For years, smart home technology promised lower energy bills, improved security and homes that adapt automatically to the people inside them. But despite steady improvements in AI and automation, adoption lagged industry expectations and has begun to slow. The reason isn’t hard to identify. Consumers are increasingly weary that smart home devices come with hidden tradeoffs like invasive data collection, questionable data sharing practices, and cybersecurity risks.

The challenge facing smart homes isn’t technological readiness, but consumer trust. Without trust, even the most advanced connected technology stalls at the point of adoption.

According to a recent survey from my company, Prosper Insights & Analytics , fewer than half of U.S. adults agreed that Amazon’s Alexa or Google Assistant feels “like a friend.” That skepticism is reinforced by a steady drumbeat of headlines, like Amazon removing key privacy settings, Google continuing to collect data from discontinued devices and ongoing regulatory scrutiny of Meta’s data practices.

The message consumers are absorbing is simple – smart home devices collect more data than they should, share it more widely than people expect and offer too little visibility into what happens after installation. Whether that perception is always fair doesn’t matter. That perception shapes behavior, and right now, it’s suppressing adoption.

“Smart home technology has reached a reckoning point,” said Brendon O’Toole, vice president smart home and energy management for Copeland. “Companies can treat privacy as a design constraint to be optimized away or as a foundational requirement for growth, but only one of those paths allows the category to scale in a meaningful way.”

Smart home manufacturers nearly always disclose privacy information, but it’s often buried or difficult for homeowners to understand. In fact, most privacy policies are written in dense legal and technical language that makes informed consent nearly impossible. Consumers click “Agree” not because they understand the policy – and the potential trade‑offs – but because agreeing is a condition to using the product. As a result, companies collect vast amounts of consumer data, but consumers have little understanding of how or why it’s used.

Research from Copeland’s annual Smart Home Data Privacy Report illustrates this disconnect. Data privacy is a top deciding factor when purchasing new smart home technology, yet only 8% of homeowners say they research data privacy policies before buying a smart thermostat. At the same time, 29% express significant concern about data protection and 33% worry about data privacy. Perhaps most telling is this: 55% of smart thermostat owners report they don’t understand how their device collects data at all.

This isn’t a consumer education problem - it’s a transparency problem. When privacy details are buried in lengthy policies, people move forward with caution or disengage completely, which ultimately slows adoption. And once trust is lost, it’s costly – even sometimes impossible – to recover.

Smart thermostats are among the most practical applications of smart home technology. They reduce household energy costs and give utilities a powerful tool to manage peak load. Heating and cooling account for nearly half of the average U.S. homeowner’s energy costs, roughly $900 per year , and smart thermostats can reduce HVAC energy costs by up to 20%. Yet consumer adoption has been stagnant over the past few years.

A recent Prosper Insights & Analytics survey shows that while nearly 34% of U.S. adults use a smart home assistant, those tools are used predominantly to seek information. Consumers are comfortable asking for the weather, but they’re far less comfortable handing over continuous household data – even when the payoff is lower energy bills.

That hesitation has far-reaching consequences. After nearly two decades of flat electricity demand, U.S. power consumption is now growing at its fastest pace since the early 2000s, driven in large part by the expansion of AI and data centers . Smart thermostats only deliver grid‑level benefits when large numbers of homeowners opt in to programs that allow utilities to briefly adjust heating and cooling during periods of peak demand. Currently, data privacy fears are limiting that participation. Fewer connected homes mean fewer volunteers for demand response, reduced energy savings, and greater strain on an already stressed grid.

Copeland’s data show that concerns about data privacy and protection have remained a consistent barrier to adoption. While the technology has matured and the benefits have been proven, adoption remains constrained by distrust over privacy and security.

Therein lies the paradox – consumers want efficiency, sustainability, and lower costs, but not at the expense of losing control over their personal data.

What Consumers Actually Want

Despite the industry’s mixed signals, consumer expectations around privacy are largely consistent.

Homeowners want security, clarity, and control. In practical terms, that means strong device encryption, clear opt‑in defaults rather than silent opt‑outs and greater use of local data processing instead of cloud‑dependent storage. It also means explaining data practices in plain language rather than through dense legal documents.

When companies meet those expectations, they don’t just reduce risk—they differentiate themselves.

Copeland’s Sensi thermostat brand offers one example of how transparency can be operationalized. Their privacy notice clearly states three principles: it does not use thermostat activity for advertising, it does not sell personal data for any reason, and it does automate changes based on assumptions about user priorities. These directly address common fears around surveillance, resale, and loss of control, using language that homeowners can understand.

Several firms offer smart home thermostats including Amazon Smart Thermostat, ecobee, Google Nest, and Honeywell Home; each with different privacy policies.

The point isn’t that one brand has solved the problem. Rather, it’s that consumer‑driven privacy design can and should be table stakes. Companies that fail to align with these expectations risk being grouped with the worst actors, regardless of their intentions.

Privacy is no longer an exercise in compliance. And in the smart home market, it may soon become the primary differentiator between products that scale and those that stall.

Companies that lead with privacy‑first engineering – designing data protection into hardware, software, and user experience from the outset – stand to gain a competitive advantage. Copeland’s 2026 Smart Home Data Privacy Report found that 70% of respondents would consider replacing their smart thermostat with another brand that offered greater privacy or security. That sentiment translates directly into purchase intent.

The smart home industry sits at a crossroads. Energy systems are under strain, and consumers are increasingly sensitive to surveillance and data misuse. And trust, once broken, is expensive to rebuild. The companies that succeed will be the ones that recognize privacy not as a barrier to innovation, but as the foundation that makes innovation and adoption possible.

Smart homes won’t scale until the privacy problem is fixed. The technology is ready; the question is whether the industry is.

Disclosure: The consumer sentiment studies referenced above were conducted by my company, Prosper Insights & Analytics . This dataset is also used by the National Retail Federation and is available through Amazon Web Services, Bloomberg, and the London Stock Exchange Group for economic benchmarking.