Nest Shuffle Highlights Market Challenges

Nest’s CEO has stepped down amidst reports of poor results, to be replaced by the former head of Motorola’s set-top box division. This isn’t normally our type of story, but it illustrates how the market for smart thermostats–by most accounts one with a bright future–still faces big challenges. 

Smart (“learning”) and communicating thermostats enable consumers to save money on energy bills, help utilities meet energy efficiency and demand-side management requirements, and play a part in connected home solutions.

When Google bought Nest in 2014, I thought it could be a smart move–if Google could harness behavioral change and encourage neighbors to compete with each other. But that would require a focus that seems to have wandered This hardly means the end of the smart thermostat market. Navigant Research just forecasted annual revenue for communicating and smart thermostats and associated software and services to grow from approximately $1.1 billion in 2016 to almost $4.4 billion in 2025, at a compound annual growth rate (CAGR) of 16.7%. That definition includes far more than just the physical thermostats, but the overall numbers still point up. Berg Insight also sees a solid future for the devices, forecasting that the number of homes with smart thermostats in Europe and North America will grow at a CAGR of 54.5%  during the next five years to reach 51.1 million in 2020. Berg notes that “the North American smart thermostat market is led by Nest, Honeywell, and Ecobee; each has sold more than a million thermostats, primarily through the retail, utility and professional installer channels.”

In a bit of understatement, Navigant said that “as the market for smart and communicating thermostats continues to evolve, different distribution channels for these devices are emerging. Telecommunications and broadband service providers, home security companies, and HVAC installers are all finding ways to incorporate advanced thermostats into their solutions.”

Although Nest has co-marketing agreements with some utilities, it was mainly positioned as a consumer electronics company. Some see that as a barrier to growth, with many consumers still unconvinced they need a new thermostat. Nest’s CEO shift likely means it will focus on other channels to get its products in homes. As Jan Dawson noted on Jackdaw, “That will likely see Nest working with partners like telecoms operators, cable operators, security companies, and others to build Nest into smart home as a service-type offerings. The service models helps overcome some of the problems with the smart home market, including the high up-front cost and the challenges of installation, management, and integration. The other question is whether Nest starts to pursue more of a service model itself, either organically or through white-label relationships with third parties. Various similar models have been pioneered over the last few years by companies like Vivint,, and AT&T.”  

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