1. Nest Labs
NAICS: 54171126
Jonathan Andrews, Kelechi Basil, Lena Miller, Megan Morrow, Michelle Pargament, Jordan Peykar,
Yejee Whitney Kim
Principles of Marketing
EN.660.250(01)
Spring 2015
3. 2
Executive Summary
Introduction
Nest Labs was founded in 2010 by two former Apple Engineers. It was bought out by Google
in 2014 and now offers three products: the Nest thermostat, Nest Protect, and Dropcam. Industry
trends reflect the increasing popularity of programmable communicating thermostats like Nest,
which may be attributable to an increased interest in sustainability.
Marketing Plan
Nest is at an advantage in relation to external social factors, given the general population’s
increased interest in sustainability, while its current strengths relate to the company’s marketing
tactics, such as its use of social media and competitive pricing. However, external economic
factors, such as the initial cost of the product, as well as the product’s expense in comparison to
HVAC automation thermostats, may put the product at a disadvantage. Nest’s target market is
energy conscious, middle income, homeowners and parents. It segments its market
demographically by targeting a specific age-range and income as well as psychographically by
targeting energy-conscious individuals. Nest products are in the growth stage, with a
competitive-oriented pricing and are distributed fairly directly. The product is promoted through
a TV advertising campaign with a strong public relations presence on Twitter, Facebook, and
special events.
4. 3
Recommendations
It is recommended that Nest branch into a new product line with Nest Shield, a new security
product aimed to prevent home invasions. With Nest Shield, Nest Labs will be able to solidify its
hold on the safety and security sector home automation market. Nest has successfully broken
into the home automation market with its current products- Nest Thermostat, Nest Product, and
Dropcam- and should extend this product line with Nest Shield to solidify its hold in this
industry.
Conclusion
Nest is an up-and-coming household name. Nest has designed an optimum product and
targeted it towards the right market. Nest also continues to deliver stellar customer service
ensuring that its customers remain happy with the company. Nest should extend its brand to
create a security device.
5. 4
Introduction
History
In 2010, Nest was founded by Tony Fadell and Matt Rogers, two former Apple
engineers. Prototype development began in Palo Alto, California and the first Nest Thermostat
was launched in October 2011. Since then, it has increased its distribution channels to include
Lowe’s, Apple, and Amazon and has expanded to the Canadian and British market. It now holds
offices in Palo Alto, Austin, Boulder, Dublin, London, Paris, and Taipei. Nest Protect, a smoke
and carbon monoxide detector, was launched in late 2013. Along with this product line
expansion, Nest began a Fire Truck advertising campaign that fall and began selling its products
at Target and Home Depot. In January 2014, Nest was acquired by Google for 3.2 billion dollars.
Since then it has grown from 130 to 460 employees. In June 2014, Nest acquired Dropcam, a
motion-detecting camera for the home. It currently stands as a frontrunner in automated home
energy systems.1
Description of the Product
Nest is an AI thermostat that learns air condition patterns and programs itself to
automatically adjust the home’s temperature. At first, the Nest is manually set. After a few days,
the thermostat begins to teach itself the home’s indoor weather patterns. Even during the summer
months, the humidity sensor within the device cuts AC runtime. The auto-off function uses a
built-in sensor that automatically turns itself off after a certain number of minutes if it doesn’t
detect movements. The Nest also features multi-device connectivity that allows users to adjust
their home’s temperature from anywhere as long as they have an internet connection. These
1
Nest. 2015. Web. 24 Mar. 2015. https://nest.com/
6. 5
features aim to help reduce energy bills. The device itself is sleek and simple, mirroring the
traditions of its founders’ previous company, Apple. The one-button device boasts a beautiful
shiny full color screen enclosed within a sleek stainless steel outer surface that is reflective to the
surrounding walls.
Other Products
Aside from Nest Thermostat, Nest also offers a highly advanced smoke alarm and carbon
monoxide detector called Nest Protect. Nest Protect will inform the owner casually, with an
automated voice, where and what the danger is, from every Nest Protect owned. If the owner
fails to take action then it will sound a louder alarm. Secondly, not only does Nest Protect alert
the homeowner to the level of smoke but also to level of carbon monoxide. Additionally, if the
Nest Protect is connected to Wi-Fi and Nest Thermostat, the system will shut off the gas furnace.
These are the two main functions of Nest protect, but this product is full of useful features.
The company also offers a motion detecting security camera called Dropcam which
streams directly to a phone or computer.
7. 6
Recent Sales & Profit History
Before its acquisition by Google, Nest Labs was a private company not obligated to
release its financial information to the public. In January 2013 Nest closed a round of funding
infusing $80 million at a valuation of $800 million.2
Just one year later Google purchased Nest
Labs for $3.2 billion, a 4 fold increase, just after a round of funding that saw Nest’s valuation
rise to $2 billion.3
Estimates had Nest Labs selling 40,000 units a month at $119 million in
revenue for the year 2013. Those estimates have since more than doubled to 100,000 units per
month for $300 million in revenues.4
Another metric that can be used to quantify Nest’s worth is
the change in market capitalization Google saw the day of the transaction. At the time of the
purchase Google’s outstanding shares were 680 million and with a $27.38 rise in the stock,
Google’s market capitalization grew by nearly $19 billion.5
Industry Overview & Trends
There are two similar types of programmable thermostats within the industry: HVAC
automation thermostats and programmable communicating thermostats. Nest is the latter.
Programmable communicating thermostats use “dynamic pricing information and other signals
transmitted from the utility in combination with settings programmed by the user to adjust
thermostat settings,” while HVAC automation thermostats “lack the capability to receive and act
on such dynamic information received from outside the home.”6
HVAC automation thermostats
2
Carr, Austin. "Tony Fadell's Nest Thermostat Company Hits $800 Million Valuation." Fast Company. 30 Jan. 2013. Web. 24 Mar. 2015.
3
"Google Inc. Announces First Quarter 2014 Results – Investor Relations – Google." Google Inc. Announces First Quarter 2014 Results –
Investor Relations – Google. 16 Apr. 2014. Web. 23 Mar. 2015.
4
Yarow, Jay. "Nest, Google's New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue." Business Insider.
Business Insider, Inc, 14 Jan. 2014. Web. 22 Mar. 2015.
5
"Google Inc. Announces First Quarter 2014 Results – Investor Relations – Google." Google Inc. Announces First Quarter 2014 Results –
Investor Relations – Google. 16 Apr. 2014. Web. 23 Mar. 2015.
6
McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 52. BCC Research, 1 Feb. 2015. Web.
23 Mar. 2015.
8. 7
were estimated to have a U.S. market of $147.1 million in 2013 and are estimated to grow to
$269.1 million by 2019.7
In contrast, programmable communicating thermostats had an
estimated U.S. market at $50.4 million in 2013, and are expected to rise to $66.2 million by
2019.8
Because it has become commonplace to center marketing strategies on “products’ ‘green’
or environmentally friendly attributes,” the energy saving qualities of programmable
communicating thermostats may become especially appealing to the “growing market of
environmentally conscious consumers.”9
Key Competitors
A number of companies have developed similar products; these include: GreenWave
Systems, iControl, Alarm.com, Ecobee, Honeywell and many more. GreenWave Systems is a
startup based in Irvine, California that empowers leading brands to use Internet of Things (IoT)
managed services and already has partnerships with major cable and telecommunication
companies such as Verizon and DirecTV.10
iControl is also already partnered with leading home
security companies and service providers such as ADT Security Services, Comcast Xfinity, Time
Warner Cable and more.11
Alarm.com offers automated, integrated services all in the control of
an app. One of its biggest re-sellers is Vivint, one of our country’s larger home alarm
companies. All three of these companies, as well as Nest, have exceeded use in one million
homes.12
7
McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 60. BCC Research, 1 Feb. 2015. Web.
23 Mar. 2015.
8
McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 77. BCC Research, 1 Feb. 2015. Web.
23 Mar. 2015.
9
Campbell, Benjamin, Hayk Khachatryan, Bridget Behe, Jennifer Dennis, and Charles Hall. "Consumer Perceptions of Eco-friendly and
Sustainable Terms." EBSCO Host. EBSCO, 1 Apr. 2015. Web. 18 Apr. 2015.
10
"GreenWave Systems." RSS. Web. 24 Mar. 2015.
11
iControl. 2015. Web. 20 Mar. 2015.
12
John, Jeff St. "Google and Nest: The Big Picture for Home Automation Competitors." GreenTechMedia. 17 Jan. 2014. Web. 24 Mar. 2015.
9. 8
Marketing Plan
SWOT Analysis
Many of Nest’s future market opportunities relate to external social factors, while its
current strengths lie in the company’s marketing tactics. With regards to external social factors,
Nest is well positioned because of the social potential for an increased interest in sustainability.
This interest may be fulfilled by Nest’s focus on saving energy and money on energy bills. In
terms of current strengths, the company’s streamlined, visually appealing website, as well as its
active social media accounts, make it easy for customers to learn about Nest’s products.
Furthermore, the product is competitively priced with other brands with similar holdings.13
Despite Nest’s many future market opportunities, the company may be threatened by
external economic factors. The initial cost of the Nest Thermostat may dissuade consumers from
seeing the long-term cost saving benefits of using the product. The company’s primary current
weakness falls in line with this issue—at $249 the product is $169 more than a typical HVAC
automation thermostat, such as Honeywell’s 7 Day Programmable version.14
Target Markets
“Everyone loves their Nest Thermostat. Except Grandpa.” 15
Nest’s Youtube channel provides commercials that outline the product’s target market
explicitly. Each commercial lists someone that doesn’t love the Nest Thermostat, such as the
elderly, kids, teens, and pets. Nest directs their targeting efforts toward middle class, energy
conscious homeowners. Testimonials from those who love and use the product are gadget
13
"Ecobee3." Ecobee. Ecobee. Web. 14 Apr. 2015.
14
"Honeywell RTH7600D Touchscreen 7-Day Programmable Thermostat." Amazon. Amazon. Web. 14 Apr. 2015.
15
“Everyone Loves Their Nest Thermostat. Except Grandpa." YouTube. Nest, 16 Nov. 2014. Web. 15 Apr. 2015.
10. 9
interested, energy conscious, parents, and heads of homes. The company’s second series of
commercials, “Learn about the Nest Learning Thermostat,” features a main character, usually a
male or female in their 30s-40s, controlling the product in their home. Other animated
commercials depict an average looking home with a tree outside, akin to a suburban setting. The
results of the company’s market research, outlined in an initial press release, show that the
company looked into single-family homes16
. When the company announced that it would be
partnering with Lowe’s, a leading home improvement store, Nest further specified its target
market stating,
“There’s a natural affinity between Lowe’s and Nest…Both companies are committed to
supporting DIY-minded customers seeking quality products… so it makes sense for them
to buy from Lowe’s, a great retailer that supports its customers' ingenuity and pride in
their homes.” 17
Segmentation Bases
Segmentation bases can be used to define which market segments Nest is targeting as part of its
marketing strategy. Based on the target market identified in the section above, those
segmentation bases can be specified as,
Demographic-
Income: Nest primarily targets middle to upper class individuals with their ads. The imagined
Nest user lives in a multi-bedroom home. Additionally, at approximately $250, the product is not
an inexpensive gadget. Income is a significant factor in a consumer’s buying power.
16
"Nest Labs Introduces World's First Learning Thermostat." Nest. 25 Oct. 2011. Web. 20 Apr. 2015. https://nest.com/press/nest-labs-
introduces-worlds-first-learning-thermostat/
17
"Nest Learning Thermostat Now Available at More Than 500 Lowe's Stores, Lowes.com." Nest. 8 May 2012. Web. 14 Apr. 2015.
11. 10
Age: Age is one of the most common variables used in marketing strategies. Nest’s marketing
strategies are geared towards homeowners and parents in the 30s-50s age range.
Psychographic-
Lifestyle: Energy-consciousness is considered a lifestyle. Lifestyle segmentation is based on the
way in which the consumer lives and spends their time and money.18
Marketing Mix
Product
Nest is currently in the growth stage of the product lifecycle. In 2013, Nest was selling
40,000 - 50,000 thermostats per month. Currently, Nest is estimated to sell 100,000 thermostats
every month.19
Nest’s revenue from this year alone is estimated to be $300 million, and its
revenue is expected to ramp up significantly over time. Given Google’s $3.2 billion acquisition
of the company, it is expected that Nest will grow exponentially for the next ten years and more.
Nest is already in talks with various strategic partnerships such as one with ADT, the world’s
largest home security firm, to partner for future products.20
With the potential partnership, the
Nest thermostat and smoke alarm will be integrated into ADT’s security platform and gain
access to ADT’s seven million worldwide customers.
Product positioning is high in design and performance. Cnet rated the Nest thermostat
design and performance a 10, while Ecobee’s Ecobee3 is an 8 in design and performance and the
Honeywell Wi-Fi Smart thermostat is a 7 in design and a 9 in performance. A perceptual map
can be found in Appendix C.
18
Kerin, Roger A., Steven William. Hartley, and William Rudelius. Marketing. Print.
19
Yarow, Jay. "Nest, Google's New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue." Business Insider.
Business Insider, Inc, 14 Jan. 2014. Web. 15 Apr. 2015.
20
Kim, Eugene. "A Potential Partnership Could Finally Take Nest Sales To The Next Level." Business Insider. Business Insider, Inc, 29 Dec.
2014. Web. 15 Apr. 2015.
12. 11
Nest products are well designed and packaged. Nest’s product design is so successful in
part due to Fred Bould, an award winning product designer who has also worked with designing
the Hero3 GoPro and Roku’s web video streaming box.21
Nest’s innovative, revolutionary, and
beautiful design has won multiple design awards, including the prestigious Red Dot Award for
two consecutive years as well as the Gold International Design Excellence Award.
Price
The Nest Thermostat is currently priced at $249. Competitive products are similarly
priced, with Ecobee’s Ecobee3 Smart Thermostat priced at $249 and Honeywell’s Wi-Fi Smart
Thermostat also priced at $249.22
Nest employs a competition-oriented pricing approach. Pricing
of the Nest Thermostat is exactly the same as similar smart thermostats in the market.
Distribution
The Nest thermostat is distributed in a selective manner. The product can be bought
online from the Nest website, as well as a small number of other online retailers like Amazon
and Google Store. It can also be bought in store at a small number of locations, including Home
Depot, Best Buy, and the Apple Store. Nest has also partnered with energy companies like Direct
Energy, the largest energy and home retailer in North America. After signing a 2 year contract
with the energy provider, the consumer will receive a Nest Thermostat for free.23
As indicated above, Nest uses three channels of distribution. The most direct channel
involves the consumer ordering the thermostat from the Nest website. (Appendix D) The second
21
Yarow, Jay. "Meet The Unknown Genius Who Helped Design The $3.2 Billion Nest Thermostat And Smoke Detector." Business Insider.
Business Insider, Inc, 17 Jan. 2014. Web. 16 Apr. 2015.
22
Wollerton, Megan. "These Smart Thermostats Steal the Heating and Cooling Spotlight - CNET." CNET. 1 Oct. 2014. Web. 17 Apr. 2015.
23
Knox, Tom. "AEP Customers Get Free Nest Thermostat with Two-year Contract with Direct Energy - Columbus - Columbus Business
First."Widgets RSS. 14 July 2014. Web. 20 Apr. 2015.
13. 12
channel of distribution involves an online retailer, such as Amazon, or a physical retailer like an
Apple Store. These two channels have no intermediary bodies between the producer and the
retailer. (Appendix E) Finally, Nest distributes thermostats through energy companies, the least
direct method utilized. Overall, the distribution channels are exceptionally streamlined.
Promotion
Nest uses a number of advertising techniques to gain widespread exposure. In November,
Nest launched a pioneering advertising campaign on TV using the tagline, “Welcome to a more
thoughtful home.” The humorous appeal advertisement consists of various individuals explaining
the reasons they dislike the Nest Thermostat, which center around the fact that the Nest
Thermostat learns its owners’ habits. The use of TV indicates that Nest is aiming to reach a
widespread audience. The TV spot was located in the middle of football games and primetime
programming across channels like ESPN and Discovery. This suggests that the company is
targeting men.24
The company also entered into an agreement with “Reliant an NRG company,” which
provides energy electricity to homes and businesses across America. Reliant funded a number of
advertisements featuring the Nest Thermostat’s green credentials. This promoted Nest’s brand
and advocated for Reliant’s stance on home energy efficiency. Reliant has also raised awareness
in Texas through the use of outside advertising on billboards.25
Nest also utilizes behavioral targeting on social media sites, like Facebook, to present
advertisements to individuals that have visited the Nest website. The company's YouTube
channel is not only full of their commercials, but also full of useful information as to how to set
24
"Nest Isn't Just Smart and Sleek, But Funny Too, in First TV Ads." AdWeek. Web. 15 Apr. 2015.
25
Charlton, Erik. "New Reliant Nest Ads and Billboards." Nest. Nest.com, 13 July 2012. Web. 10 Apr. 2015.
14. 13
up the system. It also contains interviews with and recommendations from owners of Nest
Systems.
Personal Selling
Though the online distribution pathways are not a form of direct selling, Nest’s use of physical
retailers like Lowe’s consist of in-store contact between customers and salespeople. Because
customers typically enter the store seeking more information on the Nest Thermostat, there are
no Prospecting, Pre-approach, or Approach stages of personal selling. (Appendix E) The
salespeople go through the Presentation and Closing stages and adopt a consultative selling
strategy, becoming experts in the product. There are no specific Nest sales representatives.
Sales Promotion
Nest has employed a sales promotion of offering products at discounted prices. Some of
Nest’s domestic and international partners include Direct Energy and Electric Ireland,26
both of
which have employed a sales promotion strategy of offering a free Nest Thermostat for signing a
two-year contract with one of the prospective electricity providing companies.27
Public Relations
Nest has a considerable social media presence and employs special events as a tool to
engage current and potential customers. The company already has approximately 320,000
Facebook likes and 135,000 followers on Twitter.28
Nest has recently held a joint fire truck and
26
Knox, Tom. "AEP Customers Get Free Nest Thermostat with Two-year Contract with Direct Energy - Columbus - Columbus Business
First."Widgets RSS. 14 July 2014. Web. 20 Apr. 2015.
27
Shankland, Stephen. "Nest's New Sales Tack: Free Thermostats - CNET."CNET. 5 Nov. 2014. Web. 20 Apr. 2015.
28
Web. 20 Apr. 2015. <https://twitter.com/nest>.
15. 14
Blue Bottle Coffee event, in which the company gave free coffee and gift wrapping to NYC
holiday shoppers while simultaneously showcasing the Nest products.
Nest concentrates on its social and environmental responsibility. The Nest Thermostat
and Smoke + CO Alarm products are inherently eco-friendly and cost-conscious. The Nest
website writes, “We want to be a positive impact on our community. Nest strives to be a good
citizen when it comes to health, pay, education, and labor practices.”29
Its products are already in
line with many national and international environmental laws. The products contain no
hazardous substances and are fully compliant with Restriction of Hazardous Substances
Directive. It is also REACH compliant in accordance with the EU’s corporate chemical
management requirements. Nest sets high standards for all of the organizations and companies it
collaborates with as well, requiring all suppliers to be ISO 14001 Environmental Management
Standard certified. Additionally, it only works with other corporations that are similarly
committed to improving social and environmental practices.
29
Nest. 2015. Web. 24 Mar. 2015.
16. 15
Recommendations
The goal of the current Nest device is to maximize the comfort and efficiency that people
experience in their homes. As of right now, the Nest thermostat functions as an atmosphere
control device for the household. Nest Labs has furthered attempted to diversify its market
options by creating a new product that is within the same market; Nest Labs developed the Nest
Protect to be a home carbon monoxide and fire alarm device and integrated the device into the
existing Nest App. With its two current devices, Nest Labs has a standing in two sectors of the
home automation market. It is recommended that the company establish and develop its hold on
the home automation market, which would be economically advantageous for Nest to hold a
majority of the market share and revenue. To do this, it would be best for Nest to develop a
product to strengthen its placement in the safety and security sector of the home automation
industry.
The new product being recommended is a home security suite that would include home
and window alarms. This new product will need to be introduced strategically to ensure that Nest
Labs’ entrance into the safety and security sector does not result in a revenue loss. It is advised
that Nest Labs wins contracts with one of the top home security market players such as Slomins
or ADT to run the framework behind the Nest hardware such as calls to the house after the alarm
has gone off. Nest Labs does not have the physical or financial resources to completely setup a
security company. This method would allow Nest to fully compete with existing market
competitors such as Honeywell, GE, and Emerson30
. This strategy would also benefit Nest Labs
by distinguishing it within this market. It would be easy to create a brand equity that follows the
tradition of innovation within the home automation industry.
30
Home Depot. Alarm Systems - Safety & Security - The Home Depot. 2015. 13 April 2015.
17. 16
The new product would be a brand extension called the Nest Shield. This moniker creates
strong brand equity by reinforcing the existing idea of creating a cozy, safe environment and
adds to it by giving users the idea of protection from their Nest. Also, this name perfectly
describes the intent of the new product and continues Nest Labs’ branding tradition without
infringing on the existing Nest Protect; rather than protect the home, the new product would aim
to shield the nest from outside invaders. In addition to the appeal the name and product creates, it
would be efficient for marketing managers to create advertising campaigns for the product. This
is a part of the new product that should be stressed.
Nest Labs will need to allocate a larger portion of its financial resources to raising
awareness of the product via television and social media. Nest should also create a partnership
with well-known companies. For example, Nest Shield could partner with the NFL whose
emblem is also a shield; this relationship would allow for public advertising during games,
increased brand awareness, and an opportunity for other Nest brands to become more integrated
with the NFL name. The Nest logo could be placed next to the NFL logo and Nest would have an
opportunity to become the “official automation system of the NFL.” Nest could even be used to
control stadium temperatures, VIP box temperatures and security within the VIP rooms. This
would be the practical application of Nest Labs using their new product, Nest Shield as the
beginning of a partnership with the NFL. This is just one detailed example; there are many other
companies that Nest Shield has the possibility of partnering with. In addition to the public
relations campaign, Nest Labs should also simultaneously run a social media campaign to
introduce the new product.
The target market for the new Nest Shield would remain the same: energy conscious
homeowners. The target market does not specify whether the customer has security already. Nest
18. 17
does not aim to solely get the attention of people with security but instead aims to recruit
customers to buy a home security plan as a value proposition to security companies. The main
goal of Nest Shield is to lock current customers into the Nest ecosystem and by doing so, prevent
current customers from leaving. With the trifecta of heating/A/C, fire, and home protection, Nest
Labs would leave little space for other companies to use home automation to enter the
consumer’s home.
Nest Shield would be in the introduction stage of its lifecycle as a brand new product.
Nest Shield will come with the full suite of security features offered by competitors along with
integration into their mobile app for on-the-go availability. Nest Shield, along with other Nest
products, will be positioned towards the higher end market. The packaging of Nest Shield will
remain consistent with the rest of the Nest products. Similar products in the smart home industry
are priced competitively between 100 and 350 US dollars31
. It is recommended that Nest Labs
position the Nest Shield at or near the top of the market at around 350 USD to reaffirm the top
quality image they currently have. This of course will be backed up by more advanced features
than the competition as described above.
Distribution strategy will remain the same as with previous Nest Labs products. Similar
to Nest’s existing products, Nest Shield will be available through the Apple store and hardware
stores such as Home Depot and Lowe’s; it will also be available online through the Google Play
Store and other outlets.
Promotion for the Nest Shield will likely be similar to other security companies’
promotional activities. Targeted advertisements using fear as a main basis for the sale has shown
to be extremely effective at bringing in customers.
31
"Alarm Panels & Systems | Smarthome Home Automation Superstore." Alarm Panels & Systems | Smarthome Home Automation Superstore..
Web. 13 Apr. 2015.
19. 18
Conclusion
Nest thermostat is an innovative tool designed to help energy-conscious individuals
manage their home. Since the company’s founding in 2010, it has grown to include two new
products, all of which contribute to smart home automation. Within the past year, Nest has
continued to grow within the industry. This growth has been fueled by its market advantages
such as product design, product utility, societal movements etc. Nest utilizes social media and
competitive pricing to gain a leg-up on its learning thermostat competition. The company
maintains all of its social media outlets and updates them regularly. As the company continues to
grow, we recommend a new addition to their product line: the Nest Shield. Nest Shield is the
next step in home automation. Nest Shield would be created by partnering with existing
securities companies and established organizations. Developing this new product will allow Nest
to consolidate its hold on the safety and security sector and become a leader in the home
automation industry.
20. 19
Appendices
Appendix A- SWOT Analysis
SWOT Analysis—External
EXTERNAL FACTORS FUTURE OPPORTUNITIES FUTURE THREATS
Social -Increased value on being eco-
friendly and sustainability will
create greater appeal for the
product
-Generation Y/Millennials will
become homeowners (greater
interest in sustainability and
knowledge of technology)32
-Increased desire for
customizable products
-Increased value on efficiency
-Continuous denial of climate
change
-Continuous wasteful behavior
-Fear of products with artificial
intelligence
Competitive -Strategic partnerships with other
home automation service
companies
-Partnerships with new mobile
device companies (not pre-
existing Android and iPhone
partnerships)
-Additional advertisements from
partnered car companies
-Additional partnerships from
home goods companies (i.e., GE
for washing machines)
-Other home automation
companies with potentially
greater market share, i.e.,
Greenwave Systems, iControl,
and Alarm.com
-Other home automation
companies that choose to also
partner with Android and
iPhone
-Car companies/home goods
companies that exclusively
partner with other home
automation companies
32
Kerin, Roger A., Steven William. Hartley, and William Rudelius. Marketing. Print.
21. 20
Technological -Adapted for additional mobile
devices, such as Apple Watch
-Potential development for use
with more than 10 thermostats
-Potential development for use
with more than 2 locations
-Easier to purchase as an
individual—companies such as
GreenWave and iControl require
use of intermediary33 34
-More effective and innovative
developments from other
brands
-Other brands may be able to
faster develop additional zoning
and location abilities for their
thermostats
Economic -Positive economy will
encourage purchase of new
products
-Economic downturn—may
discourage people from buying
what they deem to be an
unnecessary product despite its
ability to save money on energy
bills
-People’s inability to see long
term benefits in regards to
initial expense
Political/Legal -Laws requiring the use of
energy-saving home automation
products
-Tax breaks for lower energy
bills
-Lawsuits if technology is
deemed ineffective or somehow
harmful
-Patent infringement lawsuits,
as brought by Honeywell in
201235
Natural -Use of sustainable materials for
thermostat and packaging
-Reduced availability of parts
for thermostat
33
GreenWave Systems. Web. 24 Mar. 2015.
34
"Icontrol One Interactive Security and Home Automation Solutions." Icontrol Networks. IControl Networks. Web. 14 Apr. 2015.
35
Wesoff, Eric. "Honeywell Seeking to Halt Sales of Nest Labs’ Thermostat." Greentechmedia. Greentechmedia. Web. 14 Apr. 2015.
22. 21
SWOT Analysis--Internal
INTERNAL FACTORS CURRENT STRENGTHS CURRENT WEAKNESSES
Management -Owned by Google, a company
with strong brand awareness
-Lack of cohesion amongst
Google branches
-Awareness of Google but not
connection with Nest
Offerings -Simple, streamlined
technology
-company also offers Nest
Protect and Dropcam
-Energy saving rewards (Rush
Hour Rewards)
-No customizable exterior
-Very widely spread in terms of
product offerings
-May be a radical change from
the conventional thermostat
Marketing -Costs $249, competitive
pricing with other brands, such
as ecobee36
-Simple, visually appealing
website
-Easy to purchase through
nest.com, Apple store, Home
Depot, Google store, Lowe’s,
and Amazon
-Nest and Nestsupport Twitter
pages regularly updated,
-Youtube, Facebook, and
Instagram pages regularly
updated
-Expensive in comparison to
HVAC automation thermostats,
such as Honeywell’s $80 7-day
Programmable Thermostat37
Personnel -Positions across the globe
-24/7 support telephone number
and email address
-No brick and mortar Nest
stores, so no tangible example
of Nest culture and employees
36
"Ecobee3." Ecobee. Ecobee. Web. 14 Apr. 2015.
37
"Honeywell RTH7600D Touchscreen 7-Day Programmable Thermostat." Amazon. Amazon. Web. 14 Apr. 2015.
23. 22
-Connection with installation
professionals
-Nest Pro may help set up
device, gives face to brand
-May be self-installed, which
requires even less
communication with personnel
Finance -Programmable communicating
thermostats such as Nest
expected to have a US market
of $66.2 million by 2019, up
from $50.4 million in 201338
-In 2013, the company sold an
estimated 40,000 units per
month with $119 million in
revenue, more than doubled to
100,000 units per month with
$300 million in revenue since
then39
-HVAC automation thermostats
remain relevant and have
greater market; US market was
$147.1 million in 2013 and is
supposed to grow to $269.1
million by 201940
Research & Development -Nest Developer program
allows for external
programming and development
of new integrated apps41
38
McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 77. BCC Research, 1 Feb. 2015.
Web. 23 Mar. 2015.
39
Yarow, Jay. "Nest, Google's New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue." Business Insider.
Business Insider, Inc, 14 Jan. 2014. Web. 22 Mar. 2015.
40
McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 77. BCC Research, 1 Feb. 2015.
Web. 23 Mar. 2015.
41
"Home." Nest: Developers. Nest. Web. 14 Apr. 2015.
26. 25
Appendix E- Transcript of Interviews
On April 13th, at 10:00 AM, Megan Morrow and Lena Miller interviewed an “essentials”
employee at the Apple Store in Towson, MD. The following is a summary of the interview:
Can you tell us a little bit about the product?
Nest is a smart thermostat. It’s a product focused on convenience and consciousness. The user
is sent monthly reports that detail energy savings and peak times of energy use. The product can
be controlled by an app.
Is it something that people usually come in and ask for specifically or do you somehow
direct them to it?
People usually have heard about it and come in to learn more and ask questions. It’s placed in
one of our most popular sections, called ‘Appcessories,’ which means any of these tools
[gesturing to the wall] can be controlled by an app. I assume most customers have heard of the
product from the internet.
What kind of demographic usually asks for the product?
Homeowners in their 30s-early 50s and landlords, looking for the Nest Protect. Many are early
adopters or gadget nerds.
What market is this product advertised towards?
Homeowners and people interested in technology.
Have you seen any advertisements for the Nest? What kind?
Yes, I’ve seen sidebar ads on some websites.
Has there been a need for post-purchase customer follow-up?
No, not at all. We have never had any returns or needed to repair any products. I haven’t heard
of any complaints. Nest did a great job of explaining the installation so that basically anyone can
do it themselves.
Do you purchase the product directly from Google? How does the product reach your
store? Who are the intermediaries?
We have an automated system that sends inventory data to our regional Apple shipment hub
which notifies them of what needs to be restocked.
How has the product developed over time?
There are two different generations of the thermostat. We also sell Nest Protect and the
Dropcam. Of the three, Nest Protect has sold most. Many customers have sticker shock when
27. 26
they see the price of the thermostat. Even though it can save you money on your energy bill, it’s
too long term for them to process.
Are there separate apps for each of their products?
The thermostat and protect can be used under the same app, however the Dropcam is separate at
this point. The first app can be used as a part of the Apple Home Kit, a program that
consolidates all apps relating to the home.
On April 13th, at 10:30 AM, Megan Morrow and Lena Miller interviewed an apple store
customer who they met while waiting in line to enter the store. He overheard their conversation
with the Apple employee and told them he has owned Nest products for two years. They were
able to interview him concerning his experience buying and using the products. The following is
a summary of the interview:
How did you learn about the product?
I work in technology and I’m an early adopter. I have my twitter feed set up with accounts like
Google News and C-net and I read a lot of technology news. I was one of the first people to buy
the thermostat when it came out.
How did you purchase the thermostat?
I purchased it online directly from Nest. They shipped it to me and I installed it easily. There
are only three wires. There actually ended up being a battery flaw in the first generation, but
they sent me a replacement second generation thermostat right away. They have great customer
service. Soon after that, I purchased three Nest protect alarms for my home.
Have you noticed any significant energy savings?
Not really. However, I have a very old home that is not well-insulated or energy efficient. I
didn’t really buy it for the savings. I bought it more for the control, convenience, and the gadget
factor.
What do you think about the relationship between this product and other smart home
products?
I see the thermostat and the Protect as less of a risk than other smart home products. I worry
about information security and the opportunity for hackers to compromise smart home systems.
The Protect is simply a safety product and, and the thermostat is a low-risk product in terms of
security.
Have you recommended this product to anyone?
Yes, and many have purchased Nest products themselves.
Do you think this product is still emerging or established by now?
28. 27
I think the thermostat and protect are right on the cusp in between emerging and established. It’s
still growing.
What are your thoughts on the monthly reports?
It’s nice to see trends in my energy use. I find that I conserve more in the summer than in the
Winter. There is a leaf program where you can earn “leaves” if you conserve more energy and
right now they have an Earth Day campaign that encourages you to earn one leaf everyday
leading up to Earth Day. The reports are also a constant reminder that I should really be
renovating my house to improve its efficiency.
Have you seen any advertisements for Nest products? What are your thoughts?
I’ve seen many ads, on the television, in print, on the web. They definitely have some Apple
hints to them which gives them credibility and attracts that kind of consumer.
29. 28
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