Samsung, LG Take Aim at Whirlpool with Smart Appliances
Samsung Electronics (005930:KS) wants to become the biggest U.S. large-household-appliance brand by making refrigerators smarter.
Fridges, washers, dryers, dishwashers, and ovens are becoming more like computers that can connect wirelessly to smartphones, tablets, and other devices. Samsung is harnessing this transition to take business from appliance leader Whirlpool (WHR) and other manufacturers, Samsung Electronics America Senior Vice-President James Politeski says in an interview.
Samsung and LG Electronics (066570:KS) aim to parlay their leadership in products such as cell phones, TVs, and personal computers into development of household items that can be remotely turned on and off, connect with repair staff, display recipes, or play music. The market for these connected appliances may expand to $6.2 billion by 2015, up from $40 million last year, according to Pike Research in Boulder, Colo. "The next year or two will determine which company leads," says Mark Ishac, a managing director at Zpryme Research & Consulting in Austin, Tex. "Samsung could take share from the more traditional companies. They could certainly make waves."
Whirlpool has 41.5 percent of U.S. appliance sales, while Samsung holds less than 1 percent of the market and LG has 8.7 percent, according to researcher IBISWorld in Santa Monica, Calif. It and peers including Electrolux (ELUXY) and General Electric (GE) are also developing connected appliances.
Assault on the Big Three
Smart appliances will completely replace traditional machines by 2020, Ishac predicts. He expects Suwon (South Korea)-based Samsung to gain five to seven percentage points in market share in the next five years. LG, based in Seoul, may add eight to 12 percentage points, Ishac says. The gains will come at the expense of Whirlpool, Electrolux, and GE, he says. "Combined, Samsung and LG will just be shy of 20 percent total market share in five years," Ishac says. "That's a huge pill for the big three to swallow."
Samsung aims to replicate its performance in the U.S. market for cell phones, which had been led by Motorola Mobility Holdings (MMI) as recently as 2008. Samsung, LG, Apple (AAPL), and HTC went after the phone market by introducing smartphones, computer-like handheld devices with more sophisticated features and faster Internet access. As of November, Samsung and LG were the top phone makers in the U.S., while Motorola slipped to third, according to ComScore (SCOR) in Reston, Va.
Samsung's U.S. appliance sales have jumped sixfold in the past four years, making it one of the fastest-growing brands in that market, Politeski says. One new refrigerator features separate temperature and humidity settings for different compartments. "Our goal is to be the No. 1 appliance brand in the U.S.," Politeski says.
One of its biggest hurdles may come from fellow Korean manufacturer LG, whose share jumped almost two percentage points last year, from 7 percent in 2009, making it the No. 4 U.S. appliance maker, according to IBISWorld. LG's washers, which feature liquid-crystal displays and can clean clothes with steam and an array of motions, have proved a hit. In 2010, LG introduced a washer and dryer that can emit tones to let a technician figure out what's wrong via phone, without a diagnostic visit.
Landing in U.S. Stores
The face-off between the electronics giants and traditional appliance makers will heat up later this year, when the first connected appliances start landing on U.S. store shelves, and when industry players are expected to agree on which wireless technologies manufacturers' appliances will use to communicate.
Samsung will be among the first to start selling a connected product. In May, the company will begin offering a $3,500 fridge with Wi-Fi connectivity and an 8-inch touchscreen that displays recipes and runs applications like Pandora Media Internet radio. "We have tremendous capabilities in computers, mobile phones," Politeski says. "It's a strong advantage." In the last five years, Samsung increased its U.S. staff twelvefold, boosting employment in every area of the business. The company also expanded its appliances plant in Mexico in the last three years, Politeski says.
LG used the Consumer Electronics Show this month in Las Vegas to show off capabilities like Smart Adapt, a feature that lets consumers download recipes or special washing cycles onto appliances. Smart Adapt would let a consumer ask a washer to run a cycle tailored to a new pair of jeans, for example. The feature will become commercially available in the "near future," says Patrick Steinkuhl, product insight strategist at LG.
Also in the works are smartphone applications that would let an LG oven send a text message to its owner saying a roast is ready, and let the owner remotely lower the temperature to keep the food warm. An LG dryer in the basement may text its owner that a load is finished, eliminating the need to run up and down the stairs to check. "We are unchaining customers from the kitchen and the laundry room," LG's Steinkuhl says. "We obviously have a brand that really stands for innovation and design."
And as connected appliances come out en masse in 2012, that may be what matters in making a sale. "If a company's technology is more convenient, they can gain share," says Mary Gotaas, an analyst at IBISWorld.
Whirlpool, Electrolux, and GE each lost some market share last year at the expense of competitors including LG. Whirlpool's share slipped from 41.6 percent in 2009, according to IBISWorld. Electrolux's share fell to 20.8 percent from 21.6 percent, while GE's dropped to 18.4 percent from 22.5 percent, IBISWorld says.
To stem the declines, and to stand up to Asian competitors as smart appliances gain ground, the industry's largest players are also pursuing connected household machines. "This is one of the biggest investments, in dollars, we have in 2011," Warwick Stirling, a global director at Whirlpool, says in an interview.
This year, for example, Whirlpool will test a connected fridge that can alert the owner via text message if its door has been left open. Whirlpool, based in Benton Harbor, Mich., also is considering offering free and paid services, such as remote diagnostics, for connected appliances.
Today, appliance manufacturers might sell a washer and have no contact with the buyers until 10 years later, when they shop for a replacement. Services could help maintain contact between purchases, offering coupons and building greater brand loyalty.
"It would be an OnStar for an appliance," Stirling says, referring to the service that connects cars to a help desk for directions and emergency services.
Electrolux will show its connected-appliance prototypes this year, says Vanessa Butani, a business development manager at the Stockholm-based company. GE, which exhibited its connected appliances at CES this year, already sells a connected refrigerator, a dishwasher, laundry machines, and a water heater to utilities running market trials. With an iPhone application coming out within a month, GE will let trial participants remotely adjust their home temperatures via smartphone or a tablet, says David McCalpin, a general manager at GE. GE Appliances is quadrupling its research and development expenditures, the company says.
"We view this as an exciting opportunity area," McCalpin says.