Does Nest have a bright future?

With Apple’s announcement tomorrow about a new phone, or a new watch or who knows what other dazzling piece of hardware, I started thinking about how I felt when I saw the iPhone for the first time. Remember, before it phones were small screens with either a 15-button numerical keyboard, Nokia style, or a full qwerty keyboard, Blackberry style. Surfing was nearly impossible and more of a hassle than a pleasure, and apps were non existent. So when I first experienced the iPhone in early 2009, I was blown away by how it completely revolutionized the mobile phone. It was, indeed a smart phone. I don’t think that any product since has made such an incredible leap in its industry but there are a few that are contenders: Tesla, perhaps, for rethinking the car, Uber and Airbnb, for rethinking the entire hospitality industry, and Netflix, for boldly going where Blockbuster and the video rental store industry never dared go for fear of missing out on lucrative late fees.

My current thermostat. Note the "simplified instructions." Easy.

My current thermostat. Note the “simplified instructions.” Easy.

I also see Nest on this list, as albeit as a revolutionary force in a bit of a smaller space: the home. When the Nest thermostat was introduced in 2011, thermostats were ugly boxes, made to be hidden as far from the human eye as possible, with an array of confusing buttons, tiny LCD screens, and obscure programming options. They were so annoying to use that people would configure them once, for a single weekday scenario and a single weekend scenario and if they needed a change, such as a vacation, they’d simply turn it off, not try to reprogram it. When Nest came along with its smart thermostat, they made it not only much easier to control and program, locally and with an app, but also adaptive and smart, learning when residents were home, learning their heating patterns and turning the HVAC system on and off accordingly. The thermostat became smarter than its owner, and as a result, started lowering energy costs.

But now, three years later, right before the cold season, Nest has plenty of competitors. All of the incumbent players in the industry have introduced smart thermostats of their own. So what product advantages does Nest have?

  • Adaptive? No, Honeywell has released a learning thermostat.
  • App control? No, though revolutionary three years ago, now remote control via a mobile app is de rigeur.
  • Easier to program? Perhaps, but it does look like other manufactures have attempted to fix the error of their ways and tried to make their thermostats easier to understand and program. Also, apps and adaptive learning make easier programming a less important feature than before.
  • Product design? Maybe, but not many consumers are willing to pay for that. After all, many thermostats are installed in the “residential” area of the house, not the “entertainment” area where guests can admire the homeowners taste in appliances.

So, what competitive advantage does Nest have? Did being a first mover grant them any advantage? Perhaps not with consumers making their smart thermostat choice today, with more products with similar features on the market. Nest thermostats are still unique in their design and their price point is not much higher (if at all) than similar thermostats.

But Nest does have an advantage with consumers who made the switch to Nest before any other smart thermostats were available. The Nest Thermostat was probably the first smart product in their home. They might have installed a few Nest Protect fire alarms when they were introduced two years later, working together with their thermostat. It is this interoperability and connectivity that Nest needs to carry on to future products they create for the home, be they gardening computers, water boiler controllers or any other small or large home appliance. Locking in users to a single smart system that is all over the home, one that works with all their appliances that also work together among themselves, and all controlled by a single app, from anywhere, is an extremely compelling value proposition.

It will be interesting to see where Nest goes and what products they add to their “smart home” package in the next few years and whether they decide to build upon this product advantage.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s