Xiaomi, Apple, Baidu... How Did Companies With No Smart-Home Pedigree Get Into Smart Homes?

Smart hardware is so hot that every tech company wants a piece of it.

"Xiaomi and JD.com are the best companies at expanding a product's sales quickly and at scale. And it's not just them: the other companies they invest in will benefit us enormously too."

So says Sony Wu, CEO of Misfit, a US brand of fashion-minded smart hardware. Yesterday the startup announced a new US$40 million funding round, and some familiar Chinese names are among the investors: Xiaomi, JD.com, and Shunwei Capital, the fund run by Lei Jun. Wu stressed that Misfit did not take the money because it was short of cash. It wanted to work with Chinese tech companies like Xiaomi and JD.com and get into China's sales channels.

This is the Xiaomi model, which spreads across the smart hardware market by trading "equity for channels." Xiaomi takes a stake in a company, then solves its sales-channel problem in China. If the partner's brand is weak, the product also carries the Xiaomi name as an endorsement. Once it has invested, Xiaomi steps into product development, starting with design and pricing, and then takes over all sales and after-sales service. The best example is the Mi Band, made by Anhui Huami. After the partnership, its price was set at 79 yuan, 200-300 yuan below the market average, and with the Xiaomi brand on it the band went on sale through strong e-commerce channels such as Xiaomi's own online store. Xiaomi says it has sold more than 1 million bands so far.

All of this, of course, rests on the channels Xiaomi built with its smartphones. Xiaomi expects to ship 60 million phones this year. In the same period it launched the Mi Smart Home app, which works with all of its partners' hardware and with smartphones on every platform. The app moves the home's control center back onto the phone and away from the Xiaomi router, which once sold for as much as 799 yuan. Lead with the phone, then win over other manufacturers by trading equity for channels: that is Xiaomi's strategy for today's smart hardware market.

In truth, smart hardware, an industry that has only taken off in the past few years, is still in disarray. Startups building products in this field, in China and abroad, are countless, yet the industry still has no common platform or protocol for smart hardware and smart-home devices to talk to one another. As in the mobile internet boom that began seven years ago, cash-rich tech giants are rushing into the market by every route they can find: taking equity stakes, developing in-house, building software and hardware platforms, coming in through sales channels, coming in through social media... Xiaomi's approach is a snapshot of just one of them.

In short, welcome to the "Warring States" era of smart hardware, a war whose outcome is still unclear.

Google: Build a Hit, Then Take the Market

Google's way into smart hardware is direct: offer one star product that solves a real problem. Google has deep pockets, yet Nest, the home brand it acquired, still makes only two products, a thermostat and a smoke detector. Even with Google's money behind it, Nest has made just two carefully chosen acquisitions to build its strength: the established camera company Dropcam and the home-control company Revolv.

That has something to do with the fact that Tony Fadell himself once designed and developed the iPod and the iPhone. He believes the right way into a market is to make one product that is superb to use, and to develop the next only after consumers have learned how good the first one is. "Consumers won't pay for a platform. They'll buy a good product, one that's different from anything else like it. Then they'll buy another one. Then the next one."

At its annual developer conference, Google I/O, Google also announced a smart hardware ecosystem program, "Works With Nest." Its members include ivee, a home voice assistant that answers automatically; Life 360, a device for managing home heating; the Pebble smartwatch; and Mercedes cars. All of them will work together with the Nest thermostat to create a "home that senses": when the car nears home, the heating and lights switch on; once connected to the router, the lights change color at night. If the Nest thermostat's first move was to knock on the smart home's door, from here on it will become the control panel for other smart hardware.

Nest's idea of a home that senses also fits the direction Google is pushing in artificial intelligence (Google Now, for example, a voice assistant that reminds you of your schedule, the traffic, and your favorite team's scores without being asked). Three years after Google's original home software platform, Android@Home, disappeared, the "boutique" and "sensing" qualities that Nest stands for may finally revive Google's home business.

Apple: Whatever Smart Hardware You Make, It Ends Up an iPhone Accessory

The iPhone stands in sharp contrast to the fragmented Android market. Apple makes every iPhone, so every iPhone is also a gateway to Apple. And because the Apple brand carries an image of high quality and high-end status, users trust Apple's channels more when they buy iPhone accessories. So Apple takes a "lighter" route into smart hardware. It opened the MFi (Made-for-iPhone/iPad) program and announced two standard protocols, the smart-home platform HomeKit and the health platform HealthKit. Apple handles the quality certification and leaves the rest to developers.

That is why, even though Apple takes a 40% commission and charges an "entry fee," manufacturers still fight to earn Apple certification and get onto the official Apple Store channel.

About two weeks ago, Apple held an MFi conference for Chinese hardware developers in Shenzhen. It presented the HomeKit and HealthKit frameworks tied to iOS 8, the iPhone's operating system, the standards for iBeacon, its low-energy Bluetooth connection, and for Lightning, and information on game controllers, among other things. We can expect MFi-certified smart hardware from China to appear in Apple's official store before long. Products such as Philips Hue and Parrot Flower Power, a smart plant-moisture sensor, are already on sale on Apple's Hong Kong website. This carries risks, of course. Apple controls every channel in the Apple Store, so if a partnership goes sour, a product can be pulled from the shelves, as happened to Bose headphones and the Fitbit fitness band.

Tencent: Even Smart-Home Devices Talk to Each Other Through QQ and WeChat

Tencent, naturally, will not give up its advantage in social networking. It has chosen QQ, the instant-messaging tool with the most users in the world, and WeChat, the messaging app that commands the gateway to the mobile internet, as its entry points into smart hardware. Once a hardware team connects its devices to the "QQ IoT" platform, QQ turns from a messaging tool into a remote control.

Tencent also offers smart hardware makers something like an incubator. It includes the endorsement of the Tencent brand; traffic and distribution from Tencent's mobile products, among them QQ with its 829 million active users, QQ Music, Tencent Video, WeChat, and Yingyongbao; and Tencent's hardware startup incubator, which connects developers with fundraising, R&D, sales, and media resources and will also provide startup space and a support fund. Tencent has not said clearly whether the price of joining will be a share of sales or an equity stake.

At the Tencent Partner Conference in Hainan this October, Tencent's chief operating officer, Ren Yuxin, described how its smart hardware would work. Users would be able to use QQ and WeChat as remote controls for their air conditioners and TVs, and a recipe app on the phone could even set the oven's temperature and timer directly, making it easier to bake pastries.

Xiaomi has announced it will invest in 50 to 100 startups, and Tencent has signaled the same intent, aiming to invest in 100 within three years. It says it will use its internet resources to help each of these teams become a company valued at more than US$100 million. Tencent says it will put 2 billion yuan into supporting partners in 2015, though how it will ultimately split hardware sales revenue with the teams remains unknown.

Baidu: We're Still Betting on the Router

Baidu has in fact put considerable effort into smart hardware, but it has not drawn much of the spotlight. Its dulife platform either makes white-label products or partners with other brands, and either way it has already put quite a few smart products on its online channels, such as a smart jump rope, the Lisa pregnancy watch, and a Lifesense smart scale.

Baidu is now also building an open smart hardware platform centered on the router, "Baidu Smart Home." Connected devices gain access through Baidu's router to the "Baidu Brain" and its big-data analysis, voice control, and gesture interaction, which can make smart hardware easier to produce.

That sounds like exactly what traditional appliance makers need as they move into smart hardware, but the approach has a problem it cannot solve. If Baidu does not get enough of its smart routers into homes, the big-data analysis and device-connection features that depend on them cannot be used. Baidu Smart Home also cannot guarantee that appliances of different brands will work together through its cloud data, and if they don't, the whole experience gets worse.

Samsung: Want a Smart Home? Buy Everything We Make

This is an old idea of the smart home: Samsung wants your whole family to use its products, from phones to air conditioners and refrigerators.

While Intel and Qualcomm were busy forming alliances around common smart hardware standards, Samsung gave its own answer for the smart home: make the complete set. Since it already had strong appliance production lines, it simply launched the Samsung Smart Home service, covering TVs, washing machines, refrigerators, air conditioners, washer-dryers, robot vacuums, speakers, and other appliances.

All of them are traditional appliances with network connections added, and they can talk to one another through Samsung's cloud service, but users have to control them with Samsung's Galaxy Gear smartwatch or a Samsung TV. What you can do, then, is use the watch to tie the washing machine's start time to current traffic data, so the machine starts at the right moment and finishes just as you get home, while the lights and router switch on automatically.

But one thing is very much in doubt: how many people will actually buy a full set of Samsung products? At a time when everyone is stressing open ecosystems, Samsung's "buy everything" approach does look full of holes.

Microsoft: The Xbox Already Is a Smart Home

Microsoft already has a ready-made smart-home product: the Xbox. It usually sits next to the TV and can sense motion, which makes it a natural smart-home device. In fact, Microsoft acquired id8 Group R2 Studios, a mobile app company that designs home automation, a full year ago to strengthen the Xbox's smart-home capabilities.

Microsoft has long wanted the Xbox to be the entertainment center of the living room. It has already added video content, everyday services such as ordering pizza, and voice commands to start the Xbox, which together amount to a voice-controlled smart-home assistant. The Xbox second-screen app SmartGlass can now control appliances, air conditioners, refrigerators, and other devices. With the Kinect motion sensor, users can even dim the lights or open and close the garage with a word or a gesture.

More interesting still is "HomeOS," an operating system built for the smart home that Microsoft is developing. In the works since 2010, it brings control of traditional appliances such as lamps, TVs, refrigerators, and washing machines onto a personal computer and smartphone.

Intel: We Sponsor Every Project, Profitable or Not

Intel formed the Open Interconnect Consortium, an Internet of Things device alliance, with Samsung, HP, and others. It has lowered itself to make life easier for Shenzhen's small "white-label" hardware makers. It sponsors IoT events such as Maker Faire. And it built the Edison, an SD-card-sized micro PC, specifically for smart hardware development... Intel is now one of the chipmakers most active at the frontier of the Internet of Things. Having missed the smartphone wave, Intel cares all the more about the coming wave of smart hardware, and it has found its way in: building development solutions for smart hardware.

The Edison chip and the Galileo development board are promising attempts, and both aim at the same goal: making hardware easier to develop. Intel has promoted them so heavily that its rival ARM looks tiny by comparison. According to Intel, it is running 40 dedicated Edison projects in more than 10 countries, and more than 70 test devices have already appeared. The result has been plenty of interesting hardware, such as the dress shown at IDF that turns transparent as the wearer's heart rate changes. Intel also spends lavishly on smart hardware investments: earlier, it announced investments in 16 startups at once, including makers of a new kind of Braille printer and an agricultural monitoring drone.

Cover image: Flickr | Johan Larsson