Smart Lighting Markets and Opportunities 2013 Exec Summary


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This report is NanoMarkets’ latest analysis of the worldwide smart lighting market. Revenues from smart lighting are expected to escalate rapidly in the coming decade, driven primarily by rising energy costs. However, NanoMarkets believes that the biggest wins in the smart lighting business will go to those who can differentiate themselves in the market by offering value-added features and interfaces to other building automation systems.

As it happens, it is becoming increasingly easy to achieve such differentiation. The latest lighting research indicates that smart lighting can also lead to improved health and mood, while newer technology is showing the way to using smart lighting systems for air quality monitoring and even the delivery of information services. At the same time, improved control algorithms will permit the basic lighting management functionality of smart lighting to be performed much more effectively.

With these important developments in mind, this NanoMarkets’ report offers guidance on where new smart lighting business revenues will be generated over the next few years and beyond. The report builds on NanoMarkets’ previous smart lighting report published in 2012 as well as on our seven-year experience of analyzing the solid-state lighting industry.

In this year’s report, we have considerably extended the report coverage to include analysis beyond the energy-saving features of smart lighting to other business opportunities that the arrival of smart lighting is creating. But as with NanoMarkets previous report on smart lighting, this report shows how new value is being created in the lighting market by adding enhanced electronics and intelligent luminaires and how such product strategies will be able to build on the massive trend towards introducing LED lighting.

Also included in this new report is an analysis of the smart lighting strategies of the firms that NanoMarkets expects to see as major players in the smart lighting space. We examine what the prospects for start-ups are in this space. In addition, there is an eight-year market forecast with breakouts by type of product, end user market segment, and the regions/countries where this report will be sold.

NanoMarkets believes that this report will provide much needed data and strategic analysis for planners and marketers throughout the lighting, semiconductor, sensor and networking industries.

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Smart Lighting Markets and Opportunities 2013 Exec Summary

  1. 1. NanoMarkets ReportSmart Lighting Markets and Opportunities2013Nano-625Published May 2013
  2. 2. Entire contents copyright NanoMarkets, LC. The information contained in this report is based onthe best information available to us, but accuracy and completeness cannot be guaranteed.NanoMarkets, LC and its author(s) shall not stand liable for possible errors of fact or judgment.The information in this report is for the exclusive use of representative purchasing companies andmay be used only by personnel at the purchasing site per sales agreement terms. Reproductionin whole or in any part is prohibited, except with the express written permission of NanoMarkets,LC.
  3. 3. Smart Lighting Markets and Opportunities 2013This report is NanoMarkets’ latest analysis of the worldwide smart lightingmarket. Revenues from smart lighting are expected to escalate rapidly in the comingdecade, driven primarily by rising energy costs. However, NanoMarkets believes that thebiggest wins in the smart lighting business will go to those who can differentiatethemselves in the market by offering value-added features and interfaces to other buildingautomation systems.As it happens, it is becoming increasingly easy to achieve such differentiation. The latestlighting research indicates that smart lighting can also lead to improved health and mood,while newer technology is showing the way to using smart lighting systems for air qualitymonitoring and even the delivery of information services. At the same time, improvedcontrol algorithms will permit the basic lighting management functionality of smart lightingto be performed much more effectively.With these important developments in mind, this NanoMarkets’ report offers guidance onwhere new smart lighting business revenues will be generated over the next few years andbeyond. The report builds on NanoMarkets’ previous smart lighting report published in2012 as well as on our seven-year experience of analyzing the solid-state lighting industry.In this year’s report, we have considerably extended the report coverage to includeanalysis beyond the energy-saving features of smart lighting to other businessopportunities that the arrival of smart lighting is creating. But as with NanoMarketsprevious report on smart lighting, this report shows how new value is being created in thelighting market by adding enhanced electronics and intelligent luminaires and how suchproduct strategies will be able to build on the massive trend towards introducing LEDlighting.Also included in this new report is an analysis of the smart lighting strategies of the firmsthat NanoMarkets expects to see as major players in the smart lighting space. We examinewhat the prospects for start-ups are in this space. In addition, there is an eight-yearmarket forecast with breakouts by type of product, end-user market segment, and theregions/countries where this report will be sold.NanoMarkets believes that this report will provide much needed data and strategic analysisfor planners and marketers throughout the lighting, semiconductor, sensor and networkingindustries.
  4. 4. Page | iEXECUTIVE SUMMARYE.1 What has Changed Since NanoMarkets Last Report on Smart Lighting: Two Generationsof Smart LightingE.1.1 No Money from Old Lights: Generation 0E.1.2 First Generation Smart Lighting: The New PBX?E.1.3 Possibilities for Second Generation Smart LightingE.2 Smart Lighting Systems as a Networking TechnologyE.3 Opportunity Analysis of Smart Lighting by Type of UserE.4 Some Risks to Consider for Smart Lighting ManufacturersE.5 Smart Lighting Systems Marketing StrategiesE.6 The Making of the Smart Lighting Industry: Firms and Sectors to WatchE.6.1 Smart Lighting Start-Up StrategiesE.6.2 Channel and Partnership FactorsE.7 Summary of Eight-Year Forecast of Smart Lighting SystemsCHAPTER ONE: INTRODUCTION1.1 Background to this Report1.1.1 Energy Efficiency: Prime Mover for Smart Lighting1.1.2 New Functions for Smart Lighting Allow Market Differentiation1.1.3 Enabling Technologies on the Brink1.2 Objective and Scope of this Report1.3 Methodology of this Report1.4 Plan of this ReportCHAPTER TWO: SMART LIGHTING SYSTEM PRODUCT AND TECHNOLOGY EVOLUTION2.1 The Shifting Meaning of Smart Lighting2.2 Generation 0 Smart Lighting: Occupancy Sensing and Daylighting2.2.1 Occupancy Sensing2.2.2 Daylight Sensing2.2.3 Time Clocking2.2.4 Interfaces to Building Automation Systems2.3 Generation 1 Smart Lighting Systems: Smart Ballasts and Beyond2.3.1 Expansion of Ballast Functionality2.3.2 Intelligent Ballast Suppliers2.4 Generation 1 Smart Lighting Systems: Central Controllers as Early CompetitiveBattlefield for Smart Lighting2.4.1 Possible Technology Innovations in Smart Lighting Controllers2.4.2 Scalability and Modularity Options for Smart Lighting Controllers2.4.3 Market Specialization2.4.4 Internet Access and Protocol Openness as a Future Strategy in the Smart LightingMarket2.5 Other Competitive Factors in Todays Smart Lighting Systems2.5.1 Standard Competitive Factors for Generation 1 Smart Lighting Systems2.5.2 Broadening the Market Scope of Smart Lighting Systems Management2.6 Generation 2 Smart Lighting Systems: Where Energy Efficiency Meets Health and Mood2.6.1 Recent Research on the Human Impact of Light and Light Changes2.6.2 Implications of Current Research for Smart Lighting Systems Opportunities2.6.3 Color Tuning and the Need for Dynamic Mood and Health Lighting2.7 Generation 3 Lighting Systems: Visible Light Communications2.7.1 Evolution of Li-Fi Technology2.7.2 Lighting-Related Applications for VLC/Li-Fi
  5. 5. Page | ii2.7.3 The Downside of VLC/Li-Fi2.8 Smart Lighting Software2.8.1 Smart Lighting Systems Software Functionality2.8.2 Smart Lighting and Clouds2.9 Specialist Chips for the Smart Lighting Industry2.9.1 Smart Lighting Chips and the Semiconductor Industry2.10 Smart Lighting Sensors2.10.1 Smart Lighting from the Sensor Manufacturers Perspective2.10.2 Sensors, Lighting and Nanotechnology2.10.3 ZigBee and Smart Lighting2.10.4 EnOcean2.11 Smart Lighting and Smart Grids2.11.1 Demand Response and Smart Lighting2.11.2 DALI2.11.3 Examples of Smart Grid/Smart Lighting Integration2.12 Smart Lighting, Building Automation and Other Standards2.12.1 Standards for Integration with Building Automation Systems2.12.2 Other Protocols Worth Considering2.13 A Final Note on Smart Lighting, New Materials and OLEDs2.14 Key Points from this ChapterCHAPTER THREE: SMART LIGHTING SYSTEM MARKET DRIVERS AND OTHER FACTORSSHAPING THE SMART LIGHTING MARKET3.1 Energy Efficiency: First Mover for Smart Lighting Systems3.1.1 Policy and Social Context for Smart Lighting3.1.2 How Dimming Issues May Help Promote Smart Lighting Systems3.1.3 How Smart Lighting Systems May Enable Luminaire Firms Benefit from Demand forEnergy Efficiency3.2 Consumer Psychology and Smart Lighting Purchases3.2.1 Economics and Consumer Choice in Smart Lighting Systems3.3 Lighting Systems and Aging Populations3.4 Information Services and the Need for Generation 3 Smart Lighting3.5 Factors Retarding the Use of Smart Lighting Systems3.5.1 Cost and Supply Chain Issues3.5.2 Use of Natural Light3.5.3 State of the Worldwide Construction Industry: Retrofits and New Construction3.6 United States Markets for Energy-Efficient Lighting Systems3.6.1 Leadership in Energy and Environmental Design (LEED) and Other Related Codes3.6.2 Energy Policy Act of 20053.6.3 Energy Independence and Security Act of 2007 (EISA).3.6.4 Other Factors3.7 Japanese Markets for Energy-Efficient Lighting Systems3.7.1 Factors Driving Early Markets for LED/Smart Lighting in Japan3.7.2 Regulatory and Legal Environment3.8 Chinese Markets for Energy-Efficient Lighting Systems3.8.1 Energy Usage in China: Current and Future3.8.2 Phasing out of Traditional Light Bulbs in China3.9 Korea Markets for Energy-Efficient Lighting Systems3.9.1 Impact of Government Energy and Industrial Policy3.10 Taiwanese Markets for Energy-Efficient Lighting Systems3.11 Indian Markets for Energy-Efficient Lighting Systems
  6. 6. Page | iii3.12 Energy-Efficient Lighting Systems Markets in Other Parts of Asia3.13 European Markets for Energy-Efficient Lighting3.13.1 Rules for Phasing Out Incandescent Bulbs in the EU3.13.2 Efforts at the National Level3.14 Key Points from this ChapterCHAPTER FOUR: MARKETS FOR SMART LIGHTING – AN EIGHT-YEAR MARKET FORECAST4.1 Methodology of this Forecast4.1.1 Addressable Markets4.1.2 Matters of Definition4.1.3 Data Sources and Assumptions about Market Size and Penetration4.1.4 Products Forecast4.1.5 Differences From Last Year’s Forecasts4.2 Residential Buildings4.2.1 Eight-Year Forecasts of Smart Lighting in Residential Markets4.3 Commercial and Industrial Buildings4.3.1 Eight-Year Forecasts of Smart Lighting in Commercial and Industrial Buildings4.3.2 Smart Lighting in Industrial Buildings4.4 Government and Public Buildings4.5 Smart Street Lighting and Other Smart Outdoor Lighting4.5.1 Street Lighting4.5.2 Other Outdoor Lighting4.5.3 Eight-Year Forecasts of Smart Lighting in Street Lighting and Other Outdoor Lighting4.6 Smart Lighting Systems for Automobiles and Other Forms of Transportation4.6.1 Eight-Year Forecasts of Smart Lighting in Automobiles and Other Forms ofTransportation4.7 Smart Lighting Systems for Other Applications: Urban Farming and Hospitals4.8 Summary of Eight-Year Forecasts of Smart Lighting Markets: By Type of Application,Product, and Generation4.9 Eight-Year Market Forecast of Smart Lighting Systems Revenues by Country and Region4.10 The Importance of the Retrofit Market for Smart Lighting4.11 Key Points from this ChapterAcronyms and Abbreviations Used In this ReportAbout the Author
  7. 7. Page | ivLIST OF EXHIBITSExhibit E-1: Smart Lighting Markets – Product Generations and OpportunitiesExhibit E-2: Business Case for the Current Generation of Smart LightingExhibit E-3: Requirements and Opportunities for Smart Lighting Systems, by End User SegmentExhibit E-4: Eight-Year Forecasts of Smart Lighting Revenues by Application ($ Millions)Exhibit 2-1: Smart Lighting Systems GenerationsExhibit 2-2: Design/Technology for Automation ControllersExhibit 2-3: Two Scenarios for Smart Lighting Connectivity to the InternetExhibit 2-4: Possible Markets for Dynamic Mood and Health Lighting SystemsExhibit 4-1: Eight-Year Forecasts of Smart Lighting Shipments to Residential Real Estate MarketsExhibit 4-2: Eight-Year Forecasts of Smart Lighting Shipments to Commercial and Industrial RealEstate MarketsExhibit 4-3: Eight-Year Forecasts of Smart Lighting Shipments to Government and PublicBuilding MarketsExhibit 4-4: Eight-Year Forecasts of Smart Lighting Shipments for Streetlights and other OutdoorLighting MarketsExhibit 4-5: Eight-Year Forecasts of Smart Lighting Shipments for Transportation MarketsExhibit 4-6: Eight-Year Forecasts of Smart Lighting Revenues by Application ($ Millions)Exhibit 4-7: Eight-Year Forecasts of Smart Lighting Revenues by Product Type ($ Millions)Exhibit 4-8: Eight-Year Forecasts of Smart Lighting Revenues by Technology Generation ($Millions)Exhibit 4-9: Eight-Year Forecasts of Smart Lighting Revenues by Geography ($ Millions)
  8. 8. Page | 1Executive SummaryE.1 What has Changed Since NanoMarkets’ Last Report on Smart Lighting: TwoGenerations of Smart LightingIn NanoMarkets’ 2012 report on smart lighting, we defined “smart lighting” as a system that addsfunctionality to basic lighting systems in a manner that increases their responsiveness to outsidestimuli of various kinds. While this definition covers all manner of systems, the focus in our 2012report was on lighting systems equipped with a range of sensors, control electronics andcommunications interfaces that supposedly makes lighting more energy efficient. Other kinds offunctionalities were considered secondary.Currently the technology development emphasis in the lighting industry is still more on lampreplacement, with an efficiency-driven trend towards compact fluorescent lamps and solid-statelighting. But lamp technology—in its current incarnation—is inherently "dumb," so theopportunities for smart lighting development reside primarily in the electronics and luminairesectors. As such, NanoMarkets believes that smart lighting represents an opportunity forluminaire and electronics components firms to capitalize on the latest requirements for energyefficient lighting.For the purposes of this report—for understanding the opportunities that smart lighting reallypresents—we have divided smart lighting into a number of generations; each generation has itsown opportunity profile. These generations are profiled in Exhibit E-1 below.E.1.1 No Money from Old Lights: Generation 0Such smart lighting systems are essentially the next generation of the familiar rest-room lightingattached to, and switched on and off by a motion sensor.There are also more elaborate lighting control/management systems from large lightingcompanies and designed for use in commercial and industrial buildings. These have beenavailable for decades; since the 1970s at least. They have either been sold as independentsystems or as part of building automation systems with more general applicability. These buildingautomation systems are actually now quite common for controlling HVAC, but they are far lesscommon for controlling lighting.Whether this older type of arrangement should be considered “smart lighting,” is a matter ofdefinitional choice. If one includes them in the mix, then it certainly results in much higher marketvalues. But NanoMarkets, thinks that such an approach is a bit self-deluding. These high marketvalues do not really represent opportunities. The market for these basic systems may well begrowing, but they are mature and unlikely to be profitable for newcomers.
  9. 9. Page | 2Exhibit E-1: Smart Lighting Markets – Product Generations and OpportunitiesGeneration Type of Products Timeframe Opportunities Limitations0 Simple occupancysensors, lightingmodules intraditional buildingautomation systemsAvailable for a fewdecades and activelybeing sold. Couldfade out in a fewyears if new types ofsmart lightingsystems aresuccessfulMinimal.Revenues aresignificant, butmargins are likelyto decline andthere is noincentive formarket entryPrimitivetechnology; IRsensors and relays1 Focused onmultifunctionalenergy efficiency.Format is usuallylighting unitsmanaged though acentral controllerBeginning to emergenow and will probablycome to dominatelighting managementover the next three tofive yearsThis where most ofthe opportunitiesare now.Competition is onprice/performance,but also on puremarketing factorssuch as brandingand access tomarketingchannelsBasic designstrategy likely to runout of steam as dida similar strategywith businesstelephone systemsin the 1980s. Alsolarge lighting andelectronics firms willeventually catch uptechnologically withstart-ups2 Products have afocus on health,mood and jobperformance. This islikely to becombined withenergy savingfeatures but may notbeThis type of smartlighting is emergingnow and we expect itto become muchmore prominent inthe next couple ofyears with significantrevenue generation inperhaps three years.Health, moodenhancement andjob performancedefine largeaddressablemarkets.Opportunities arebeing expanded byfull-spectrumlightingdevelopmentsEfficacy of this kindof lighting will haveto be establishedbefore market canreally take off.3 LiFi communicationsfor in-buildingneeds. Unclear thedegree to which thiswill be combinedwith conventionallighting applications.No significant use forseveral years and maynever generatesignificant revenuesBeing touted ascost effective wayof providing highdata rate in-buildingcommunicationsDemand unproven.Over the pastcouple of decadesthere have beenseveral attempts todevelop very highdata rate systems ofthis kind, but nonehave found muchtractionSource: NanoMarkets, LCE.1.2 First Generation Smart Lighting: The New PBX?In this year’s report, we have little to say about these early—“Generation 0,”—lighting systems asit were, because, as noted, there doesn’t seem to be much money in them. We did have more tosay about “Generation 0” in the previous NanoMarkets report, but have decided to largely dropcoverage in this year’s study.
  10. 10. Page | 3There is however, a “Generation 1” system that is both the focus of this report and of the smartlighting sector as a whole. This is also what we spent most of our efforts on in last year’sNanoMarkets report. However, we believe that since last year, the specific directions being takenby these Generation 1 smart lighting systems have become clearer and the firms operating in thisspace have become more confident. We believe that if smart lighting is ever to be a profitablesector of the lighting industry it is this Generation 1 system that will show the way over the nextfew years. The business case for Generation 1 smart lighting systems is set out in Exhibit E-2,below.So what is involved in a Generation 1 system? What we are talking about here is—like theGeneration 0 system—smart lighting that is primarily focused on energy efficiency, but withadditional features and functions that help distinguish it in the marketplace.Exhibit E-2: Business Case for the Current Generation of Smart LightingBusiness Case Component Support of Smart LightingMarketsConcerns and RisksNeed to use energyefficiently— the primarymarket driverLikelihood that the real costs ofenergy will grow, promotinglong-term concerns with energyefficiencyWith economic growth unlikelyto recover for quite a few yearsand population growth alsolikely to decline worldwide,could cost trends for energybegin to reverse themselvesMarket gap—large lighting andelectronics firms seem to haveneglected lightingmanagement systems using thelatest technologyThere is a market window forsmaller firms to get into thesmart lighting systems and anapparent exit strategy throughselling the company to largerfirms without their own smartlighting systemsLarge firms that do notcurrently have Generation 1smart lighting products havethe resources to quickly playcatch upThe bulk of the value in lightingsystems comes from fixturesand electronics not the lightemitters themselvesSmart lighting systems enablelight fixture/luminaire andelectronics firms to capitalizeon the need for energyefficiencySome markets—and it is notyet clear which—do not needor do not want the level ofenergy efficiency that smartlighting systems can provide.Other factors—such asaesthetics—may take priorityNew functionality is beingenabled by new types of lightemitterAlthough, some Generation 1smart lighting systems areintended for use with CFLs,such systems are increasinglytargeted towards LEDs, whichare more controllable than anyother generation of lightingsystems that went before. Thismeans that LED-based smartlighting systems have moreopportunities to fine tuneenergy saving functionalitiesMore technical options may ormay not convey morecommercial value. In the textwe discuss how the smallbusiness telephone systemeventually overshot itspotential market and therelevance of that to the currentgeneration of smart lightingsystemsSource: NanoMarkets, LC
  11. 11. Page | 4Are Generation 1 smart lighting systems a disruptive technology? These Generation 1systems NanoMarkets sees as a genuine opportunity. They offer (or at least potentially offer)lower price/performance ratios in the lighting market than any lighting management system thatwent before and as such they may well have the capability to expand addressable markets.Whether Generation 1 smart lighting systems will ever qualify as “disruptive” is hard to say.It is possible that there is some pent-up demand for moderate-cost lighting control systems in thehome, office and factory, but this isn’t entirely clear; which in itself suggests that smart lightingsystems of the Generation 1 kind are not really that disruptive. Also suggestive of that conclusionis that there does not yet seem to be a huge take up of Generation 1 systems. But given thatlighting accounts for a relatively high percentage of energy consumption, smart lighting systemswould seem likely to be attractive to builders, building managers and building owners if theyembody the right level of functionality at the right price and with the right level of user friendliness,Energy efficiency as demand driver: This is, in fact, a good take off point to discuss theenabling factors that make Generation 1 smart lighting systems increasingly importantcommercially. It is not only that lighting accounts for a considerable amount of energyconsumption in buildings, it is also that the price of energy seems to be on an upward trend that islikely to continue for more than a decade.The cause of this rise is primarily that energy discovery is either not possible or is not permitted ata level sufficient for economic development, especially in the larger Asian countries. The result isthat energy is becoming more valuable and there is more reason for users to take on capitalexpenditures to create more energy efficiency. In other words, while energy efficiency has alwaysbeen important, it is more important now, and becoming more so. This is a key driver forGeneration 1 smart lighting systems which have everything to do with energy efficiency.Another way of looking at all this is that the latest generation of light bulbs and tubes (CFLs andLEDs) are inherently more energy efficient than what went before. What smart lighting provideshowever, is a way to leverage this capability for even greater lighting efficiency. Absent theintroduction of smart lighting systems, “energy efficiency” in lighting is derived entirely on thebulbs themselves, which represent just 20 percent of the total value in a lighting system.Smart lighting systems can reposition much of the rest of the value to be more in tune with theenergy efficiency meme. That is, they can make luminaires and electronics "smart," therebyadding value and (perhaps) attracting new customers, as well as enabling new kinds of suppliers(luminaire and chip makers) to capitalize on the “need” for energy efficient lighting. It should benoted in this context that the luminaires and electronics account for almost 70 percent of the valueof a lighting system.One word of warning here. The growth in real energy prices may seem like an unstoppable trendat the present time. However, this may not necessarily be the case in the longer run. What haspushed up real energy prices has been a combination of factors. But what has been especiallyimportant is a rather unusual combination of rapid economic growth worldwide coupled with highpopulation growth. However, the short-to-medium term growth prospects for the world are not allthat bullish. And population growth worldwide is expected to fall.
  12. 12. Page | 5So in the long-term smart lighting systems could lose their current raison dêtre. However, by thensmart lighting systems will have moved to other functionalities that are not driven by energyefficiency.Technology enablers: There are also two key enabling technologies that contribute significantlyto viability of Generation 1 smart lighting systems. Both of these are at the level ofsemiconductors.The first of these factors is really no more than the usual Moore’s Law effect that leads to higherperforming chips at much lower costs. This has alleviated to the point of disappearance theclunkiness of the older lighting control and building automation system. It is also a factor in thesensors associated with smart lighting systems improving in performance. Because this is soimportant—not just for the smart lighting system discussed here but (literally) for all thingsconnected to the Internet-of-Things—many chip firms are looking at this area as one ofopportunity and, in a few cases, smart lighting systems are an areas of particular importance.The other semiconductor-related factor that is giving birth to more new business revenue potentialin the smart-lighting systems market relates to the lighting technology itself. Much of the worldhas now abandoned incandescent bulbs altogether, itself a trend driven by the need for energyefficiency.The short-term replacement for incandescents has been CFLs, but these have already begun tobe challenged by high-brightness LEDs. Indeed, increasingly the term “smart lighting” isassociated with “smart LED lighting.” Three points are of importance here:• LEDs are becoming more inherently efficient, so they are a natural fit with smart lighting.Currently they can achieve 180 lumens/W, but it is possible that with better phosphors—or no phosphors at all—this can be taken up to around 300 lumens/W• The LED, primarily because it is a chip, is inherently more controllable than the types oflighting that went before it. So with LEDs, smart lighting systems are more of an obviousplay than they were with earlier generations of lighting.• What makes for an even closer association between LEDs and “smart lighting” is the factthat the prices and lifetimes for LEDs transform lighting into a kind of appliance asopposed to a disposable; the latter being what it has been for generations. An applianceis naturally in need of control, while a disposable does not seem to fit conceptually with acontroller. (Note, however, that the Internet-of-Things concept actually does seem tomake sense of a disposable that is also controlled.)Nonetheless, a business case for an LED system that costs (say) $50 and lasts for 25 years,seems to cry out for more features and functions to help it sell against other similar products inthe market. In addition, at that price point there seems to be room to include more functionalitythat there might not be with a more conventional bulb.A cautionary tale from the world of small business telephone systems: Hopefully, theargument above establishes that smart lighting is an area to watch seriously as an energyefficiency play in the near-term future. NanoMarkets believes further that this opportunity is
  13. 13. Page | 6enhanced by the fact that (with the possible exception of Philips) some of the largest electronicsand lighting firms are not that strong in this area; so there is a window for start-ups.But NanoMarkets also cautions that this window will close for at least a couple of reasons. One ofthese is that the big firms are going to jump into this market soon and play catch up. Perhapseven more important is that there is a limit on just how many ways intelligence can be added tosmart lighting systems to simply enhance energy efficiency.NanoMarkets thinks that there is a parallel here with what happened to small business telephonesystems and this should serve, we think, as a cautionary tale for the smart lighting systemmakers. Back in the 1980s, manufacturers of small business telephone systems found a windowof opportunity because—in the U.S. anyway—the main supplier of these systems were offeringcustomers technologically obsolete (analog) systems.Soon, many manufacturers crowded into this space with high-performance digital systems atattractive prices. These systems offered small business users the kind of features that previouslyonly large customers could access from their PBXs. However, while these new small businesssystems were clearly superior to the older small business telephone systems (they weregenuinely disruptive technology actually) they all had similar features. So they competed witheach other on branding, after sales services and increasingly small performance/functionalitydifferences.The important fact here is that this strategy became increasingly hard to pursue, in part because itbecame more and more difficult to provide new features that were useful to end users in using thesystems. For example, these systems often came with multiple variations of the “hold” functionand eventually anyone assessing the opportunities presented by these small business systemswould have to ask themselves, just why another version of “hold” was needed. Apparently itwasn’t, because within a few years, these systems became commoditized.NanoMarkets believes that it is possible that this story could be repeated with Generation 1 smartlighting systems. As we mentioned in last year’s NanoMarkets report on smart lighting, therereally isn’t that much to choose between the current generation of smart lighting systems, and wehave been told quite openly by industry insiders that while smart lighting systems have a veneerof high-tech value-added about them, the success of these systems over the longer term mayhave more to do with branding than with proprietary functionality.So based on this analysis, we see Generation 1 smart lighting systems as having some inherentstrategic vulnerabilities. Firstly, there is a near certainty that the giants of the lighting andelectronics industry will awake and take a sizeable share of the market to the detriment of currentsmart lighting start-ups.Second, we think based on the parallel with telephone systems just discussed that despite theirapparent claims to novelty and modernity, the current generation of smart lighting systems mayrun out of steam—which is to say might become unprofitable or with low margins—within asurprisingly short space of time.
  14. 14. Page | 7E.1.3 Possibilities for Second Generation Smart LightingWe think that the forces just described are going to force suppliers of smart lighting systems tobreak out of the Generation 1 straightjacket within a few years, although not all smart lightingfirms will do so. Some will simply go out of business or get swallowed up by larger firms andothers may be able to eke out some kind of existence in the Generation 1 smart lighting systemsfor an extended period. It would be no surprise to see Chinese firms offering Generation 1systems for some time to come, for example.However, within a period of three to five years, we expect to see a transition to smart lightingsystems with a much broader range of functionality than just energy efficiency, although energyefficiency will remain an important part of the mix even in these Generation 2 systems. We saidsomething to this effect in last year’s NanoMarkets smart lighting report, but since then, it hasbecome clearer with regard to which direction these Generation 2 systems might take:• In particular, there are already important firms in the lighting industry that are looking atwhat’s next in the smart lighting sector and are concluding that it will be lighting that canbe controlled to maximize health and assure improved mood. The ability to provide suchcapabilities is, in part, no more than an extension of the fact that we mentioned earlier inthis chapter: LED lighting systems are more finely controllable than older types oflighting.• However, to this should be added the fact that full-spectrum LEDs seem to be on theirway and this would certainly be an enabling technology for lighting that is supposed toenhance mood and health. Control in combination with such full-spectrum lighting is alsoimportant in that smooth fine tuning of color would seem to be needed in the health/moodlighting market.This product design direction for smart lighting is also being fed by new research studies thatindicate a strong relationship between lighting on the one hand and mood, health and jobperformance on the other.So, given declining profitability of Generation 1 smart lighting systems, it seems natural that smartlighting systems vendors will turn their attention to a Generation 2 system that while it retains acommitment to energy efficiency also begins to stray into the market for health and mood lightingThe evidence that this is a direction worth taking for smart lighting is twofold:• First, there is long-standing evidence that lighting can influence mood and health and thatevidence is not only getting stronger, but the specifics of how light can be used in thisregard are becoming clearer. It is also evident that the ability to use light in this way hasa high market value.• Secondly, as we have already noted, smart health and mood-enhancing lighting seems tobe no more than an extension of Generation 1 lighting from a design and engineeringperspective and this fact is a risk-lowering factor for firms moving into the Generation 1smart lighting systems business.Still, NanoMarkets is not yet ready to say that these Generation 2 systems are a sure thing as faras success goes. For one thing, there is always the obvious point that the market sometimes
  15. 15. Page | 8refuses to reward products that it “should” want. We also note—turning to the small businesssystems parable again—that when things turned sour for the small business telephonemanufacturers they turned to the idea of evolving these systems into central building controllers.This was also an idea that seemed to make sense at the time, but didn’t go very far commercially.E.2 Smart Lighting Systems as a Networking TechnologySince our Generation 2 concept of smart lighting is itself just emerging, any talk of a Generation 3type of smart lighting must be regarded as highly speculative. That said, NanoMarkets believesthat this Generation 3 type of smart lighting will have some kind of focus on networking.This repositioning of smart lighting opportunities may occur in a number of ways. First, weanticipate that more attention will be given to networking lighting both as a way of enhancing thecost of managing lighting and as a way of fitting lighting systems more appropriately into the muchballyhooed Internet-of Things. More specifically, over time we think that there will be opportunitiesto create communications interfaces both for local communications (among local sensors and alocal control box) and for connections to the Internet.This kind of evolution of networking for smart lighting seems a high likelihood because it seemslike a natural fit with existing functionalities and trends in smart lighting and it appears toNanoMarkets that improving networking could prove an important market distinguishing featuregoing forward.A big open question in this space is the degree to which the Internet will be involved. DoesInternet connectivity stop at a gateway or go all the way to local sensors. This apparentlytechnical question has some structural implications in that the Internet-all-the-way approachseems to open up the market to a large number of firms from the data communications market,while the gateway approach essentially creates a demarcation point beyond which the lightingfirms may well prove to be king.We are not so sure, however, that taking networking to the next stage after this in lighting hasmuch of future. The LiFi network proposal has its adherents and we have discussed this ideadeeper in this report. However, it is important to remember the now almost forgotten history here;both “optical wireless,” and in-home high bandwidth optical networks have been tried before and itis still not clear—at least not to NanoMarkets—that their undoubted advantages are strongenough to build a substantial business out of them.E.3 Opportunity Analysis of Smart Lighting by Type of UserDifferent kinds of end users have different requirements for "smartness" in lighting. Our sense ofthe market is that the first large segments that will seriously buy into smart lighting will be thecommercial and industrial segment and (perhaps) the street lighting segment. This is because inthese areas energy efficiency can be easily translated into dollar savings and this in turn createsan immediately realizable opportunity; that is, smart lighting can be shown to be worth or notworth the price of entry. In Exhibit E-3 we summarize NanoMarkets’ key positions on where themarkets are likely to be found.
  16. 16. Page | 9Exhibit E-3: Requirements and Opportunities for Smart Lighting Systems, by End User SegmentSector Main Factors Driving Use ofSmart Lighting SystemsMain OpportunitiesResidential There is little evidence thatresidential markets valueenergy savings in lighting allthat highly, but future moodand health lighting may find amore significant market in thissector. (Note that multi-familydwellings have some of thedemand characteristics ofoffice buildings).It may be a few years before smart lightingsystems will generate significant revenues in theresidential sector. We think that simple, DIYinstallation may well be an advantage in thissector. We also note that residential markets donot usually have energy management systemsinstalled, so energy management that goesbeyond lighting might sell wellCommercial/ Government Lighting is both a major andmeasurable cost in commercialand government offices, so it isreasonably easy to establishthat a smart lighting system cansave money. Generation 2systems may also find a readymarket to increase workperformanceThis is the market sector where smart lightingsystems are expected to penetrate first.Commercial and government buildings are oftenequipped with building automation (BA)systems, so interfaces to standard and widelyused BA systems may represent an opportunity,or at least be required.These sectors are areas that will most probablybe served by professional installers buying frommajor building and electrical suppliers. So thesegroups have an opportunity from bringing smartlighting systems into their product lines.Industrial Similar to the commercial/government (office) sector.However, we note thatindustrial facilities often havefew windows and are thereforemore reliant on artificial lightHospitals More or less the sameconsiderations as commercialbuildings but health/moodlighting may have specialimportanceCould be the first sector where we see anysignificant penetration of mood/health lighting,Streets/Roads Major consumer of energy andagain the value of energyconsumed can be easilycomputed. No apparent needfor Generation 2 systemsLighting is collectively switched on and off andrequirements may be relatively limited comparedwith commercial, industrial and residentiallighting systems. The opportunity here seems tobe for specialist smart-lighting systems tailoredto the needs of street/road lightingAutomotive/transportation Energy efficiency in automotive/ transportation is of obvious importance, but howmuch is lighting really a contributor to energy use compared with engines? Moodlighting would seem to be important in the long runSource: NanoMarkets LCIn individual residential units, it seems unlikely that energy savings are usually going to be enoughto change consumer behavior. So, some of the other factors—impact of mood, health, aestheticsor even an ideological propensity towards "green lighting" are likely to play a major role in shapingthe residential market.One consequence of this is that as smart lighting becomes increasingly oriented towards healthand mood, it may find more acceptance in the residential building market. Another consequenceis that residential markets for smart lighting are likely to evolve after the commercial, residentialand street lighting segments have evolved. However, this may be balanced by a surge of interestin mood/health lighting in the industrial and commercial context. Lighting of offices and factories
  17. 17. Page | 10has always been an important topic and smart LED lighting systems may be the first opportunityto profitably deploy lighting systems that can deliver on the mood/health promise of existinglighting research.Something similar can be said about lighting in transportation as well. Here, energy efficiency issomething worth having. But does lighting efficiency—as opposed to other kinds of energyefficiency—really matter that much in a car or a bus? Again, other factors that coincide withfuture capabilities of smart lighting are likely to be more powerful adoption factors.Finally, there are large public and government buildings. These would seem open to the samekind of rational argument involving efficiency as other large buildings whether they are industrial,commercial or residential multi-tenant buildings. However, there is also an added dimension. It isnot unusual in the case of such buildings for the owners to make some claim on posterity byincluding unique architectural features and smart lighting could in some sense facilitate that.Smart lighting could achieve that goal by enabling the building owner or management to claimthat the building is especially energy efficient; a selling feature for possible tenants/users. Ormoving to the next stage of development of smart lighting, advanced lighting may add moodlighting, or something; which would also be a selling feature.E.4 Some Risks to Consider for Smart Lighting ManufacturersObviously, the smart lighting business is subject to risks, some of which will probably beunexpected. However, a few risks stand out as being something for smart lighting firms tospecifically look for.Smart lightings future may be like its past: As we discuss above, and throughout this report,there are powerful reasons to suppose that smart lightings time has come round at last.However, one can, of course, never be quite certain of this, and, as mentioned above, the historyof smart lighting—albeit under a different name—has not been one of unqualified success.With this in mind, therefore, one cannot rule out the possibility that another promising way ofreducing the cost of energy consumed by lighting systems will ultimately fail in the marketplace.Perhaps the additional complexities and costs that smart lighting systems will inevitably bring tothe market will simply be too much to convince potential end users of their efficacy. In otherwords, in a sense, smart lighting may turn out to not be smart enough!But this risk is mitigated somewhat by the fact that more advanced technology should permitsmart lighting systems to offer more sophisticated and nuanced responses than older systems.Technology risks: Another "hidden" assumption of this report is that there is no major change inthe technology environment in which smart lighting is immersed:• One part of this assumption is that computer/semiconductor technology is up to providingthe kind of functionality that our analysis suggests will generate most of the revenues thatwe predict for the smart lighting sector. This seems pretty certain to be the case most ofthe time. However, there is a lot of technological uncertainty about the Internet-of-thingsconcept that we see as playing a role in the growth of smart lighting
  18. 18. Page | 11• There is also the possibility of some major breakthrough that would propel the smartlighting business forward at a much higher rate than suggested in this report. Since high-speed processing doesnt seem to be a major requirement for smart lighting systems, themost likely point where such a breakthrough could occur would be in sensors that wouldenable smart lighting systems to take on entirely new functionality.• One obvious risk is that technological changes occur in the energy industry thatsignificantly reduce the cost of energy; this would reduce the value of any smart lightingsystem and probably kill off the smart lighting market as a whole. Such developmentswithin the period considered in this report seem highly unlikely however and, again, adetailed discussion of such issues seems well beyond the scope of this report.• Although “smart lighting” does not imply any particular kind of lighting technology, most ofthe opportunities spelled out in this report assume that general illumination is movingswiftly towards CFL and then on to LED lighting. This change is currently being driven bygovernment mandates. It is far from clear how fast this transition market would appearwithout such mandates and the argument of those who favor mandates is precisely thatthe markets for energy-efficient lighting would grow slowly if action favoring them was nottaken by the government; that is, there is claimed to be a market externality.• This immediately raises the question of what would happen if the lighting mandates wentaway or werent effective and the likelihood of this being the case. In last year’sNanoMarkets report on smart lighting we made the point that there had been someresistance to lighting mandates in the U.S. but this doesn’t seem to have amounted tomuch in the end. However, we still expect that some of the rules and regulations“banning” incandescent lighting will be disobeyed to some extent in other geographies; sopenetration of the lighting place by CFLs and LEDs may proceed at a slower pace thansome observers currently expect.E.5 Smart Lighting Systems Marketing StrategiesWhile smart lighting systems can trace their conceptual history back decades, todays systemsare obviously a new breed; bringing together the latest sensing, control, communications andillumination technology. If smart lighting systems move toward being designed for influencingmood, health, human performance and even data communications, tomorrow’s smart lightingsystems will bear little resemblance to the lighting control and management systems of the pastand the present.As long as smart lighting systems don’t display much change or originality in functionality,NanoMarkets believes that firms in this sector can rely on (1) branding strategies, (2) strongdistribution channels to compete. Indeed, NanoMarkets believes that there are quite a few smartlighting firms that feel that such non-technical marketing strategies can carry the smart lightingbusiness forward for an indefinite period of time.That said, much of the reason that this report is being written is the belief that smart lighting is onthe verge of some commercially important technological changes that will disrupt (1) and (2) interms of being viable strategies. As the technological evolution of smart lighting systems occurs,
  19. 19. Page | 12NanoMarkets believes that there will a need for a product/market strategy that focuses on marketcreation for these new high-tech smart lighting systems with radically new capabilitiesThis suggests to us that some specific marketing tactics will be required. It also suggests that thesmart lighting market is one that is crying out for leadership from a firm that has the resources tocreate credibility for the current generation of smart lighting. Such a firm would probably have tobe a large firm with an established role in the building automation—or much better—the lightingindustry.Messaging to end users: NanoMarkets continues to believe that manufacturers can—atpresent—most effectively serve or expand existing addressable markets for smart lightingsystems by messaging how their systems can lead to reduced energy costs, and expanding thismessaging as new functionality is added to state-of-the-art smart lighting systems.Some of this messaging work will be aimed at the final consumer and will be designed toovercome reluctance to buy such systems that may have been created by the earlier generationsof lighting management systems that often seemed to overpromise in terms of capabilitiesBuilding an industry: In last year’s NanoMarkets report we said that “the smart lighting systemsbusiness at the present time finds itself in something of a ‘Wild West’ situation and is in need ofan industry leader or a strong industry organization to tame it and give it credibility.”We are not sure that this time has come, but we are aware of behind the scenes developments inthe past year that suggests that the smart lighting sector is headed in the right direction in thisregard.We will talk more later in this report about how specific firms are shaping up to be leaders in thisspace. Here we note that several kinds of firm could play a role here. A pure-play smart lightingfirm has a strong incentive to take this path, but they seldom have the financial ability to adopt thisstrategy. However, this may not be true of all smart lighting start-ups and if the availability of riskcapital were to increase during the period under consideration here, this situation may change.Under current circumstances, the "sheriff" that we are calling for here is much more likely toemerge from the ranks of the large lighting firms or the large control/building automation firms.The arrival of a large firm of this sort would go a long way to establish smart lighting as a credibleproduct and not just a fad. There is no company one can point to as an early industry leader asyet, although Philips is getting close.Standards: Part of the growing up process that smart lighting must go through to become aviable business, is the development of standards. NanoMarkets is sure that without smart lightingstandards, future growth in the smart lighting industry will be seriously impaired. This is becausesmart lighting standards will be necessary for customers to achieve (1) the ability to mix andmatch products from different smart lighting system manufacturers and also (2) a sense that thesystem being acquired is to some extent future proof. The key aspect of smart lighting that islikely to be in need of standardizing is local communications so that customers can mix and matchcentral controllers, specialized sensors, dimmers, ballasts and drivers.Until standards of the sort mentioned above are mature, customers are most likely to buyeverything in their smart lighting system from one vendor, if they buy at all. Where this happens it
  20. 20. Page | 13is good news for the supplier chosen, but in many cases we expect that potential customers willbe put off buying any smart lighting systems.Based on how slowly standards setting in such areas usually proceeds, we are not hopeful thatsmart lighting system standards will appear quickly and we therefore think that the absence ofsmart lighting standards will be a serious drag on the growth of the markets considered in thisreport throughout the period under consideration.In addition to creating standards for solid-state lighting, there are also other relevant standardsefforts such as BACnet in the building automation world, and the ZigBee wireless protocol. But inthe not-so-distant future these and other protocols will have to be brought together and becomemore directed towards smart lighting.E.6 The Making of the Smart Lighting Industry: Firms and Sectors to WatchThe smart lighting sector cannot yet be said to have evolved into an industry. However, at thepresent time, it can reasonably be said to have four segments: traditional building automationmanufacturers, traditional lighting manufacturers, chip makers and start-ups.The traditional building automation firms are long-established automation firms that canincorporate lighting into their general scheme of things. These firms include Johnson Controls,Honeywell and Trane. None of these firms have been especially proactive in smart lighting, but itis perhaps worth noting that both Johnson Controls and Trane have been expanding into newmarkets in the recent past.As to the large lighting manufacturers—Philips, GE, Osram, etc.—these firms would probably bebest positioned to promote smart lighting as a "champion. Philips seems to be the firm most likelyto be innovative in this space, GE the least. However, for the time being these firms seem moreinterested in development issues around smart lighting rather than promoting the concept moregenerally. This is also true of the chip makers, but we note again that given the huge number ofdevices that could be demanded if smart lighting really takes off, smart lighting should be ofconsiderable interest to traditional manufacturers of analog control chips and communicationsinterface chips; especially the makers of Wi-Fi and ZigBee chips.E.6.1 Smart Lighting Start-Up StrategiesThe big question mark is really over the future of start-ups in this space. There are still as manyas 20 small lighting control systems firms out there with some reasonably well funded. Theseinclude Cavet Technologies, Daintree Networks, Easylite, Ecoflex Solutions, Energy AutomationSystems (EASI), Enlighted, Fifth Light Technologies, Lumenergi, Lutron, Redwood Systems,Starfield Controls and Universal Lighting Technologies. This is unlikely to be a complete list.Most of these firms offer similar products, which are of a kind that one might imagine, wouldappear if smart lighting was seen as following a similar design path to business telephonesystems in the 1980s. That is to say they are competing—or plan to compete—in the smartlighting market with products that are pure energy savings devices with features that are quitesimilar to what has gone before, but with some improved performance, better ease of use andlower prices.
  21. 21. Page | 14Which is to say that these firms are taking relatively few risks, although the ones that they aretaking are quite large ones. Principally, they are betting that their clever designs and low pricingwill be enough to establish a brand that can win enough battles against the large firms to stay inbusiness, at least get cash-flow positive and possibly thrive.NanoMarkets is, however, concerned that there is really not yet enough to distinguish firms andproducts in a way that will be truly meaningful to customers. In other technology markets this hastended to lead to firms having to fall back on hype in promoting their products. That is to saythat—in reality—there is less to the features that smart lighting systems have than is claimed bytheir manufacturers.Superior user interface including Web-based control: There is clearly competitive advantagein making the system easy to use and install, with at least one vendor promoting its system asplug and play. However, this strategy is easily copied.Advanced communications interfaces: This aspect of competition in the smart lightingsystems space covers a lot of ground and so affords plenty of room for competition. We suspect,however, that the aspect of advanced communications interfaces that will stand out in the marketplace will be the integration of smart-lighting systems with smart grid/smart metering solutions.The reason for thinking this is that such integration could bring a new and useful functionality toend users. And smart metering is spreading fast. While the technology is new enough to promotesales it is also mature enough to be both reliable and accessible to many of those contemplatingthe purchase of smart lighting systems.Number of lights that can be controlled: The number of lights that can be controlled by asmart lighting system obviously translates into which markets can be addressed. Not all systemswill be able to control all the lights in a large commercial building, for example. And a smartlighting system designed for a large commercial building would most probably be inappropriate tothe needs of a residential user.A couple of notes here. Current design and capability trends for smart lighting systems—the onesthat look like the telephone systems of the 1980s—essentially consist of bringing the capabilitiesnormally associated with large building systems to smaller buildings and single family dwellings.Secondly, even without this more dramatic trend, we still expect the line between smart lightingsystems intended for small buildings and those intended for large buildings to blur asmanufacturers of smart lighting systems recognize that there may be substantial revenues to behad from the small building sector. We expect them often to cater to this sector by creating aproduct range that is modularized and therefore can cater to a variety of building types and sizeswithout building completely new types of product. To some extent this is already being done.But we anticipate that this design strategy will be further adopted in the future.Value-added features: Value-added features are the least “bland” of the strategies mentionedhere. They are the missing link between the various generations of smart-lighting systems. Addenough of these features and they transform the system to a later generation. However, this isnot necessarily the case.
  22. 22. Page | 15There are some value-added features that are distinct improvements on existing functionality butdo not—in their current form anyway—shift smart lighting systems much from an energymanagement orientation.Thus, one possibility for value added features such as "daylight harvesting," where ambient lightis sensed throughout the day and the lighting is then raised or dimmed to a preset level. Anotherpossible feature is to provide separate control to different zones in the building or even control ofindividual lighting fixtures. Yet another possibility is to combine a smart-lighting system with somekind of energy management/billing analysis service or enable the lighting management systems togrow into a more general energy management system; Redwood Systems has adopted the latterstrategy. The service aspect of the marketing strategy of a smart lighting manufacturer may wellalso include installation or systems integration of some kind.Of course, at some point, if one keeps adding such features, smart lighting systems becometransformed into more than just energy control systems and into effective mood and healthlighting or even into optical communications systems. As we note throughout this report, it is stillnot clear how long such a market will take to evolve. But there are already a few companies thatare chasing after this opportunity.Impact of ROI considerations: In addition to these specific factors, obviously all systemscompete on generic economic factors; price and ROI. Based on what smart lighting systemsmakers have said thus far, 18 months to two years is about the level of ROI that one can expectfrom the current generation of smart lighting systems. This seems reasonable enough.NanoMarkets is, however, concerned that there is really not yet enough to distinguish these firmsin a way that will be truly meaningful to customers. In other technology markets this has tendedto lead to firms having to fall back on hype in promoting their products.E.6.2 Channel and Partnership FactorsAt some point, smart lighting start-ups are going to have to compete with large lighting andelectronics firms with strong and established channels and brand names. It therefore becomesimperative for smaller firms to enhance this part of their strategy and to do so quite quickly. Oneway for such firms to achieve this goal is to establish relationships with major electrical andbuilding contractors and distributors in the countries in which they operate.Extending this strategy internationally may be easier said than done, although we note RedwoodSystems has been able to achieve some penetration in Asia by leveraging its relationship withMitsui which is one of the investors in the company.E.7 Summary of Eight-Year Forecast of Smart Lighting SystemsExhibit E-4 summarizes our forecasts of smart lighting systems by end user market. Theseforecasts are taken from Chapter Four of this report, which shows how they are derived. Inaddition, Chapter Four shows a breakout of the market by the generations of smart lightingsystems as shown above.
  23. 23. Page | 16For information about this and other NanoMarkets reports, please visit us or contact us at sales@nanomarkets.net020004000600080001000012000140002013 2014 2015 2016 2017 2018 2019 2020$Millions© NanoMarkets 2013Total Smart Lighting Revenues:2013-2020