How Microsoft Will Incorporate the Internet of Things Into Windows 8.1

Home automation has been a "next big thing" since broadband Internet became commonplace. Like flying cars or robot servants, automated houses have so far remained out of reach. But there's a chance it could follow the path video conferencing -- something that seemingly overnight goes from being an impossible dream to commonplace. 

There are lots of players looking to make home automation a thing, including Google  (through its $3.2 billion acquisition of Nest brand), Belkin (with its WeMo line), and Samsung  (which showed off its Smart Home technology at CES this year). Microsoft announced it was throwing its hat into the home automation ring on Thursday,  joining a wide open field where no clear winner has emerged.

Microsoft has partnered with Insteon -- already one of the leaders in the small but growing field -- to offer an enhanced version of Insteon's app for PCs and tablets running Windows 8.1 as well as Windows Phone. The goal of the partnership, according to a press release, is "making home automation even easier for everyone, from the ultra-techie to the average homeowner."

How does Insteon work?
Insteon already has apps for Apple's  iPhone and iPads as well as for Android phones and tablets. The Microsoft app will offer expanded features, but it does not change the basic process of automating a home using Insteon. Customers first install a hub, and can then add sensors and cameras that allow remote monitoring and control of light bulbs, wall switches, outlets, and thermostats. Users can receive email or text messages from the system, letting them monitor things like doors and windows, water leaks, and smoke detectors.

Amazon sells the Insteon starter kit (which includes the hub plus two light dimmer controls) for $106.29 through a third-party. Additional modules run from $33 or so for a motion sensor to around $45 for a controllable power outlet.

The Insteon products are fairly similar to in functionality to Belkni's WeMo line, while Nest has built its offering around its learning thermostat, which regulates temperature to lower energy use and a smoke and carbon dioxide monitor. Nest does not yet offer light switches, power outlets, motion sensors, or other sensor types. 

What's different for Microsoft's version?
Partnering with Microsoft opens up a larger customer base for Insteon. Home monitoring also integrates well with the "live tiles" that are a key component of Windows 8.1. Live tiles update automatically on your screen, showing breaking news, stocks prices, or in this case the status of various parts of your home. Insteon currently updates live tiles on PCs and tablets running Windows 8.1, but not on phones running Windows Phone 8.

The Microsoft version of the Insteon software also offers a visitor mode that provides restricted access to children or guests in your home. The app also allows for monitoring multiple locations (like a home and a business).

How big is the potential market?
GigaOm examined the smart home market in 2013, breaking it down into three segments: do-it-yourself kits, high-end luxury installations, and connected home systems. Insteon, WeMo, and Nest are generally parts of the first and third categories, but high-end luxury installs could integrate the mass-market products as well. The GigaOm report stated that home automation has so far failed to catch on, but acknowledged that products like Nest and WeMo might change that.

The report found that the overall dollars spent in home automation were relatively small, with much of the money being in high-end custom systems. "Currently the largest segment -- custom-designed smart home systems -- will grow at only a 7% rate, compounded annually, to $2.2 billion in 2017. DIY kits will grow much faster but still only reach $200 million in annual sales by then. In contrast, connected home systems will explode from a $300-million base to $1.5 billion in 2017," according to GigaOm.

There is no clear consensus as to the size of the industry, as its growth potential depends almost entirely on the public's willingness to embrace technology like Insteon. 

Juniper Research released a report in February that said the smart home market will reach $71 billion by 2018,while a 2012 report from Allied Market Research valued the industry at $4.8 billion total.

The disparities are caused by a lack of a clear definition of what counts as a connected home. Factor in addressable devices such as set-top boxes (as Juniper has done) and the number explodes. Take a more narrow view and the numbers shrink correspondingly. With Google paying $3.2 billion for Nest and Microsoft partnering with Insteon, it's clear that at least those two top technology companies believe the market could become significant. Whether it does depends on whether consumers decide that they actually want the ability to control their home from afar.

This is good for Microsoft
Adding functionality and exclusive services to Windows 8.1 can only benefit Microsoft. Though people are unlikely to upgrade to Windows 8.1 or switch to Windows Phone just to use home automation, the ability to do so could sway someone on the fence. In addition, live tiles work exceptionally well with home automation and Insteon's products. On an Apple or an Android device, customers must open the apps to check in on their home. Live tiles would let a parent, for example, see that his child has returned home ... and if the kid brought friends. That may not be groundbreaking technology, but it's useful and less of a gimmick than the ability to dim lights remotely.

Home automation and the so-called "Internet of things" could explode and become common consumer technology. It could also fail if people decide that being able to tell their ovens to preheat on their way home from work is not worth having to buy and install devices. 

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Daniel Kline is long Microsoft. He is not sure he needs to talk to his microwave while he is away from home. The Motley Fool recommends, Apple, and Google (C shares). The Motley Fool owns shares of, Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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