There's significantly less money in it, though, and more hassle. It's not going to become popular enough until people get burned enough with vendors going out of business, or just stopping support, and making their convenient $199 gadgets obsolete.
In a sense, a large company like Nest pulling his off is a good thing: it sends the signal.
I can see a half dozen solidly practical uses for a smart home setup, mostly scheduling tasks to be done while I'm sleeping or not at home. Beyond that, I'd have a lot of fun just building silly hobby projects with cheap sensors, wifi-controlled lighting, etc. But I'm not going to touch any of it until I can get a system that's happy to run locally, and only calls out to the rest of the world when it actually needs to. At this point, I'm even going to hold out for adaptable integrations; if some service I'm talking to shuts down, I should be able to substitute another one honoring the same API. Anything less looks like a privacy, security, and ownership nightmare.
"the Internet of bricks" succintly conveys your first suggestion. "Internet of taps" for the second?
The most classical example of such “things” are softphones. They need their own vxlan and switch QOS policies and so forth, to function the way people expect phones to work (rather than flaking out when someone is torrenting.) Softphone deployments exist in plenty of enterprises, but have you ever heard of a SOHO deployment of softphones (where the phones are PBX extensions and can call each-other over the LAN; not where the phones are distinct phone-company DIDs sending IP packets through the gateway, out over the internet, and to the the phone company’s PBX terminus, just to talk to one-another)?
Until we get SOHO router-gateways smart enough to make such a SOHO softphone deployment “installation-free”, we’ll probably never see LANoT.
Running a RAID array was once as enterprisey as it gets. Now you can buy a RAID-ready box (something like Synology) and have a reasonable default configuration, or configure to your taste if you have a general knowledge of what you're doing.
I suppose that LANoT is going to develop eventually into something easy enough to deploy, too.
Re softphones: since US cable providers effectively sell softphones as a part of the cable package, they have every incentive to prevent home routers from allowing to easily set it up for free. OTOH the QoS settings are there in the routers firmwares for that same reason, and desktop / mobile softphones (aka "internet messengers") can use that if they care enough.
The tradeoff is that the quality is kind of bad and the ongoing fees comparatively high relative to IoT.
There's even the old DECT phones, if anyone's still using those.
(+ except where the internet companies have tried to break this by routing you through Hangouts or some other thing that isn't the phone system)
LIFX looks nice though. The UDP Lan protocol is really neat, and the documentation is better than I remember of Philips Hue.