Google Enters Connected-Home Market With Nest Acquisition

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Summary

Google’s acquisition of Nest Labs opens an alternative entry point into the connected-home market. Consequently, utility CIOs and solution providers participating in the market must recalibrate their strategies.

News Analysis

Event

On 13 January 2014, Google announced the acquisition of privately held Nest Labs, in which it was already an investor, for $3.2 billion.

Analysis

This acquisition is a bold Google statement of intent to become a major force in the home side of the emerging "Internet of things" market. Utility CIOs and home energy management solution providers need to take serious note.

Based on the size of the deal — the second-largest for Google and the largest ever in the connected-home space — this is much more than a narrow re-entry by Google into the home energy market. Rather, Gartner sees it as an opportunity for Google to enter the connected-home market with an alternative platform that can enable in-home sensor technologies.

Google is no stranger to the home energy management market, having launched an information-centric home energy management offering called PowerMeter in 2009. It exited the market in 2011, however, after failing to gain market traction with utilities and encountering challenges involving consumer data ownership and privacy concerns. This is where Nest Labs comes into the mix.

Founded in 2010, Nest Labs leveraged the Nexus of Forces to transform thermostats — a bland, utilitarian product category with poor user experience — into an entry point platform for the connected home. The company has since expanded into smoke detectors. While the initial Nest Labs market entry bypassed utilities and focused on usability, adaptive operations and consumer appeal, Nest expanded its strategy in 2013 to encompass utility-industry-centered energy management programs.

The connected-home market still poses many challenges, including:

  • Technical challenges involving the lack of established integration standards

  • Marketing challenges of articulating a compelling consumer value proposition

  • Data collection and consumer privacy challenges

For utility CIOs, as Gartner predicted in 2008, this acquisition is an indicator of the rising importance of consumer technology providers in all facets of the connected home. This will force utility CIOs to reconsider their strategy for integrating consumers in energy efficiency programs such as demand-side management and demand response.

Recommendations

  • CIOs for utilities currently employing or considering Nest Labs in their demand side management programs: Re-evaluate your strategy, given the broader aspirations of Google and its impact on customer relationships.

  • CIOs for utilities considering broader strategy in the connected home: Develop a strategy to address consumer relationship management, data access and privacy issues .

  • Utility CIOs: Recognize that this acquisition will accelerate market evolution, creating a dynamic and challenging partnering environment. Adjust your approach accordingly.

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