Home automation: Digital digs

Few technology marketing categories suffer from the perception of being gimmicky as much as home automation. This legacy dates back at least to the 1970s with Clapper, a sound-activated light switch that made the fine line between gadget and tool a subject for lampooning rather than serious development.

Fast-forward to the present and the light switch is controlled by a holographic pixie named Azuma Hikari. The character inhabits a coffee percolator-shaped device created by Gatebox, a Japanese start-up backed by Incubate Fund, iSGS Investment Works and Primal Capital that was recently acquired by Line Corporation for an undisclosed sum.

The deal represents Asia’s latest gambit to enter the burgeoning voice-operated home assistant space as Western competitors such as Google Home and Amazon Echo begin to carve up a still malleable market. The Gateway team will now support Line as it rolls out its own digital helper known as Clova. 

From a historical perspective, this momentum appears to signal a turning point for home automation’s reputation. At the business level, it also suggests that venture capital firms will play a crucial role in the segment’s evolution by complementing the R&D of the corporate heavyweights and filling in software supply gaps.

“In terms of hardware creation, I don’t think many start-ups can be successful in this field because the giants like Google, Amazon and Line are already bringing these devices to the market, but there is potential for start-ups to do something in terms of the application layers,” says Masahiko Honma, founder and general partner at Incubate. “Reaching out to the end-user is always hard, costly and time consuming, but VCs can help by building a bridge between small content players and big companies.”

Helping hands

Venture investment in household assistants – also known as smart speakers – arguably began with Jibo, a US start-up that has claimed to be the first social, family-use robot maker and received backing from Asian VCs as early as 2015. Last month, Seven Seas Partners, a Sino-US cross-border investor founded by a former executive at Tencent Holdings, led a $54 million round for a similar China-based product called Roobo.

The key value proposition of these devices is their potential to synchronize several existing technologies against a number of demographics-driven backdrops. Household assistants combine artificial intelligence, the internet-of-things, face recognition, voice recognition, cloud computing, virtual reality and robotics, among other fields, into a concise consumer-facing package. The outcome leaves little room for comparison with Clapper: a multi-tool platform seeking to expand on smart phone functionality with a next-generation interface.

In Asia, household assistants are expected to leverage the automation needs of the most developed economies’ aging populations as well as growing affluence in less mature markets. In Japan, demand is tied to a rising need for in-home healthcare support and statistics suggesting that the lifestyles of younger generations are becoming increasingly solitary. For China, a flood of new smart home products serves as yet another harbinger of the country’s exploding middle class.  

“If you look at the Echo-like devices in China alone, there are probably dozens today,” says Hing Wong, a managing director at Walden International. “That will boil down to just a few companies with a lot of resources, but it is possible to build a significant business in this space if you do it at the right time.”

Walden joined Advantech and IDG Capital Partners last year in a $65 million round for Rokid, a China and US-based player hoping to corner the Chinese market for all-in-one smart home automation platforms. The $450 million company recently inked a partnership with Alibaba Group that is considered critical for fending of brand-name rivals from overseas. “Control devices like this need to have a lot of money and resources behind them – it’s who you can bring to the platform that matters,” Wong explains.

Of course, devices like Rokid will be relatively hamstrung unless their subordinate appliances are also smart. Venture investment has therefore found a role to play in radioing together all the potentially electric-powered components of the modern home – a discipline known as domotics.

Early activity in this space includes Qingdao Haier Venture Capital, a VC arm of Chinese white goods brand Qingdao Haier, launching a $32 million smart home fund with SAIF Partners. This coincided with a $10 million investment by Qualcomm Ventures in China’s InPlug, a company that has developed a range of smart electrical sockets, switches and infrared controls.

“If a start-up is just focused on lighting or locks, it might not be worth pursuing because it might not generate enough revenue,” says Mike Lim, founder of Singapore-based smart home consultancy Automate Asia. “But a start-up can focus on one product first, make it very well, and then use the brand to spread out to other actuators in the house.”

Niche players

The imperative to balance specialization with diversification has led to some interesting product portfolios in home automation. Japan’s Seven Dreamers Laboratories offers a case in point with a line of devices including a golf club, a medical nose insert and a smart clothes-folding machine known as Laundroid.

Laundroid has helped Seven Dreamers raise about $83 million since November of last year from the likes of Fosun International, Daiwa Corporate Investment, SBI Investment, Panasonic and KKR co-founders Henry Kravis and George Roberts. The company sees the device as a first-of-its-kind innovation and, despite its tightly focused functionality, a kind of springboard for cross-sector growth.

“From my viewpoint, pursuing user interface and experience is what matters most in the home automation market,” says Shin Sakane, founder of Seven Dreamers. “Beyond folding laundry, we expect Laundroid to be a ‘smart closet’ with different services. By identifying how each demographic relates to Laundroid, we are working on forming strategic partnerships with different firms such as fashion e-commerce sites, fashion coordination apps, fashion rental services, size-fitting apps, and fashion media to provide the necessary services.”

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• Topics
• Greater China
• North Asia
• Technology
• Consumer
• Early-stage
• China
• Japan
• TMT
• Incubate Fund
• Walden International