NEST - SWOT analysis

The article is based on NEST - SWOT analysis, which can be found in the Library, in CayenneApps SWOT application.

Experts estimate that the Internet of Things (IoT) will consist of almost 50 billion objects by 2020, and nearly $6 trillion will be spent on IoT solutions over the next five years.  

These results will be achieved by using three ingredients: Devices, a Network and Applications, which will let us connect our homes, cars and smart wearables to track an individual’s behavior and use the data collected to improve our lives.

Imagine, you will be able to control the electrical devices installed in your house during meetings in your office. You will no longer need to worry if you turned off your iron or if you locked the door when you were rushing the morning. All you will need to do is to check on your smartphone in the control panel if everything is okay and, in the worst case scenario, click the button. This vision and the benefits that are connected with the IoT concept not only seem tempting for us (potential clients), but also for businesses that are ready to explore the market and earn money.

This is why Google bought NEST in 2014 for $3.2 billion and along with the self-driving cars project, opened the gateway to the home automated system market, another facet of IoT. We decided to use the example of NEST to verify what the challenges and opportunities related to the IoT are, and how far away from the promised land we are.

Products

Currently, Nest is selling only three products: a smart thermostat, a smart fire alarm, and a smart camera (Dropcam). The first Nest product, which is the thermostat, was invented by former Apple engineers Tony Fadell and Matt Rogers. This sophisticated system, hidden beneath a very simple interface similar to the iPod way, learns what temperatures you like, turns itself down when you’re away and can be controlled from anywhere over Wi-Fi.

The second product, Nest Protect, the smoke and carbon monoxide detector aims to keep you informed about potential safety risks by giving you a friendly human voice alert when smoke or CO is detected. The third product, Nest Cam, helps you know what’s going on inside and outside your house when you’re not home.

All these products are beautifully designed and easy to install. They are based on innovative technology that it is neither bulletproof nor yet reliable (e.g. last year a Nest outage roused the company’s customers from the warmth of their beds and sent them to reset their thermostats manually).

On the one hand, this is understandable - producing hardware is more demanding than software. The company needs to release a completed product, while software is often launched as a minimum viable product and then improved constantly. On the other hand, Nest operates in a very delicate environment where client’s trust and reliance is a base for the company’s survival. A smoke detector that turns off before the fire kindles or the camera that is not working precisely at the moment when a burglar is breaking into my houses is useless.

Moreover, in the IoT concept the product depends on a cloud-based service to communicate with a smartphone. If that cloud service shuts down, you won’t be able to use the app to control anything. Nest has recently closed down the cloud service Resolv and left its clients with a useless product. The signal sent to the clients was clear:  the product that consumers purchase today could stop working any time the manufacturer decides to stop supporting the software.

When we add up high prices, long device replacement cycles and the lack of the customer trust in IoT products, we receive limited consumer demand and come out with fierce battles over a customer with competitors.

Competition

The home automation market is already an extremely crowded space. HomeKit by Apple, SmartThings by Samsung, Amazon Echo by Amazon, Xperia Agent by Sony, Wink and Philips Hue are only a couple of examples of leading companies that successfully have built various IoT products.

For instance, Philips Hue is a leader in smart home lighting, mainly because it integrates with all kinds of personal hubs, like Amazon’s Echo or Google’s Nest. And now with Hue 2.0, it can be voice-controller via Siri and Apple’s HomeKit. You can control lights through a smartphone app or create lighting “scenes” for movie-watching or even receive a notification when you leave home without turning off the lights.

Philips Hue’s gone mainstream thanks to the simplicity of the concept, integration with other IoT products, and last but not least removing a lot of barriers like difficulties in setting up.

Nest has created its own Nest Weave protocol to keep up with rapid development and achieve the goal of putting technology in millions of homes. The key difference in this new integration is the ability of the devices to communicate directly with the Nest device, not via Wi-Fi and the cloud. So, low-powered devices can communicate with Nest devices without the need to employ a battery-draining Wi-Fi connection, which increases security, scalability and reliability of the solution. All of that can be achieved with a simple software update, so the Nest Thermostat, Nest Protect, Nest Cam, or any combination of the three — will operate as a hub of sorts to keep everything connected.

Product integration is much broader than basic functionality or technical performance. Consumers expect new products to harmonize with their values and lifestyles. All companies stand before the challenge of not only how to introduce new products that will connect through wireless networking, but also, more importantly, how to convince clients that they will facilitate their everyday lives. However, the success in the home automation market depends not only on the uniqueness of concept but also on how the company organizes development and the nature of the leadership it creates.

Employees

Recently, Tony Fadell, former CEO of NEST, was replaced by Marwan Fawaz, who previously ran Motorola’s home products division when it was owned by Google. One of the reasons for this change was the bad press associated with the quarrel about the upsetting leadership style of Fadell which occurred between him and Greg Duffy, founder of Dropcam, which was acquired by Nest.

Greg Duffy blamed Fadell for the fact that half of Dropcam’s employees had left the company due to the atmosphere of “fear” and the necessity of working on weekends for months.

Overlooking a massive talent exodus and the threat that new employees might avoid working in the company seems to have drawn attention from the perfect product design which was his focus.

A new CEO, Marwan Fawaz, will hopefully change the leadership style in NEST and will focus more on employee satisfaction, which is a necessary ingredient to develop new and innovative products.

Summary

Some reports suggest that consumers are already losing interest in the idea of the Internet of Things (a new report by Argus Insights reveals that sector is quickly losing steam).

If NEST will remove a lot of barriers that have already discouraged potential clients (such as difficulty to set up, relying on connections to other devices, and being unreliable), the company has a big chance to go mainstream and surpass competition.

Easy to say, hard to implement. For now, we are impatiently waiting for NEST’s next move with the new CEO on board, hoping that the IoT concept will last a little bit longer and soon will be found in every home.