Navigant Research Blog

With Developer Program, Nest Raises Questions

— June 30, 2014

This week Nest Labs introduced its Nest Developer Program, which integrates smart devices for both home and lifestyle uses.  The results suggest that energy efficiency is going mainstream without most people even knowing it.  This program, which has already enrolled partners such as Mercedes-Benz, Whirlpool, Jawbone (UP24 maker), LIFX, and Logitech, allows communications between smart devices in order to influence and optimize their overall functionality.  For example, the Nest thermostat could receive better information on a homeowner’s sleep/wake cycle, whereabouts, and habits from data transmitted through the UP24 bracelet.  It can then incorporate this information into its intelligent algorithm for determining household heating and cooling patterns.

But that’s only a small part of it.  Nest has already taken a stab at utility-scale demand response (DR) through its Rush Hour Rewards program for climate control, but the program can now enroll other energy-heavy appliances, such as washers and dryers, in the same DR events.  Following device trends in electric vehicle charging, where smart communications are increasingly integrated and relied upon, it’s fair to speculate that this type of developer program has the potential to solve a lot of the problems utilities are currently facing as growing renewables penetration causes instability along the distribution grid.

Privacy Pushback

The potential to optimize energy usage will grow significantly as cloud-based home energy management advances technologically and adds functionality.  But the market is likely to experience setbacks as privacy issues are raised.  Nest and Apple have both created privacy guidelines for data as it is communicated between devices, but protection and control over this information will still be an issue for customers.  As public utilities incorporate software platforms for managing connected devices, it’s unlikely they will be able to avoid the type of pushback (seen here, here, and here) that has hindered the deployment of smart meters.

Another question inherent in this move to a connected life is how the interaction between devices and software will take shape.  Nest and its associated partners have built value propositions off the premium quality of their networked thermostats and the software that controls them.  But competitors like EcoFactor and EnergyHub build value off the ability be flexible in the devices they connect to – asking if premium devices are really all that necessary to realize the same gains.  When you involve multiple customer demographics (with different levels of income and values) and budget-conscious public organizations, different needs and limitations will require different solutions.  There’s no denying that people become emotionally connected to well-made, well-designed hardware – and they will pay a premium for it.  But, as the cellphone industry has shown, there are limitations in terms of hardware development.  So how long will the novelty last for thermostats?


Opower IPO Signals Growing Market for Energy Management Tools

— April 22, 2014

In its April 4 initial public offering (IPO), cloud-based energy software provider Opower raised about $116 million, resulting in a market cap of approximately $1.2 billion.  The successful IPO culminates a 7-year march for Opower, which has built a solid reputation with dozens of utilities that are being driven by regulators to encourage residential customers to use electricity more efficiently.

Opower’s technology analyzes utility meter data and then sends residential customers regular reports showing how their energy use compares to their neighbors.  Typically, Opower has delivered residential savings in the 2% to 3.5% range.  Last year, the company rolled out a behavioral demand response (DR) program now used by Baltimore utility, Baltimore Gas and Electric (BGE).  Despite its growth, Opower is still not profitable.  In 2013, it generated nearly $89 million in revenue, up from almost $52 million in 2012, but lost a little more than $14 million, greater than its 2012 loss of $12.3 million.

Still Seeking Profits

Other companies in the same energy management arena as Opower have found traction, if not yet profits.  EcoFactor offers a software-as-a-service (SaaS) platform that Nevada utility NV Energy uses to help its residential customers become more energy efficient.  Using EcoFactor’s cloud-based platform and smart thermostats, NV Energy customers who participate in DR events have been able to reduce their air conditioning use by up to 12% and whole-house electric consumption by 6% for a full year.  EcoFactor also has a significant deal with cable operator Comcast, under which its platform powers a service that discovers the heating and cooling patterns of a home and makes automatic adjustments to a smart thermostat based on occupant temperature settings, real-time weather data, and the house’s thermal characteristics.

Similarly, thermostat maker Energate and networking platform provider Silver Spring Networks were chosen by OGE for its home energy management (HEM) strategy.  By deploying Energate’s thermostats and utilizing Silver Spring’s DR capabilities, OGE has successfully launched a service that enables participating residential customers to reduce electricity consumption and save an average of $191 during a summer cooling season.

Slow But Steady

Google energized the HEM space in January 2014 when it announced its acquisition of Nest Labs, maker of the popular, though pricey, learning thermostat.  The $3.2 billion deal, now complete, signaled that Google was ready to get back into HEM (Google dabbled in energy management with its PowerMeter project but shut it down in September 2011 when it failed to attract enough users).  This move helps validate the HEM market.

Despite the slow adoption of HEM programs, these recent market developments portend at least steady market growth in the near- to mid-term, as noted in Navigant Research’s recent report, Home Energy Management. To gain more insight about this trend, you can view the replay of our webinar, Home Energy Management – New Players, Technology Update, and Market Outlook.  To see it, click here.


Nest Faces Lawsuit over Alleged Thermostat Flaws

— March 31, 2014

Nest Labs faces a new lawsuit brought by a dissatisfied Maryland customer who claims the Nest thermostat that he purchased is defective since the faceplate heats up and inaccurately measures a room’s actual temperature.  The suit, which seeks class action status, asks for more than $5 million on behalf of other Nest buyers.

The lawsuit was filed by Justin Darisse of Gaithersburg, Maryland and alleges Nest “increases costs because Nest heats up, which causes Nest’s temperature reading to be from 2 to 10 degrees higher than the actual ambient temperature in the surrounding room.”  The suit also alleges the company violates warranty and consumer protection laws.  Darisse also noted in his suit that he would have kept his $30 Honeywell thermostat had he known the Nest device, which retails for $250, would not help lower his energy bill.

Not the First Suit

Nest Labs, which is now owned by Google after a January acquisition, has declined to comment on the suit.  Nest is no stranger to lawsuits, though. There is a pending suit with Honeywell over alleged patent infringement and another patent infringement suit brought by BRK, maker of First Alert smoke alarms, related to Nest’s introduction of its Protect smoke alarm.

While the merits of this latest lawsuit will be debated for some time, the truth is that Nest and parent Google will need to fight the negative perceptions this suit is likely to generate, especially if it does attain class action status.

Mixed Bag

There is no question a Nest thermostat provides some very cool features: it has Wi-Fi to connect with a mobile device, and it learns the patterns of people in a home and can make adjustments automatically.  But my own experience has been mixed.  I installed one in my home last year to control my natural gas furnace, and so far, I have used the same number of Btus over the past 7 months as in the same months the year before.  And the installation was not easy, requiring me to hire an installer to come in after I spent many hours on my own and with a Nest tech via phone to no avail.  Also, two friends have had issues with the Nest thermostat they purchased.  One said his energy bill increased after installing his Nest thermostat.  The other also had trouble installing it by himself and later got so fed up after a software update went bad that he had it replaced with a more standard thermostat.

Now it looks like Nest could have some explaining to do in court. More to come on this, I’m sure.  And for more on the market for smart devices for energy management in the home, please sign up for Navigant Research’s webinar, Home Energy Management, on Tuesday, April 1 at 2:00 p.m. EDT.  To register, click here.


Google Invades the Car Space

— January 30, 2014

Google’s acquisition of Nest has already pushed its automotive announcements from CES 2014 out of the news.  But Google continued to make inroads into the connected car environment through specific Android partnerships with original equipment manufacturers (OEMs) and the Open Automotive Alliance.  Through the Alliance, GM, Hyundai, Honda, and Audi will work together with Google to bring the Android platform to their cars.

If you tie this to the Nest acquisition, it looks like Google will soon have the ability to track you everywhere: online, at home, and in your car.  This may be the paranoid version of what Google is after, but it’s not crazy to think that is a driver for entering these markets, given how Google has built its business on the customer-as-the-product model.  However, at least in the automotive arena, it’s not quite so simple.  Google is working with the great immovable force that is the auto industry, a business with a product development timeline that’s longer than in consumer electronics, and a relationship with its customers that’s different than Google’s.

CES 2014 did show continued advancement in the ways that automakers are thinking about connectivity, with greater openness to direct integration with outside apps and operating systems. It also showed how much more of a role that telecom providers are playing in the automotive sector, with cars increasingly becoming Wi-Fi hotspots.

Skeptics Disagree

But automakers disagree on how to integrate these outside systems and how to use the massive amounts of data they are going to be collecting on driver behavior.

From conversations with auto industry executives at CES, as well as from presentations at the Consumer Telematics Show, I see a spectrum of views on the topic of using consumer data to drive new revenue.  Some executives are confident that connectivity and driver data will open up promising new revenue opportunities.  These include offering insurance products that match customer’s actual driving habits and records, connecting them with local restaurants or other businesses as they are driving, or simply reporting back diagnostic information to the dealership or local repair shop, which can then connect with the driver to tell them when they need an oil change.

Other industry officials are skeptical of these ideas, noting that customers find it creepy when other businesses know what their oil change schedule is.  Some of the luxury car company executives, in particular, emphasize that their customers expect not to be harassed by coupons or ads, and they would never pass along their customer’s information.  In one example of how OEMs will want to control this data, Mercedes previewed its new predictive user experience system, which can learn from the driver’s habits and adjust the telematics systems accordingly.  Mercedes stressed that this personal data will only be stored on the vehicle.  Even automakers who plan to take advantage of the new revenue opportunities note it must be an “opt in” procedure.

A Protected Environment

Right now, the automakers are still the gatekeepers on how Google, Apple, or application providers like Pandora will interact with their drivers through any in-vehicle system.  So, I think it’s premature to assume that Google will have the same ability to track and target connected car drivers as they do with web users, other than as they can do already, via the driver’s cell phone.  I’ve seen some suggestions that automakers should hand over the user interface to the tech companies, like Google, but I see very little evidence they are interested in doing so. Every automotive executive I spoke with believes that the interface with the customer must be a protected environment, where they want to compete against other automakers.  However, the manufacturers themselves are showing more interest in moving into motorists’ homes.  See Ford’s MyEnergi Lifestyle, which lets a customer integrate the C-MAX Energi plug-in hybrid with solar panels by SunPower and, you guessed it, the Nest smart thermostat.  While Ford is ahead of the pack in bringing this concept to market, expect to see more automakers pursuing similar home-vehicle integration models.


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