2017 FORRESTER REPRODUCTION PROHIBITED WEBINAR Smart Homes Forecast

WEBINAR Smart Homes Forecast: US Adoption Of Smart Speakers And Their Online Retail Impact Satish Meena, Senior Forecast Analyst Frank E. Gillett, Vice President, Principal Analyst October 25, 2017. Call in at 10: 55 a. m. Eastern time © 2017 FORRESTER. REPRODUCTION PROHIBITED.

We work with business and technology leaders to develop customer-obsessed strategies that drive growth.

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What is Consumer Technographics®? Quantitative Gain insight from >400, 000 consumers across 40+ annual surveys in nearly 20 global markets. Trendable Explore how consumers’ technology adoption, behavior, and attitudes have evolved over time. Customizable View consumer data through your specific lens, including region, brand, demographics, and more. Actionable Leverage consumer behavior frameworks developed by Forrester thought leaders to contextualize digital consumers’ actions. Dedicated Work with dedicated insights personnel to help derive insight and gain maximum value from the data. © 2017 FORRESTER. REPRODUCTION PROHIBITED. 5

Agenda › Adoption of smart home devices › The rise of smart speakers ›

Definitions › Smoke/carbon monoxide detection systems. These systems monitor for smoke and leaking combustion gases (carbon monoxide) and send alerts to users’ smartphones. › Do-it-yourself home monitoring. These devices help monitor an area of a home with a video camera and often other sensor such as audio, motion, climate, and air quality. They keep recorded video for review and send notifications. These devices carry a one-time cost of purchase and installation and carry no monthly subscription fee. A few offer an additional monthly service for a small fee. › Professionally monitored home security systems. This is an internet-connected version of an integrated security system for a house, typically installed by the provider’s technicians as part of a multiyear service contract. It includes door sensors, an arming keypad, and sometimes window sensors — and optionally video cameras, safety monitoring devices, and a few types of smart home devices. These systems are monitored by a constantly staffed call center that contacts clients about alerts, in addition to automatic notifications to the client’s smartphone. The cost of the products, installation services, and monthly fees are significant, but the ways the costs are billed upfront, versus included in the monthly term contract fee, vary significantly. › Connected door locks. These are door locks that can be bolted/unbolted by a numeric code keyed into the lock, a key fob, a smartphone, or by remote commands from a smartphone or computer. Sometimes, these locks can also be programmed to open at a specific time/duration or to recognize a specific code or electronic key for a limited time. © 2017 FORRESTER. REPRODUCTION PROHIBITED. 7

Definitions (cont. ) › Smart thermostats. These homeowner devices automatically adjust home heating or cooling based on schedule, real-time occupancy, and remote commands. Often, they help to save electricity usage when occupants are away and enable utility companies to reduce demand at peak times. Multiple thermostats can work together in homes that have multiple climate zones. › Smart bulbs and lighting. These devices can be programmed to illuminate a room or an area in the house according to user requirements. They may also feature different color setting to match the mood or ambience. They can be commanded by a smartphone app or a smart light switch or triggered by voice commands to a digital assistant in a connected speaker or smartphone. › Electricity monitoring. These devices track electricity usage and allow utility companies to reduce the load on central heating or cooling to reduce usage during peak demand. Usually, utility companies provide discounts to motivate customer participation. These are primarily smart meters provided by electrical utility companies. › Dependent care monitoring. This is a system that monitors dependents — elderly and children — at home in the absence of other family members or caretakers. › Pet monitoring. This is a system that monitors pet in a house in the absence of other family members or caretakers. › Garden and lawn. These devices help members of a house take better care of their garden or lawn by giving updates on parameters such as moisture content and length of growth and/or automating the control of watering systems. › Connected speakers. These speakers are networked devices connected over Wi-Fi or ethernet that can stream music and audio programming from internet services or other devices, including home entertainment systems. These devices have traditionally been networked speaker systems. Beginning in late 2014, some of these devices have included a voice interface to interact with digital assistants and to issue commands to other smart home devices. (New addition) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 8

Adoption of smart home devices Identifying the target audience for smart home devices ©

What is a smart home device? A smart home device has processing intelligence and connectedness to the internet through a home network for the purpose of remote access, monitoring, and control capabilities. Intelligence for systems and devices may be contained completely within the product, combined with platform intelligence in the cloud, or reside almost completely within a platform to which the product connects to perform functions. © 2017 FORRESTER. REPRODUCTION PROHIBITED. 10

Smartphone opens up the connected home industry with: › Intelligence/data aggregation › Display Mobile moment › Internet connectivity › A universal remote › Remote access © 2017 FORRESTER. REPRODUCTION PROHIBITED. 11

Consumers’ engagement is broad Improve home security Guide meal planning Climate and comfort control Lighting optimization Improve family care Aid wellness care Automation Engagement Enhance toys Access control Augment gardening Resource consumption Monitor home safety © 2017 FORRESTER. REPRODUCTION PROHIBITED. Boost TV and gaming Whole-house speakers 12

Two clusters in automation but none in engagement Automation Engagement Utility spend Access control Home climate control Safety monitoring © 2017 FORRESTER. REPRODUCTION PROHIBITED. Lighting Family and care monitoring Kitchen Gardening Home security Large-screen entertainment Music Recreation Health/wellness 13

Consumer interest in smart home is strong Base: 4, 527 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Consumer Technology, Media, And Telecom Benchmark Recontact Survey 2, Q 3 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 14

Smart speaker leads in adoption followed by thermostat Base: 4. 527 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Consumer Technology, Media, And Telecom Benchmark Recontact Survey 2, Q 3 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 15

Costs and privacy are top consumer concerns about smart home products Base: 4. 527 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Consumer Technology, Media, And Telecom Benchmark Recontact Survey 2, Q 3 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 16

EXAMPLE By 2022, 20% of 27% of fingers US households that appear into are expected stock own atphotos least one are suspended smart home over mobile device, device screens. excluding smart speakers. Forrester Data: PROHIBITED. Smart Home © 2017 Source: FORRESTER. REPRODUCTION Devices Forecast, 2017 To 2022 (US) 17

The rise of smart speakers Understand the key drivers for the rise of smart

Key players in smart speakers market Other players • Launched in Nov 2014 • Launched Amazon Echo Dot and Tap in Mar 2016 • Launched Echo Look in Apr 2017 • Launched Echo Show in May 2017 • Launched Echo Spot, Echo Connect, and Echo Plus in Sep 2017 • Announced partnership with Microsoft Cortana in Aug 2017 © 2017 FORRESTER. REPRODUCTION PROHIBITED. • Launched in Nov 2016 • Launched Google Home, Mini, and Max in Oct 2017 • Announced partnership with Walmart to offer items for voice shopping via Google Assistant in Aug 2017 • Announced in Jun 2017; scheduled for release in Dec 2017 • Announced Harman Kardon’s Invoke Cortana -powered speaker in Mar 2017 • JD. com — Launched Ling. Long Ding. Dong in Dec 2016 • Alibaba — Launched Tmall Genie in July 2017 • Baidu — Launched Xiaoyu Zaijia (“Little Fish”) family robot in Jan 2017 • Tencent — Voice-assistant program Xiaowei • Samsung — Smart speaker powered by its new Bixby voice assistant • Sonos — Launched Alexa Powered Sonos One • Xiaomi — Launched Mi AI Speaker 19

Almost looking like a bubble in hardware space Source: Li Yuan “Talking Speakers Just Arrived—and There’s Already a Bubble, ” The Wall Street Journal, July 27, 2017 (https: //www. wsj. com/articles/the-first-ai-bubbleis-now-here-talking-speakers-1501148910). © 2017 FORRESTER. REPRODUCTION PROHIBITED. 20

Smart speakers — addressable market in US › Households with income bracket • Above $75, 000 • Above $50, 000 › Users of voice assistant › Amazon Prime users © 2017 FORRESTER. REPRODUCTION PROHIBITED. 21

US household by income 2015 55. 2% of households above $50, 000 (70 million); 38% above $75, 000 (49 million) › 39% of US households above $75, 000 income bracket — 49 million households › 55% of US households above $50, 000 income bracket — 70 million households Source: US Census © 2017 FORRESTER. REPRODUCTION PROHIBITED. 22

23% of US online adults use Siri voice assistant Base: 4, 527 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Consumer Technology, Media, And Telecom Benchmark Recontact Survey 2, Q 3 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 23

Amazon Prime members are expected to be early adopters › Amazon Prime users • Amazon doesn’t disclose Prime member numbers. There are surveybased Prime membership estimates from other companies that range as high as 85 million US members and as low as 40 million. • Almost 42% of US online adults have an Amazon Prime membership. Base: 4, 585 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Retail And Travel Survey, Q 4 2016 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 24

Amazon is the trusted vendor for smart home devices Base: 4, 527 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Consumer Technology, Media, And Telecom Benchmark Recontact Survey 2, Q 3 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 25

Alexa skills count is growing rapidly Source: Amazon Press Releases © 2017 FORRESTER. REPRODUCTION

Interest in activities on voice assistant speakers Base: 235 US online adults (18+) who used an Amazon Echo in the past 12 months; Source: Forrester Data Consumer Technographics® North American Retail And Travel Survey, Q 4 2016 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 27

Smart speaker leads in adoption followed by thermostat Base: 4. 527 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Consumer Technology, Media, And Telecom Benchmark Recontact Survey 2, Q 3 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 28

50% of US households are expected to own at least one smart speaker by 2022. Pick one Forrester Data: PROHIBITED. Smart Home Devices Forecast, 2017 To 2022 (US) © 2017 Source: FORRESTER. REPRODUCTION 29

Impact of smart speakers on retail Understand the impact of increasing adoption of smart

Discovery © 2017 FORRESTER. REPRODUCTION PROHIBITED. Research Influence 31

Influence of Amazon is prominent in customer journey Source: Forrester Data Consumer Technographics® North American Retail And Travel Customer Life Cycle Survey, Q 1 2017 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 32

Among people who used Amazon Echo devices 45% owns more than one Echo devices in their households 62% of Echo owners interact with Alexa at least once a day Base: 235 US online adults (18+) who used an Amazon Echo in the past 12 months; Source: Forrester Data Consumer Technographics® North American Retail And Travel Survey, Q 4 2016 (US), Excludes Echo Show and Echo Spot Devices © 2017 FORRESTER. REPRODUCTION PROHIBITED. 33

Retail is the next set of use cases provided by smart speakers after information and control Base: 235 US online adults (18+) who used an Amazon Echo in the past 12 months; Source: Forrester Data Consumer Technographics® North American Retail And Travel Survey, Q 4 2016 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 34

Amazon Prime customers buy more frequently online Base: 3, 865 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Retail And Travel Survey, Q 4 2016 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 35

Amazon Prime customers are buying through multiple devices Base: 3, 865 US online adults (18+); Source: Forrester Data Consumer Technographics® North American Retail And Travel Survey, Q 4 2016 (US) © 2017 FORRESTER. REPRODUCTION PROHIBITED. 36

Key takeaways › Smart speakers only gradually accelerate true smart home adoption › Smart speakers must engage consumers in a broader range of activities › Watch for smart speakers to be combined with emerging home cam systems › Retail categories expected to be most impacted by • Grocery • Subscribe-and-save categories — household supplies, personal care, diet and nutrition, and pet supplies © 2017 FORRESTER. REPRODUCTION PROHIBITED. 37