Menu

SMART HOME FEATURE NEWS

How Can Lighting Manufacturers Grow their Business and Expand their Profits

By Special Guest
Erik Davidson, Director, Marketing & Products, Cortet by CEL
August 16, 2017

This article regarding Smart Building Control product strategy provides industrial, commercial and office lighting equipment OEMs, manufacturers, integrators and installers with valuable insights from across the Internet of Things (IoT) landscape in order to help create the best, most profitable marketing strategies possible, and then keep them up to date with the latest trends to ensure that they never miss these new emerging smart lighting opportunities.

This article will focus on the IoT-enabled Smart Lighting Control opportunity, which our research shows is one of largest opportunities in the rapidly growing commercial-grade IoT control space.

Our parent company, CEL, has been doing wireless control and component-based technology innovation for more than 50 years. Over those many decades, we’ve established tens-of-thousands of successful relationships across numerous industries.

In combination with our own market research, we rely heavily on these relationships to gain insights into what’s going on in the market and to identify the next big opportunity wave for our OEM partners.

What we’re clearly seeing and hearing right now is that there is a uniquely strong opportunity for lighting luminaire and lamp OEMs to enter the Smart Building Control market with their own IoT-based lighting control solutions.

If you are a luminaire/lamp OEM that has been hesitating to take the plunge into Smart Lighting Control (or perhaps if you’ve already made a run at it in the past but it didn’t go so well) here’s several reasons why we think it’s the right time for you to dive (back) in.

The latest data show that the Smart Lighting Control market is poised to grow by over 35 percent to $3.7 billion in revenue by 2020.

With those kinds of figures, there will be a growing number of new startups being formed specifically to take a run at the opportunity. We are already starting to see this today. It seems that almost every week I learn about a new smart building or smart lighting control company.

However, lighting luminaire or lamp OEMs have two unique competitive advantages over these “newcomers” - unmatched knowledge of the “things” that are being controlled and deep, long-standing industry relationships.

You understand better than anyone what it really takes to design, manufacture, install, troubleshoot, upkeep, and upgrade the lights themselves.

And, perhaps most importantly, you’ve gained this understanding from a real, widespread, hard-won customer base.

This gives you a tremendous advantage in defining the right strategy. It gives you something that is the most difficult thing to attain: an in-depth understanding of the customer and what it takes to deliver a superior experience to them.

This in turn leads to your second major advantage over newcomers: You’ve already built and optimized a successful and far-reaching sales and distribution network for targeted market segments.

You have an enormous head start. For one thing, lighting agents are regional and have regional exclusivities, and it takes years to establish national and international reach. Dealing directly with electrical distributors and electrical contractors can be just as complex and just as fragmented. If you are a successful lighting OEM, you have likely already built these challenging but highly valuable channels.

Startups and new entrants don't have the robust channels you have, other lighting players may not have these either, but you, as an established OEM, do.

At this point you may be thinking, “yes, we know, but is now really the right time?” And, maybe you have already made a play in lighting controls or even in IoT-enabled lighting controls, but it wasn’t very successful.

There are three primary reasons why we so strongly believe that NOW is the right time to make a play in IoT lighting control.

1) Features and capabilities of lighting control systems have become much more sophisticated, and the technology behind them has become far more accessible. As is often typical in new, disruptive industries, early IoT technologies were, in many cases, overly complex, difficult to integrate, not supported well and in limited supply. The good news is that all of these circumstances have improved significantly over the past several years as the industry and the technology space have matured.

IoT technologies have become steadily more accessible, reliable, and simple to integrate and use — even as the sophistication and functionality has continued to rapidly increase.

One way that things have improved in the IoT technology space is the increased engineering rigor that is now being applied to certain IoT systems. At the dawn of the IoT, many companies were fast and loose with their development and test methods. While this is certainly still the case for some, many professional companies with strong engineering processes have emerged and have started to dominate certain sectors of the IoT.

2) The many new entrants and new approaches in the lighting control space have vastly increased the number of partners available. The ecosystem is there. Just a few years ago, the IoT control ecosystem was relatively fragmented with just a small number of serious companies, few partnering opportunities and even fewer mature technology choices.

That has changed. There are now hundreds or maybe even thousands of IoT hardware, software and services companies across an increasingly crowded landscape. Among them, there are a growing number of serious players that can be trusted.

This is now giving OEMs with successful non-IoT products an easier and more profitable way to enter new markets with IoT-enabled products while introducing much less risk. You can now focus on what you know and do best – luminaires and lamps – while providing the opportunity to easily expand sales, increase margins and create new revenue streams by adding IoT control.

3) If you made an unsuccessful attempt to enter the market in the past, most of the roadblocks and pitfalls you may have faced are going away.

This is the result of the expanding partner ecosystem mentioned above. With a growing number of experienced, capable partners to choose from, the days of “going it alone” are over. 

Today there are an increasing number of companies that offer OEMs support and guidance in the critical areas that history has shown to be the most difficult for IoT newcomers — and notorious for torpedoing even the best go-to-market strategies.

Examples of some of these functions include after-sale support, technology integration, ongoing system upgrades and maintenance, adjusting to rapidly evolving standards, development of long-term strategic product roadmaps, and more.

The real question is “How can a strategically designed SLC portfolio expand overall sales, increase profit margins, and begin building recurring, subscription-based revenue?”

 If you produce and sell luminaires and/or lamps, you have an immediate opportunity to add a Smart Lighting Control (SLC) system to your portfolio to increase your top line sales. This increase will be primarily generated by two factors:

1. You will now gain revenue from selling an SLC system; and

2. You will also pull along more luminaire & lamp sales and perhaps even increase your share of a given contract by owning the selected SLC system.

But, is the opportunity big enough? Should you care? How fast is the SLC opportunity growing relative to luminaire sales otherwise?

Let’s dive into some numbers.

The latest data from numerous sources show that the SLC market is poised to grow by an impressive 25-30 percent CAGR (Compound Annual Growth Rate). According to one analyst report, the market for just lighting control products alone is expected to reach $3.7 billion in revenue by 2020. Within five years, by 2022, another analyst report projects that the TAM for SLC systems will exceed a whopping $19 billion.

By comparison, data from Strategies Unlimited suggest that the LED luminaire market has been rapidly growing at an 11 percent CAGR and will reach a TAM of approximately $40 billion by 2020 and $45 billion by 2022.

What’s interesting, exciting, and very important about this data is that it suggests that the TAM for SLC systems will rapidly become a very high percentage of the overall LED lighting industry TAM: $19 billion for SLC systems within a $45 billion LED luminaire market.

Most notably, this is because CAGR for SLC system sales will likely be more than double the already-impressive growth rate of LED luminaire sales over at least the next several years.

With all this data in mind, it is not hard to see that if you are manufacturing luminaires, hitching your wagon to a solid SLC system sets you up for an increased growth rate in a cutting-edge market segment on the rise.

How to Expand Wallet Share
There is also another important financial opportunity you should be paying attention to, and that’s your ability to expand “wallet share” with your end-customers.

If you’re unfamiliar with the phrase, share of wallet refers to the percentage your company receives of the end-customer’s total project budget. So, for example, let’s say an office renovator has a lighting retrofit budget for a small office space of $200,000 and it includes plans for adding SLC.

Originally, perhaps you’d be getting approximately 25 percent of that total budget, or $50,000, primarily for providing a share of the luminaires.

By adding an SLC solution pre-integrated with your luminaries, you have the opportunity to grab a greater share of the total contract budget from your competitors, both from selling more luminaries and from selling the SLC system.

Our latest research shows that, on average, you can increase your total share of wallet by 30-40 percent using an SLC solution over what you’d achieve otherwise.

That would mean instead of making a total of $50,000 on the example contract above, you would have the opportunity to make $70,000 (35 percent of the contract). Over 100 similar small projects, you have increased sales by $2 million.

There’s more good news here. In addition to larger TAM, CAGR and wallet share potential, adding an SLC solution provides an opportunity to significantly increase profit margins.

First, when building your strategy for entering the SLC market, we recommend you start by IoT-enabling the lamps and luminaires in your portfolio that are already the most successful and are already providing the highest contributing margins.

Why? Because by offering these products integrated with your SLC platform first, it increases the chances of success for the total offering, since the original devices are already well received, in high demand and generating profitable revenue.

Our research shows that when you combine these winning devices with a white-labeled SLC platform, the total profit margin can increase by as much as 50 percent over lamps and luminaires alone.

This is especially true since luminaire & lamp manufacturers are seeing their profit margins get crammed down at a staggering rate due to rapidly increasing competition.

Let’s revisit the example from above. Perhaps, you are selling in a mix of luminaires, both low-margin and high-margin SKUs, for a combined direct profit margin of 20 percent.

But now you can offer luminaires integrated with an SLC solution.

Because you choose to have your SLC solution integrate with your higher margin luminaire products first, you can sell in a greater percentage of your higher-margin devices and the higher margin SLC solution components (e.g. white-labeled intelligent control gateways, wireless control devices, software, etc.).

By selling this integrated solution, you can increase your overall profit margin to 30 percent. And, since you were now able to take the increased 30-40 percent wallet share, in our small office space contract example, your total profit from the contract goes from $10,000 to $21,000. Over 100 similar projects, you have now increased your contributing profit margin by $1.1 million.

As you’ll recall, those 100 projects resulted in a $2 million revenue boost. So now you’ve seen that $1.1 million was pure profit. Now we’re talking. There’s one more important opportunity that SLC brings, and that’s the ability to build and grow subscription-based, recurring revenue streams over time.

This aspect of the SLC opportunity is just beginning to emerge, but stands to be one of the greatest financial benefits of IoT-enabled lighting in the future.

You want to be ready when the growth wave comes.

About the Author: Erik Davidson is Director of Marketing at California Eastern Laboratories (CEL) driving go-to-market and product strategies for end-to-end Internet of Things control products, systems, and solutions.




Edited by Ken Briodagh
Get stories like this delivered straight to your inbox. [Free eNews Subscription]


SHARE THIS ARTICLE
Related Articles

Smart Home Solutions with Smarter Video Capabilities, Courtesy of Ayla Networks and Meari Technology

By: Alex Passett    3/7/2024

Ayla Networks and Meari Technology announced their strategic partnership to deliver innovative smart home video solutions.

Read More

Following Patent Litigation, Fractus to Continue Providing Impactful Antenna Technology for Smart Homes

By: Alex Passett    2/29/2024

Barcelona-based Fractus recently announced the settlement of its patent litigation with Vivint, a U.S. smart home security company.

Read More

Together, peaq and AYDO Bridge IoT to Web3 for Dynamic Smart Home Applications

By: Alex Passett    1/22/2024

Last week, the tech teams at peaq and AYDO announced an expansion of the former's Web3 ecosystem in order to enable real-world blockchain applications…

Read More

Origin AI Raises $15.9M in Funding to Further Smart Home Wi-Fi Sensing Capabilities

By: Alex Passett    1/10/2024

Recently, Origin celebrated a new leap when the company announced the successful completion of its latest $15.9 million Series B extension round (with…

Read More

Through Fog, a Clear Solution: Enviroblind and Essence Group Supply Peace of Mind with MyShield

By: Alex Passett    1/3/2024

Essence Group and Enviroblind have partnered to offer MyShield, a standalone security application that generates fog as part of an intruder interventi…

Read More