In the consumer electronics business, the gadget rules. Almost every device you see—from flat-panel TVs to DVD players to digital video recorders to PDAs and digital cameras—is a piece of hardware designed for and dedicated to a specific purpose. Except, of course, for Apple's ingenious iPod. Hardware-wise, the iPod is not all that different from the dozens of “me-too” MP3 players on the market; it is essentially a portable hard drive with jog-wheel controls and—now—a video screen. To be sure, much of the iPod's success can be attributed to its elegant industrial design. But what sets it apart from all the other devices with which it competes is its software.

This is no great revelation to folks in the information technology business. Microsoft, the world's most valuable company, makes very little in the way of tangible goods, a.k.a. hardware. Hardware in the information technology business is rapidly becoming the rough equivalent of nails, screws, wood, bricks, and mortar in the construction trade. This trend is beginning to show up in consumer electronics—particularly in products designed for the digital home—despite resistance from companies that are still heavily invested in hardware development.

IP—OH! A potential breakthrough product in whole-house control is an example of this trend. A system just now being introduced by a new company named Lagotek (, based in Bellevue, Wash., is an open-platform, software-based approach to home control that will work with virtually any system or device that has LAGOTEK an IP address. (IP stands for Internet Protocol and it allows devices connected to a network to automatically recognize and com-COURTESY municate with one another.) It is based on I MAGE simple, off-the-shelf processors (32-bit, 200 mbps) that are contained within a keypad/video screen controller that will fit into any standard two-gang electrical box. In a typical 2,500-square-foot home, the software would allow your average homeowner to set temperatures, lighting moods, security levels, and even music based on time of day or for specific events.

The big deal is that the retail cost of such a system is roughly $5,500 (not including the systems it controls). And it requires no wiring—it operates on the 802.11g Wi-Fi standard. That means it does not require installation of structured wiring (although I would recommend that structured wiring be installed anyway to handle computer networking and high-quality video and home-theater applications). Put all of that together, and it means that a new home can be automated for far less than if it were equipped with traditional, hard-wired proprietary systems. And, the system can be expanded to handle any size home.

“We are the first company to take a software developer's approach to home automation,” proclaims Ron Risdon, the president of Lagotek. “That's the secret sauce.” The four founders of the company come with solid credentials—they all used to work for Mi-crosoft. “This system is designed to be a standard feature in all homes $400,000 and up,” says Risdon.

REBATES FOR BUILDERS To that end, the company is offering rebate programs (about 10 percent) to builders who include the system as an option. It will fund the installation of these systems in model homes from future proceeds from that rebate, meaning that the system can be installed in a model at no out-of-pocket cost to the builder. It is sold through CEDIA-certified dealers, which offer built-in margins that are expandable for builders. Builders who wish to take responsibility for installation and warrantee work can reap margins of about 50 percent if they deal directly with the company and upsell buyers to pay retail for the system as an option, Risdon says.

You're likely to see more digital home technology companies taking the software approach in the future. After all, that's where Microsoft and Intel are, and it's a good bet that sooner or later the need for easy connectivity will trump the desire of traditional hardware companies to keep their technology inside the box.


  • Today's Home Automation Market: $300+ million
  • Cost for proprietary/closed system per home: $100,000 to $1 million
  • Cost for Lagotek system installed: $10,000
  • Lighting
  • Heating, ventilation, air conditioning
  • Sound system
  • Surveillance
  • Irrigation
  • Lagotek big builder “installer training” program: 50% gross margin