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Why Microsoft's Partnership With Insteon Will Pay Off

|Includes: Microsoft Corporation (MSFT)

Microsoft Corporation (NASDAQ: MSFT) has taken a giant step into the home automation space by partnering with Insteon, which sells connected home devices at its retail stores. Microsoft provided support for the development of an advanced version of the Insteon app for Windows Phone 8 and Windows. Moreover, the software bigwig will begin selling Insteon-connected home devices on MicrosoftStore.com as early as June 1, with plans to extend the sale of the devices to its physical retail stores across the country later in July.

Insteon devices espouse the concept of the connected home by allowing people to automatically schedule lights to turn on or off, and monitor homes from mobile devices, including allowing users to activate alerts when doors and windows are open, or taps are leaking.

Microsoft's bet on the connected home concept is timely. It allows Microsoft to get in on the connected home concept early enough, giving it an opportunity to reap the rewards ahead of its competition. By providing software support, Microsoft puts itself in a position to collect a lot of novel data on consumers within the home environment. This essentially means that Microsoft can leverage its big data analytics tools to glean useful insights from the data. Useful insights collected within the home environment will help Microsoft to continually innovate and improve the software that underlies Insteon devices in order to support extended functionality. This will be good for long-term growth as it will enhance the uptake of devices that run on the Windows platform, growing Microsoft's piece of the pie relative to other mobile operating systems.

Leveraging on Insteon's Brand

The only prominent argument against Microsoft's move is the fact that the connected home concept is still more popular with classic early adopters than with mainstream consumers. A late 2013 report by Forrester found that only a third of people surveyed were interested in connecting their homes. Close to half, however, said they were not interested.

The general consensus among analysts is that the connected home concept is at the outset of the industry hype cycle and still far from reaching mainstream consumer adoption. In view of this, the argument that Microsoft may have got in too early is not entirely stretched. Notwithstanding, Microsoft has chosen to go with a brand that already has a market presence in the connected home space-Insteon.

Most consumers who have already adopted connected devices in their homes use or a deeply familiar with Insteon devices. This means that Microsoft has skipped the hard part of creating awareness. By skipping the awareness creation phase, Microsoft will not only be be able to channel more effort to making sure that the underlying software continually evolves to support consumers' changing needs, but it will drive its partnership with Insteon on a leaner budget.

By making the Insteon partnership a success, Microsoft will be able to leverage its relatively stronger cash position and huge presence in the mobile market to grow inorganically or organically in the connected home market.