NanoMarkets believes that in the past year or so the smart lighting industry has begun to grow up. It has begun to focus on what the opportunities are for its products rather than simply dwelling on technical issues. Our sense of the market is that in the past, next-generation smart lighting firms have been uncourageous about saying how their systems differ from each other and from the previous generation of lighting management systems. We now appear to have reached a stage in the evolution of the smart lighting business, where firms in this space must think hard about what they really have to offer.
Judging from the fact that quite a lot of firms have quit the smart lighting business in the past few years, some smart lighting firms have spent too much money on engineering and not enough on marketing and business development. At the very least some smart lighting companies may not have thought through entirely how their products are going to make money in the coming years.
In this respect, commercial and industrial buildings are a better bet than residential buildings when it comes to selling smart lighting, because the benefits of smart lighting can, for the most part, be easily quantified for business users. This fact of life is reflected in NanoMarkets' most recent forecasts where we show smart lighting for commercial and industrial buildings as generating $5.1 billion by 2019, but residential smart lighting for the same year with revenues of just $820 million.
It is also apparent that smart lighting firms will now have to work to get their products into profitable channels. For the giant lighting firms—the GEs and Osrams of this world—this is not an issue. However, for the many smaller firms in this business what this will mean is slogging away trying to build arrangements with local and regional building product and electrical supply outlets/installers. This takes time. Selling smart lighting through major national chains is another option—and to some extent a quick fix—but it is not easy to get one's products into such retailers and may not be optimal given the retail-orientation of many of these outlets.
Beyond this, NanoMarkets believes that there are some trends that have not been recognized widely yet by the smart lighting community, but which will be important going forward. One of these is the necessity for smart lighting suppliers to push their marketing stories well beyond the energy efficiency meme. Another is the degree to which there are opportunities for smart lighting in markets other than buildings.
As NanoMarkets noted in its 2013 smart lighting report, firms that fail to find effective ways to differentiate themselves in what is already becoming a crowded smart lighting marketplace, will quickly see their business slip away from them. In our 2012 smart lighting report we specifically noted that many of the smart lighting systems from firms that were purportedly innovative start-ups, actually had a certain sameness to them. They seemed to be offering features and benefits that just weren't that special and we questioned whether these would be enough to build a sustainable business for smart lighting firms.
Yet in a recent interview with a smart lighting firm, NanoMarkets was told that it was hard enough to design a smart lighting product for energy efficiency without having to worry about functionality beyond energy efficiency. However, we think that increasingly such comments are going to seem beside the point.
Beyond Efficiency: Why Smart Mood Lighting is the Next Big Thing
Possibly, the necessary market differentiation for smart lighting can be achieved simply by offering higher levels of performance; such as quicker response times for lighting systems. But it seems to us that more will be needed in the era of the Internet-of-Things (IoT), when customers are going to be looking for more than just an extra percentage point on energy efficiency.
IoT raises the stakes. As a result, we think that manufacturers of smart lighting will switch to a bigger story; one that encompasses "mood lighting" as well as energy efficiency. For our purposes, mood lighting in this context includes lighting designed to influence, not just immediate mood, but long-term health and work performance. According to NanoMarkets' forecasts, smart lighting with mood enhancement capability will generate $2.9 billion by 2019.
It has been well understood since the days of the first incandescent light that changes in light can affect health, mood, and human performance. However, given the nature of lighting technology, there has until recently been a limited amount that could be done to take advantage of what was known about light and human behavior. With the new solid-state lighting systems—those based on LEDs—a lot more can be done. These systems intrinsically allow for more control, partly precisely because they are based on chips not tubes and bulbs.
As NanoMarkets sees things, there is enough potential in the smart mood lighting concept to allow for substantial differentiation in smart lighting products and systems for most of the eight-year period that is covered in this report. And when the mood lighting idea begins to run out of steam, smart lighting can tap into smart lighting based visible light communications (VLC). However, we also expect that smart mood lighting will increasingly be challenged by professional medical opinion which is already saying that the health benefits of lighting are not all that they are cracked up to be.
Thinking Outside of the Building
The other profitable new direction that NanoMarkets sees for smart lighting is in markets outside of traditional building usages. Non-building sectors in which smart lighting could be deployed include transportation, street lighting and other outdoor lighting. Together, we see these applications for smart lighting as accounting for $4.6 billion in revenues; that is 42 percent of all smart lighting revenues. These applications will account for just 12 percent of smart lighting in 2014.
What is creating this opportunity for smart lighting outside of buildings is the same factor that is creating opportunities for lighting applications inside buildings; the growing role of LEDs. LEDs are a key enabler for smart lighting systems because they are chips and therefore inherently more controllable than the types of lighting that went before it. So with LEDs, smart lighting systems are more of an obvious play than they were with earlier generations of lighting.
Automotive: NanoMarkets believes that by 2015 we are going to see significant revenues generated by smart lighting systems in the automotive sector. This may not be all that obvious though, because the impetus for smart lighting in cars and trucks is coming not from the smart lighting community itself, but rather from the automobile firms and it is not always tagged as being "smart" lighting, although this is exactly what it is. Among the firms that have indicated publicly that they are involved with developing smart lighting are Audi, BMW, Opal and Mercedes-Benz. (All German car firms, by the way, and more or less the same group that are working with smart windows in their cars.)
One aspect of smart lighting in the automotive segment that interests us especially is that it is another example of smart lighting moving beyond energy efficiency. Thus, Audi's Matrix LED headlamps are said to provide more precise lighting for the driver and less blinding light that dazzles drivers in oncoming cars. BMW is working on "laser headlamps" that offer white lighting that can be intelligently modulated.
The general objective of these developments seems to be to provide improved control of the outside lighting on cars for greater safety. But as NanoMarkets sees things, "smarts" could also be deployed inside a vehicle. Smart mood lighting seems to be especially appropriate in this context; to provide passengers and drivers with greater comfort. This makes sense in cars and internal lighting has also been a specific focus of Boeing and (presumably) other firms that make airliners.
One ongoing advantage to the transportation sector from the perspective of the lighting industry is that once a particular smart lighting product is designed into a popular vehicle, this can guarantee that tens of thousands of lights will be sold. The flip side of this is that design-in times (i.e., lead times) can be very long. In the auto industry three years is typical. In aerospace, it can be seven years.
Street lighting and other outdoor lighting: Outdoor lighting is in just as much need of energy efficiency as in-building lights; arguably more. Therefore, we see emerging a significant market for smart outdoor lighting, which can potentially be quite elaborate. A recent project at the University of California illustrates this well. The University has built a $1-million network of outdoor smart lighting that "talk to each other and adapt to their environment." According to press reports, the new outdoor lights promise to save the university $100,000 on electricity and make it a safer place after dark.
This University of California smart lighting system can be scheduled and adjusted for increased or decreased levels of activity, such as during sporting events, or to guide pedestrians along preferred routes. The system senses occupants, whether on foot, bicycle or automobile, predicts their direction of travel, and lights the path ahead. The smart network also senses when areas are vacant, then dims lights enough to save energy and reduce light pollution, without compromising safety.
Street lighting is also gradually using more LEDs and consequently is a likely target for smart lighting in the future. Large individual orders are possible as they are in the transportation sector—street light installations can involve thousands of lights. But lead times can be a lot more attractive for novel lighting designs than in the transportation sector. However, smart lighting faces a serious challenge in the street lighting sector—the problem of glare. The HID lighting that is currently used in street lighting is good on glare, but not easy to make smart.
The converse is apparently true for LED lighting and NanoMarkets believes that this fact may again drive smartness for lighting away from being a pure energy efficiency play. Although we are not entirely clear how this can be done, some form of intelligence might be used to reduce glare. Meanwhile, we note that Philips is teaming up with Ericsson on a connected street lighting project. It combines LED lighting from Philips with Ericsson's telecommunications equipment and uses VLC to make street lights into hot spots for mobile devices.
Yet again, this indicates just how far smart lighting can potentially reach beyond the energy efficient lighting label.
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