Home Automation: Newcomers and Acquisitions in 2014

Microsoft  (NASDAQ: MSFT  ) has taken a big step toward home automation in its new partnership with smart-device company Insteon. In addition to an improved version of Insteon's smartphone app, Microsoft is also offering compatibility with all Windows 8.1 devices, including tablets and laptops. Microsoft's stock twitched upward slightly on the news, heading north of $40 before falling back.

Customers can also expect Insteon products to start appearing in Microsoft stores, including LED bulbs, control hubs, motion sensors, leak sensors, lamp controls, and other automation products. Microsoft users will get a few extra benefits like Live tile integration, and Insteon will release a few new features like Visitor Mode for limited home control. All in all, this partnership looks like a long-term investment on both sides.

Interestingly, Microsoft is not alone in this recent investment in the residential Internet of Things. Major players like Google  (NASDAQ: GOOG  ) and Comcast  (NASDAQ: CMCSA  ) have also unveiled their interests in pursuing home automation, raising the bar for the smaller players like Vivint, Belkin, and a myriad of security-alarm companies.

Don't mind the neighbors
Microsoft's partnership with Insteon followed two other moves in the automation markets. In April, Google confirmed that it would be selling Nest's "smart" thermostat through Google Play after purchasing the company for $3.2 billion earlier this year. The appearance of the thermostat in Google's store signals that the company intends to keep its home automation assets alive and well rather than stripping the technology for its algorithms.

Comcast also stepped into the smart thermostat market in April with its latest automation product, which is part of an Eco Saver package that finds an energy-efficient way to reach the desired temperature in a house. Eco Saver will join the other Xfinity Home products that Comcast offers, including motion sensors and webcams. In addition to its other market plays, Comcast appears devoted to keeping up with automation trends as another way to get hardware into homes. It is worth noting that while Comcast's revenue has increased by around 13.7% year-over-year, the company is still underperforming compared to the industry average of 14.9%. Perhaps its home automation segment can find new growth through the 30-odd million Time Warner Cable customers that Comcast will gain through its progressing acquisition.

Another public entrant to note is Control4 Corp.  (NASDAQ: CTRL  ) , which offers automation for music, lighting, and thermostats, as well as security for more than 80 countries. In early May the company reported earnings per share of $0.03 for its latest quarter and revenue of $31.90 million, up nearly 20% year-over-year. With an average rating of buy and a consensus share price target of $26.50 (the shares currently sit at around $17), analysts expect continued growth for Control4 if it can deal with the large and well-funded newcomers.

Following the money
With the increased interest and affordability of home automation, it is no surprise the market is heading toward greater consolidation and bigger brands. A survey by iControl Networks, released in mid-May, reported that 51% of Americans would be willing to pay up to $500 for a smart home system. As many as 32% would be willing to pay up to $3,000. (On a side note, many iControl investors are also interested in home automation, from Cox Communications to Comcast.)

If the interest holds across American homes, those are exciting numbers in a market that has plenty of room for growth. Perhaps internal analysis has told Microsoft, Google, and Comcast the same thing. Keep your eyes on home automation revenue this year and next year to see how far this industry can go.

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Tyler Lacoma

Tyler Lacoma is a business writer and editor with experience in international economics, marketing, and tech news.

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