White goods in the grey area: is there (still) a connected appliance ecosystem war?

The Consumer Electronics Show (CES) is increasingly becoming not only about connected cars (for further details please see "Are Apple and Google just a bump in the road for the automotive industry?"), but also about connected 'everything', including appliances and white goods. The smart fridge that knows when you have run out of milk and the washing machine that washes only when electricity is cheap are no longer things of the future.

The showcase at CES 2016 highlighted a number of these innovations, including the much-hyped Samsung 'home hub' fridge, equipped with a massive touchscreen panel. However, some of these ideas had already been presented at previous CES shows as early as 2010 and 2011. There were many showcase pieces, especially from the Korean giants LG and Samsung. One major difference since then has been the continuous development and competition between ecosystems within this space and the now ubiquitous enabling effect of smartphones (eg, in automotive and fitness).

CNBC observed that companies have now realised which connected home ecosystems will prevail, and thus can focus on producing specific products. The two most likely prevailing ecosystems are coming from Alphabet (Nest), Amazon (Dash) and Samsung (SmartThings).

For this snapshot it is interesting to see whether there is indeed also a surge in patenting in this area. Products that have now been showcased for five to six years (at least as prototypes) should be at the heart of what companies are strategically trying to protect with intellectual property. Equally, there are a couple of 'new kids on the block', with latest entrants and strongest growing companies coming from Asia in the form of LG, Samsung, Beko and Haier. Finally, there is also the issue of ecosystems (as with most consumer technology areas), where Google and the like must be considered.

The general trend is towards growth. On average, the number of granted patent families within connected appliances has increased by 142% over the last five years, and Figure 1 clearly shows that increase in filings over the last two five-year periods.

Source: Cipher

However, as seen in Figure 2, the companies have generally decreased their focus within this area, as the relative percentage of filings within connected appliances is lower. For the consumer electronics giants, this area is just a tiny portion of what they produce. The graph shows that only Whirlpool was really pushing this area between 2005-2009 where roughly every tenth application was within this space.

Source: Cipher

Figure 3 summarises the current patent standings, with only substantial pipelines being held by Bosch-Siemens and KOC (Beko). This could be another indication that the market is starting to become saturated in terms of patents.

Source: Cipher

One metric that is an interesting contrast to this apparent surge in applications within the space is conversion rates – that is, how many of the applications which companies file for end up with grants. Figure 4 paints a varied picture among the companies, looking at the percentage of applications that grant within five years and the percentage of applications that grant at all. While some companies do really well (eg, GE and Amazon at 100%), some appear to struggle, such as Bosch-Siemens, EGO and KOC (Beko). Two additional insights show a potential sign of patent saturation in a market (ie, harder to get grants), which seems unlikely, and initial indications of how inventive the various companies are.

The surge in new entrants can be seen when comparing the US market shares of major players in 2008 and 2013. In Figure 5 we can see that LG and especially Samsung have aggressively taken market shares from the incumbents; looking at connected appliance patenting (as a proxy for 'new innovation' in that time), all have increased their portfolios substantially.

Source: Cipher, Statista

With this change in market shares, the growth of Asian players and the annual growth of connected smart appliances expected to be 30% year-on-year until 2022 (driven by North America and Asia), it would be expected for companies to have global profiles. Figure 6 paints a slightly different picture though, as only LG and Samsung appear to have the strongest global coverage (current families with grants).

Source: Cipher

Another typical aspect of a growing market is a tendency to attract patent infringement. Samsung and LG already attract a high number of patent suits with their large consumer electronics profiles (attracting 449 and 235 suits, respectively) and are heavily targeted by non-practising entities (NPEs) (77% and 71%, respectively). However, looking at the pure-play companies in Table 1 (eg, Miele, Whirlpool and Electrolux) the picture is different, with only a portion of suits coming from NPEs and a much larger threat posed by competitors.

The connected appliances space is crowded and new players are continuing to enter, with some appearing to prevail as winners. This examination of the IP situation appears to show a certain decline in new innovation, as most companies appear to be past their peak of innovation, which may indicate that the imminent pipeline of product is strong and we are on the verge of dramatic change in this space.