Nest: One step closer to creating our modern-day JARVIS

With Marvel Studio’s first installment of Iron Man in 2008, I have fantasized about my very own real-life JARVIS. Google has for years taken steps that seem to be bringing us closer to our own version of that reality, most recently through the acquisition of Nest Labs for $3.2 billion in 2014.

Co-founded by former Apple engineers, Tony Fadell and Matt Rogers, Nest’s mission focused on reinventing commoditized home devices. Since the release of its first-generation Nest Learning Thermostat in 2011, the company has spearheaded the transformation towards a new world of myriad possibilities brought through data collection and analytics.

Since then, Nest has been able to recreate and capture value from an essentially commoditized product by utilizing digital technologies, including software and machine learning to drive efficiencies across its user base. Nest’s website features a variety of products that promise to effectively connect and ‘smarten’ your home. These include:

  • Nest Learning Thermostat;
  • Nest Protect smoke and carbon monoxide alarm;
  • Nest Cam IQ indoor and outdoor security cameras;
  • Nest Hello video doorbell;
  • Nest Secure alarm system; and
  • Nest x Yale Lock

Nest has come a long way since its establishment, and throughout its growth has faced its fair share of setbacks. The company today faces increasing competition within the smart home sector, with Amazon posing the largest threat. Through its product sales, Nest is able to capture important customer data to design predictive solutions to the complex operations of its customers.

By reinforcing data into the algorithm, the products ‘self-learn’ homeowner lifestyle and behavior. This often requires little to no manual programming and adjustments made by the customer. Data about the operation of heating, ventilation and air conditioning (HVAC) systems, as well as human occupancy patterns are acquired through this process[1]. The data is then used to adjust/switch modes to optimize energy requirements across a wide network of homes by smoothening out energy consumption during peak load demand. This not only provides huge savings for the power and utility sectors, but also captures information about energy usage and consumption that may be useful in operation planning.

Since the release of its first Nest Learning Thermostat in 2011, Nest has saved upwards of 21.5 billion kWh of energy and claims to save homeowners an average of 25% and 30% on heating bills and cooling bills respectively[2] [3]. Not only are connectivity and growth in IoT providing many value creating opportunities, but they are also shifting businesses towards performance/outcome-based revenue models.

Price point. At $249, the price point of a Nest is well above any other thermostat in the market which can go as low as $30. While the company has done relatively well in communicating the value it offers homeowners, key challenges remain going forward in increasing sales and customer WTP. Nest has recently prices of its third-generation thermostat to below $200, but this remains higher than most competitor thermostats.

Rubbish in, rubbish out. Many are questioning the usefulness of the data gathered through the technology, that is used to fuel the machine learning process. By monitoring movement e.g. walking by the thermostat, Nest tries to determine when someone is home. This poses some issues as some thermostats are placed in areas of the house were little activity takes place, and thus is not a good indicator of customer behavior. Nest should, therefore, consider new innovative ways to capture useful data to improve its algorithm and thus quality.

Connectivity concerns. The company was criticized heavily in 2016 due to three major outages due to product malfunctions[4].This has become especially problematic for customers that rely on their Learning Thermostat to keep their homes warm in winter, and parents who use the Cam IQ to watch their kids.

Nest also faces issues with customer education and awareness, distribution channel strategy (B2B/B2C) and carried the burden on ongoing patent lawsuits.  Despite its challenges, competing under the Google Home ecosystem provides Nest with opportunities. Operating under Google’s hardware division may allow Nest and Google to streamline their product offerings e.g., Google Assistant, and operations to compete with rivals in the connected home space e.g. Amazon Echo.

 

[1] Central Heating Ventilation and Air-Conditioning (HVAC) Systems.” Consumer Energy Center – Central Heating Ventilation and Air-Conditioning (HVAC) Systems. Accessed April 7, 2018.

[2] https://nest.com/thermostats/nest-learning-thermostat/overview/

[3] https://clark.com/homes-real-estate/nest-thermostat-price-point-under-200/

[4] http://www.businessinsider.com/whats-going-on-at-nest-2016-2

 

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3 thoughts on “Nest: One step closer to creating our modern-day JARVIS

  1. I agree that customer awareness and education are certainly some of the most important drivers that would help expedite user adoption in IoT-related products. Proving out the value of these products can be very challenging, as it requires not only high quality sensors and data analytics to show to the customers, but also extensive “hand-holding” to ensure that customers are using the products the right way. Only through excessive use of these products will the users be able to realize their value (e.g., energy savings, increased home security etc.). Therefore, it is also important for Nest and Google to think about how to expand their customer service and training capabilities to help users maximize the value of these smart home products.

  2. I’m curious to see how long the Nest brand stays around as the group sinks deeper into the folds of Google’s hardware team. There are news reports indicating that Google tried to unload Nest a couple years ago, but couldn’t find any interested buyers. With disappointing revenue growth so far, I wonder if the the value proposition of Nest’s expensive product line is really strong enough to find a major market.

  3. Thanks for your post! It’s interesting that Nest is pushing the industry to think about performance based revenue models. While I think it makes sense for businesses, I wonder if the average consumer will adapt to this type of model. Businesses are usually much more stable and long term contracts based on cost savings make sense. However, especially with increased urbanization, people are less likely to stay in one location at a time and it might not be palatable for every day consumers to use performance based models. However, unless Nest can find a way to bring its price down further, it will need to find more creative ways to stay relevant.

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