vegas last week. Samsung Electronics CEO B.K. Yoon said that 100 percent of the company’s products would be connected to the Internet within five years.
It all sounded great to me, and each idea seemed to have merit. If you add some processing brains and networking to any device, you can make it more useful and extract analytics from it. But every time I heard the price for each Internet of Things device, I flinched. It seemed like a way to hike the price of an object by 10 times, and it will lead to price inflation like you wouldn’t believe, if manufacturers stick to the prices that they talked about for their devices at CES. This pricing problem tells you how far the Internet of Things is from really catching on, and how much of it is hype for now.
KeeLight showed off its Wi-Fi enabled multicolor smart light bulbs at CES. You can control them with an app remotely, and turn on sections of your home to create the right atmosphere within seconds. That sounds great, but each smart light bulb costs $100. The average home has 40 sockets for light bulbs. That means it would cost almost $4,000 to outfit your home with smart light bulbs from KeeLight. You can save by buying a 10-pack for $350. Still, that’s a pretty steep cost for getting a start on the connected home. I have an easier time getting over the psychological hurdle for paying $100 or more for a drone, since I haven’t owned one before, rather than paying that much to retrofit my house with a new version of something that I am already quite pleased with. For me in particular, I would rather pay $60 for a video game than $99 for a light bulb.
I also thought that the Petnet Smart Feeder was a great idea. It dispenses precise amounts of dry food to your pet in an automated fashion. The mobile app lets you remotely feed the pet and reorder pet food easily. It keeps your pet happy and healthy, and that’s priceless, right? It sounded great, until I heard the price was $250. But a dumb pet feeder costs anywhere from $5 to $50. I had the same reaction to the Kolibree smart electric toothbrush, which lets you use an app to measure how well you are brushing. It replaces a $2 toothbrush, but costs $99 right now.
“It’s early days,” said Scott McGregor, chief executive of chip giant Broadcom, in an interview with VentureBeat. “We’re going to have to decide if pet feeders are an important category. Once we decide, we’ll see brands emerge and the price will go down. Right now, we have to decide what categories will succeed.”
Sometimes it’s clear that the electronics in an object are not that sophisticated, and the higher pricing just seems to be aimed at targeting enthusiasts. The Ozobot is a little toy robot that blends the physical and digital worlds. It teaches kids programming because it lets them program the path the Ozobot follows by laying down color tracks on an iPad or a piece of paper. That’s pretty cool, but each tiny little Ozobot costs $50. That’s pretty high for a device the size of a jawbreaker.
Sure, it’s hard to make objects small, and smaller devices often have higher prices. Still, the accelerometers and gyroscopes in some of these objects cost a few dollars. Zepp Labs adds cool Internet of Things sensors to tennis rackets and other sports gear. The app that lets you take a video of yourself and analyze your swing is free, but the Zepp sensor costs $150. There’s a nice try-before-you-buy value in the Zepp app, but the amount of technology in the device itself seems pretty small. The smart tech is in the analytics and other features in the app. But does it justify that price? In that case, it’s probably a smart price, as the target market is smaller, at least for now, and those target individuals may not mind paying that much money to make them better at something that they do over and over again.
We’re also in the stage where many Internet of Things devices aren’t compatible, or use competing standards. Samsung pledged to invest $100 million in making sure that the Internet of Things stays open. So we’re paying $100 for Internet of Things devices that aren’t yet interoperable.
Another problem I have with these small but expensive devices: We’re going to lose a lot of them. Do you want to pay full price again to replace a lost Fitbit health tracker? It’s like the cracked iPhone screen. Somebody is going to make a bundle of money replacing these devices. And the battery life is going to be limited. I have a great electronic key fob that can open my car doors. But I haven’t used it for some time because it has run out of battery power.
Some of the smart manufacturers introduced cool ideas without putting price tags on them. The Panasonic interactive mirror demo takes an ordinary mirror and turns it into a smart display, enabling you to know what you would look like with sparkles on your eyelashes or a moustache. But that transparent display glass isn’t cheap, and I’m sure it is going to start out at a crazy price. The best thing Panasonic can do now is set our imaginations on fire and get us excited about it, and then tell us how much it will cost later.
I talked to a few analysts about my sticker shock, and they didn’t seem to be too alarmed about the price of the Internet of Things. After all, the laws of supply and demand will normalize the prices. And it’s OK to start out with a high price if you can’t get that many devices built, or if you’re the first to come up with an idea, or if you just don’t think you’ll sell much. If you look at UHD 4K TVs, the successors to high-definition TVs with four times as many pixels as HD, the prices started at $25,000 but within a few years fell to under $1,000 for some models. The prices should fall further this year.
“They don’t expect to sell many, they have to recoup development expenses, and they know if it actually solves a big problem for a wealthy person or enthusiast they will pay it,” said Patrick Moorhead, analyst at Moor Insights & Strategy, in an email. “Also, pricing something high provides an aura of ‘premium,’ an attribute attractive to both the wealthy and enthused.”
Brian Blau, analyst at Gartner, said, “Most sophisticated consumer tech companies perform detailed customer analysis and do track price issues relative to customer satisfaction, so there is to some degree a methodology to determining prices. There are other factors too. Is there demand? How much? Or they look at competition and how can they use pricing as a strategy to get an advantage. Oftentimes new product categories start out being priced high, and that is to help recoup the expenses needed for product research and development and to mitigate risk if the product category does not perform as they expect. Luxury items have a similar pricing trajectory.”
Roger Kay, an analyst at Endpoint Technologies, said he likes the idea of sticking a “beacon” on items. That is, for the cost of about $17, you can add Bluetooth LE connectivity to anything. It broadcasts to your smartphone and you can interact with it.
“But many of these items risk being a gimmick with a very short shelf life if people don’t want to integrate them into their everyday lives,” Kay said. “As it is, only a pro baseball player would really want a swing analyzer, and then, he probably has a $5,000 one with special functions.”
Over time, you see the adoption of devices skyrocket as the prices for those items go down. If you can get a device down to $300, it becomes much more accessible to mainstream households. And if you bring it down under $100, one spouse can buy it without the permission of another spouse. But if you’re asking someone to upgrade, you really want to have price parity between the old product and the new product, in order to get people who are used to the old device to adopt the new device. That’s the situation for the Internet of Things devices, where a smart bulb replaces a dumb bulb.
The problem I have is that the Internet of Things is going to affect every object we own, and the competition is quite fierce. If I can pay $10 for an ordinary light bulb, I’m going to do that. And it may take a long time to hit price parity, when you essentially get the smartness and connectivity for little extra cost.
Shawn DuBravac, chief economist at the Consumer Electronics Association, said that adding connectivity to a device and throwing lots of numbers at consumers has limited value. What really matters, he said, is creating something that is technologically meaningful. I talked to a lot of people who felt like a lot of dumb appliances should stay dumb. Kitchen appliances fall into that category for me. Part of the psychological problem is that, if you do the Internet of Things right, a smart object looks exactly like a dumb object.
There’s a chicken-and-egg problem that manufacturers face. They can’t lower the price of these devices until they sell a lot of them and get volume efficiencies. But until they lower the prices, they can’t get a lot of volume.
“Things will sort themselves out,” Kay said. “The ridiculous pricing will fall away, companies will have to bet on higher volumes, and some will die. What will work will be things people really want to use in all seasons, not something that seems fun for a while and then becomes boring, tedious, or too much work compared to the analog solution.”
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