Navigant Research Blog

With Nest Buy, Google Reaches Deeper into Homes

Neil Strother — January 14, 2014

Google’s $3.2 billion acquisition of Nest Labs, maker of smart thermostats and smoke alarms (which I’ve written about previously), is an obvious move by the search giant to reach further into the home with Internet-connected gadgets that tie users to Google services beyond search and other online activities.  It is an Internet of Things (IoT) play, with safety (smoke alarm-carbon monoxide detector) and home energy management (thermostat) as the starting points.  (For a deeper dive into this market, see Navigant Research’s report, Home Energy Management).  And while this deal seems like a great match, there are risks and issues that need to be resolved.

The positives for both companies are clear.  The big cash infusion should give Nest the needed money to pay for expanded marketing efforts, move strategically into new markets outside North America, and hire talented engineers to continue developing disruptive products.  For Google, the company gets a big win on product design.  Nest devices have great design features, which are a testament to the capabilities of founders Tony Fadell and Matt Rogers, both of whom worked at Apple before starting Nest (and who will presumably become quite wealthy thanks to the deal with Google).  Nest has quickly established itself as the standard among connected thermostats, with distribution online, among retailers, and through some utilities.

Price and Privacy

One of the issues with Nest devices, however, is price, especially among mainstream consumers.  The Nest thermostat sells for $249, much more than typical thermostats, and the Protect smoke alarm retails for $129, again higher than prevailing products.  The Nest devices offer more than standard products, but getting past early adopters on price will now become a Google challenge.

Beyond price, installations don’t always go smoothly, and can require the buyer to hire a professional installer, which can add $200 or more to the purchase cost.  Also, a Nest thermostat software update in December 2013 caused some of the devices to go dark when it mattered most, as temperatures plummeted in the Northeast (as noted by my friend and former PC Magazine editor-in-chief Michael Miller).

There are also concerns about how Google will handle the user data supplied via Nest devices.  On January 9, France’s data protection watchdog, known as CNIL,  fined Google the maximum €150,000 ($205,000) for ignoring a three-month requirement to comply with local law regarding the tracking and storing of user information.  Similarly, Google’s previous foray into home energy management did not go so well.  The Google PowerMeter project, a free energy-monitoring tool, shut down in September 2011.  Nest brings real traction to Google in the HEM space, but could increase consumers’ wariness over privacy concerns.

I spoke with Matt Rogers last week while at CES, and he was clearly excited about Nest’s future.  Now, it’s clear why: He knew that future funding was not going to be a problem.  It helps to be acquired by the world’s second most valuable brand, but Google-Nest still faces some serious challenges, which rivals like Honeywell, among others, will be looking to exploit.

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