Will "Wired Homes" Entice High-Tech Buyers?

N E W  Y O R K, Oct. 17, 2002 -- Chalk it up to one part healthy skepticism, one part market reality.

There once was a time, not long ago, when the most wide-eyed proponents of Internet technology would confidently predict — with a straight face — that nearly every major home appliance would one day be connected to the Internet.

The people who want to connect your refrigerator to the Internet haven't gone away, and in fact are much more serious than they've ever been before.

And after years of pushing competing visions, few of which led to any real products, they're teaming up.

And this time they're determined to get their collective technological and business acts together in order to wire your next home for a level of connectivity that even they haven't fully imagined yet.

Varying Levels of Enthusiasm

Don't be surprised if someday you see Microsoft Chairman Bill Gates sharing a podium with someone like home-improvement icon Bob Vila, discussing the concept of the "connected home."

But making it happen means selling millions of prospective home buyers on ideas that go far beyond the now well-known notion of connecting all the computers in the home to a faster Internet connection.

Why not push digital music and video stored on a PC or set-top box with a hard drive to any TV or stereo system in the house? Or create a service that sends e-mail to a mobile phone when the kids get home from school each day.

Or connect the thermostat to the Web so that it can be controlled from an office PC, allowing home temperature to be set before you get home?

Electronics retailers like CompUSA and Best Buy already are gearing up for new marketing efforts to try and build consumer enthusiasm for the "smart home." But the idea also has to be sold to home builders, who are embracing it with varying levels of enthusiasm.

A study by Parks Associates, a Dallas-based consulting and research firm, estimates that about 20 percent of new homes built this year will contain some kind of "structured wiring" for computer networking, entertainment and other uses.

The study found that high-speed Internet access throughout the house ranks as the most popular reason for structured wiring, followed by monitored security systems, and then the ability to play music from one stereo system in several rooms.

High-Tech Ready

Some home builders, such as Centex, have started to include structured wiring in about 40 percent of their new homes, while Pulte has pushed that percentage to between 60 percent and 70 percent, says Michael Creeson, an analyst at Parks.

The wiring is typically either category 5 Ethernet cabling or coaxial cable like that used for cable TV, or some combination of both, with other technologies mixed in. The wiring generally adds between $1,500 and $3,000 to the cost of the house.

"When you build that cost into the mortgage, it adds only pennies to the monthly payment and can increase the resale value of the home. That's easy to sell to the consumer," Creeson says. Easy to sell, that is, to consumers who want and understand it.

Companies like AMX, HomeDirector — an IBM spinoff — and Elan Home Systems have been benefiting from the strong housing market, building a healthy niche business by selling wiring packages and the gear that brings the wires to life.

But is there ever going to be a mass-market appeal? Don Whitmer thinks so. As chief executive of HomeDirector, his plan is build a sales channel with builders and realtors.

The company claims to have sold its system into some 45,000 homes in the U.S., and boasts such investors as Cisco Systems and Motorola.

Home Options

HomeDirector's products include a network connection center that combines data networking, security, voice and entertainment into a single network.

Its plan is twofold: Sell builders on the idea that adding home networking offerings is a competitive advantage they can sell to potential buyers, then develop products that will run on the network.

It has signed builders like Ecclestone Signature Homes, a Florida luxury-home builder, and Toll Brothers. Last month HomeDirector launched AudioPoint, a $270 digital audio receiver that connects to the network to play music stored on a PC in any room in the house.

"Our advantage is that we can reach the homebuyers at the moment they are deciding to put certain things in the home they are having built," Whitmer says.

But convincing consumers is a tall order. A more skeptical study by consulting firm Accenture found that 57 percent of consumers surveyed said they didn't want and didn't need any kind of wired home network, and two-thirds scoffed at the idea of a wireless network.

"There's no clear value proposition to consumers," says Accenture's Charles Roussel. "When consumers go to Best Buy, they can't get easy answers that fit [their electronics products] all together. Right now, the great silent majority of consumers are shying away from networking because of the cost and complexity alone."

Furthermore, manufacturers aren't helping. "All the companies involved have their own ideas as to what home networking is and what the central device is. If you're Microsoft, it's a PC. If you're Philips Electronics, it's a TV set-top box."

No surprise he's not expecting a serious boom in the market for about five years or more. "When given the choice of investing in a home network or a new TV, they take the TV."

For more, go to Forbes.com..