The $112 billion global lighting market is undergoing a rapid transformation driven by technological change and the rules of the game continue to change for players across the industry.
The Boston Consulting Group recently identified two powerful shifts: the move toward LED lighting and the growing adoption of connected lighting systems. These trends, which reinforce one another, are fundamentally altering the underlying economics and dynamics of the market. As a result, companies across the complex lighting ecosystem must evaluate where they can compete effectively amid the changes and adopt new strategies to succeed in the future.
A recent report by Memoori, The Lighting Controls Business 2015 to 2020, suggested that this is the most exciting time for the lighting industry since the early twentieth century. “Lighting is truly at an inflection point and the forthcoming shakeout over the next 5 years will determine the winners and losers in the game; as well as those who will be the lighting giants of the future”.
Traditionally, growth in the lighting market has tracked global GDP increases, running at about 3% on a compound annual basis between 2010 and 2014, for example. In developed countries, this growth is generally driven by economic expansion and the annual increase in the number of households. While in developing markets, in addition to those two factors, growth also comes from increasing access to electricity. Consequently, emerging economies such as China and those in Latin America accounted for approximately 70% of lighting industry growth over the past five years.
Growth is expected to continue at an annual pace of 3%, with lighting revenues predicted to reach $130 billion in 2020. However, experts are suggesting the dynamics within the global lighting market will change radically, allowing potential new entrants and shuffling the traditional order. In 2015 we already saw the divestment of lighting businesses for stalwarts Phillips, Samsung, Siemens and GE.
While LED technology is still more expensive than conventional lighting, the rapidly falling price of LEDs is already triggering significant uptake in markets around the world. In addition, the greater efficiency of LEDs means huge savings can be made at current prices. India, for example, is forecast to save up to US$6 billion per year under the government’s current plan to switch to LED light bulbs by 2018. "When all the 71 crore conventional bulbs are replaced by LED bulbs it will result in a saving of 100 billion units of electricity," said Piyush Goyal, Indian Minister for Power, Coal, New and Renewable Energy.
The shift to LEDs has also increased focus on the total cost of ownership (TCO) of lighting. TCO includes not only the initial cost of lamps and luminaires but also the life of lamps, as well as energy cost; each creating additional incentives for LED uptake. The low power requirements of LEDs also means that power and control can be delivered using the same cabling infrastructure, and advances in lighting control are creating more value by opening up huge new possibilities for the industry within the Internet of Things (IoT) and the smart revolution.
Given the versatility of LED in terms of factors such as brightness, altering speed and colour variation, connected systems make more sense for use with LED than when conventional lighting technology is used. Lighting, through technology such as LiFi communication is also penetrating other industries. “I see 3 major industries for LiFi adoption; lighting, security and wireless communication. The business model for LEDs in the lighting industry has been shaken up significantly. The lifetime of a light is now, often, longer than a car”, Professor Harald Haas, inventor of Li-Fi and Chaiman of Pure Li-Fi, told Memoori in an interview last year.
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The shift to connecting lighting will be most swift in the professional segment in developed countries. Given that these professional systems typically control a large network of lights, the savings based on TCO are usually far more significant than in the consumer segment. Connected lighting will produce lower installation costs and a lower TCO. Philips and Cisco have both evidenced a 50% reduction in installation costs for Ethernet-based connected lighting systems compared with conventional AC-powered systems, and their partnership announced in December is forecast to significantly accelerate smart lighting industry.
This transition to LEDs coincides with development of the IoT, and specifically the IoT in buildings, or the Building Internet of Things (BIoT). Memoori’s Lighting Controls report, highlights the disruption of lighting in the building automation systems (BAS) industry, which opens up the possibility for lighting control to play a much more important role in the emerging smart building sector. “These together with wireless networking technology, and the future development of Li-Fi, will open up the latent demand in the retrofit market and the small building sector hitherto not economically viable”, the report predicts.
It’s an exciting time for the lighting industry; new technologies are opening up new opportunities, prompting a major reshuffle in the established industry structure. Companies from a multitude of sectors are eagerly watching the lighting space for the first time in decades, as new entrants and electronics giants try to combine the right technology with the right strategy for maximum market share. The coming years will create the winners and losers of the new era.