biz model for nest's smart thermostat
DESCRIPTION
These slides use concepts from my (Jeff Funk) course entitled Biz Models for Hi-Tech Products to analyze the business model for a Nest Lab’s Smart Thermostat. This thermostat learns user behavior, uses motion sensors to detect human presence, and programs itself. We recommend that Nest sell directly to end users and work with HVAC, construction and building automation companies to have their thermostat installed in new buildings. Nest, which was recently acquired by Google, can profit from the sale of these devices and the sale of software apps that can add functionality to the product.TRANSCRIPT
Business Model for NEST Labs-Smart Thermostat
We’re Nest. We reinvent things.
“Saving Energy is a beautiful thing”
Archit Anusha Deepak
Ramanan Santhosh
Business Analysts
Overview
Context Setting
• The Product, The Company
• The Consumer Need and Opportunity
• Industry Construct• Competitors, Market Size,
Growth
Value Proposition
• Product features• Comparison of product offering
with competition• Positioning, USP,… Raison
d’être
Consumer Selection
• Usage & Attitude Study• Who to Target• Collaborators, Partners,
Channels
Value Capture
• How they make money• Financial projections
Scope of Activities
• What they do and what they don’t
• Vertical disintegration• Acquisition by Google
Strategic Control
• Patents• Way forward
CONTEXT SETTING
The Next Generation “smart” programmable thermostat
“Learns” your preferences and schedule and programs itself!
Easy to use, easy to control
Save energy and money!
The Product and The Company
Tony Fadell
•Apple Employee, “Father of the I-pod”
Matt Rogers
•Apple Engineer, i-Pod Software Development team
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Founders
Home automation company, HQ – Palo alto, setup in 2010
Started with the iconic thermostat, moving to new products
Bought by Google in Jan 2014 for $3.2 Billion
Consumer Need & Opportunity
Source: US Department of Energy
Heating and cooling (HVAC) accounts for ~50% of the annual electricity bill of the avg. US household
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
History of the thermostat Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Source: “How people use thermostats in homes: A review” - Peffer, Pritoni, Meier, Aragon,Perry, Building & Environment Journal, June 2011
The Smart Thermostat Revolution…
Consumer Need & Opportunity Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
41% households had programmable thermostats in 2011…
40% of them never programmed them!45% of them did not program in winter!
But…
Source: “Who Wants Efficiency? Americans' Attitudes and Actions around Energy Use” , LeBlanc, Cooper and Reeves, E Source, 2012
Source: “How people use thermostats in homes: A review” - Peffer, Pritoni, Meier, Aragon,Perry, Building & Environment Journal, June 2011
If only they could be simple to use… and could program themselves!...
Challenges with Existing Technology
• People forget to Turn down the Thermostat
• Poor remote management, returning home early from a weekend outside -
• Poor electricity management, especially during summers.
• Poor automatic temperature regulation feature.
The future looks very promising…Although adoption of programmable thermostats has been slow…
Consumer Need & Opportunity Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Source: oee.nrcan.gc.ca, http://www.greentechmedia.com/articles/read/is-32-million-smart-thermostats-by-2020-a-lowball-estimate
~$1.4 B in 2020
Industry Construct Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Source: http://cleantechnica.com/2013/11/14/honeywell-leads-smart-thermostat-leaderboard/Navigant Research : Navigant Research Leaderboard Report: Smart Thermostats, Nov 2013
Honeywell – oldest and largest player in thermostats for last 50 years…
Top 10 Vendors:1. Honeywell2. Nest3. Trane4. Carrier5. ecobee6. Energate7. Emerson8. Computime9. Radio Thermostat Company of America10. Venstar
But Nest has already become the #2 player in just 3 years after launch!
Nest is starting to expand…
- - - - - - - - - - - 10,000 500,0003,125,000
6,250,000
12,500,000
25,000,000
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
Number of smart thermostats sold
Nest Industry
VALUE PROPOSITION
Product and Features Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Learns user behavior, from settings made in the first few days of installation
Provides tips and info to make energy-conservingchoices (green leaf symbol)
Wi-Fi connected, easy to control remotely from office, bed etc.
Programs itself, set the best settings to achieve maximum energy saving
Easy to install, You can Do-It-Yourself, or with help from Nest support
Motion sensors to detect human presence and turn to Auto Away mode when not around
The only Thermostat that learns over time…
Value PropositionContext Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Value Proposition Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
• Programs itself so you don’t have to.• Learns everyday and Keeps you comfortable
• Control it from anywhere• Control it through smartphones, tablets & PC
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Value Proposition
Value Proposition Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
• Built-in Activity sensors for monitoring human activity.• Turns itself down when you’re away
Value Proposition• Easy installation and compatible with most of the HVAC systems
• 3 out of 4 customers install Nest themselves in 30 min or less!
Or else… Call a Nest Certified Professional to help you!
Source: https://nest.com/thermostat/installation/
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Source: http://programmable-thermostats-review.toptenreviews.com/
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Comparison with competition
Source: http://programmable-thermostats-review.toptenreviews.com/
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Comparison with competition
Awards and Recognitions Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Nest Thermostat – Raison d’être…(Reason to be!)
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Amazing functionality
Ease of use
Bold, beautiful, unprecedented look and feel
A lifestyle symbol
The I- pod of thermostats…
People did not just buy an mp3 playerThey bought an Ipod!
Not just a thermostatA Nest!
CUSTOMER SELECTION
23%
20%
5%15%
7%
13%
17% Cost
Savings
Interface
Ease of Use
Connectivity
Reliability
Features
Source: Tugrul U. Daim, Ibrahim Iskin, (2010),"Smart thermostats: are we ready?", International Journal of Energy Sector Management, Vol. 4 Iss: 2
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Customer Selection
• Cost – Pricing used as an element to signal quality, aspirational value and to make a statement.
• Features, Savings – Proven to be better than competitors
• Ease of use – Nest Thermostat’s hallmark attribute
How Nest Thermostat fits in…How consumers buy smart thermostats
Customer Selection – the Ecosystem Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Individuals
Home
Automation companies
HVAC professionals
Construction
companies
Building
automation companies
Decision makers / influencers
Smart thermostat users
Households
Existing houses
New houses
Commercial Buildings
New buildings
Existing buildings
Non users / mechanical
thermostat users
End customers
As a home automation company ourselves, cannot partner directly with other competitors!
Smart thermostat users
Households
Existing houses
New houses
Commercial Buildings
New buildings
Existing buildings
Non users / mechanical
thermostat users
End customers
Customer Selection – deep diving Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
~60% households use manual themostats
Upgrade them
Source: “Who Wants Efficiency? Americans' Attitudes and Actions around Energy Use” , LeBlanc, Cooper and Reeves, E Source, 2012
~40% households use other smart thermostats
Move them
Only ~24% renters have thermostats as against
~51% owners
Attract them with ease of use, DIY, features &
savings!
Customer Selection – deep diving Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Individuals
Home
Automation companies
HVAC professionals
Construction
companies
Building
automation companies
Decision makers / influencers
Everybody is a potential customer, you just need to reach them in different ways!
Have significant influence on customers
Partner with them –“Nest Certified Professional”
~51% of new houses as against ~38% old houses have thermostats (as in
2005)
Partner with them, increase adoption
No direct partnerships
Build customer pull –Make customers ask for
Nest Thermostat, like they once did for “Intel
Inside”!
Source: “Who Wants Efficiency? Americans' Attitudes and Actions around Energy Use” , LeBlanc, Cooper and Reeves, E Source, 2012
Product Standards Utility service providers Government Programs
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Other stakeholders in the ecosystem…P
rod
uct
Sta
nd
ard
s Working with ENERGY STAR® to define industry standards for home automation devices
(“Program Requirements for Residential Climate Controls -Partner Commitments”.)
Uti
litie
s Natural allies helping reduce utilities consumption (gas and electricity used for heating).
Ex : Nest partnership with Reliant, a Texas-based retail energy provider to offer a Nest thermostat to customers who sign on for a two-year contract. Nest can reach 1.5M customers of Reliant this way
The
Go
vern
men
t Partner to understand trends and ways to reduce energy use. Govt. policies could be a catalyst in adoption of smart thermostats
http://www.engadget.com/2012/06/25/nest-partners-with-texas-utility-offers-intelligent-thermostat/http://www.humanities360.com/index.php/how-the-1970s-oil-crisis-affected-the-us-economy-2-11702/
VALUE CAPTURE
Value Capture Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
The Users
Software Developers
$ (Revenue)
Nest-Smart Thermostat
Nest-Smart Thermostat(App Store)
SDK
$ (Markup)
Nest-Smart Thermostat
$ (Royalty)
Apps Apps
NEST certified professionals
$ (Partner fees)
Training & Certification
$ (Markup)
CU
RR
ENT
FUTU
RE
Nest Honeywell wifi smart Ecobee smart Venstar color stack Lennox iComfort wifi
Cost 249 299 238 284 427.95
249
299
238
284
427.95
0
50
100
150
200
250
300
350
400
450
Cost
Source: from Amazon
Competitive Analysis – Cost
Financial projections Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Basis of projections
Nest sold ~40,000 to 50,000 units per month in Jan 2013http://gigaom.com/2013/01/29/exclusive-nest-has-raised-another-80m-now-shipping-40k-thermostats-a-month/
Assumptions – Trend of sales growth, whole sale price of $ 125 per unit, at 100% markuphttp://blog.nextmarket.co/post/73320622998/breaking-down-the-valuation-for-nests-3-2-billion
Year 2013 - beginning 2013 2014 2015
Units per month 50,000 75,000 150,000 250,000
Units per year 900,000 1,800,000 3,000,000
Retail price per unit $ 250 $ 250 $ 250
Whole sale price (per unit)
$ 125 $ 125 $ 125
Total revenues, Million $ $ 113 $ 225 $ 375
SCOPE OF ACTIVITIES
Scope of Activities
Consumers
Hardware Manufacturer
Nest Lab Inc.
Nest Lab Inc.
R&
D U
nit
Hardware assembly & software integration unit
$ Distributors$$
$
New Product
Nest Lab Inc.
Soft & Mobile App Dev unit
Hardware SpecSoftware
Customer Feedback
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Segments of Supply chain
• Product development• Innovative technology
• Production • Manufacturing capability –
outsourced to manufactures in China
• Sales and Marketing• Distribution through familiar retail
outlets, such as Best Buy and hardware stores, Apple stores
• Service and Support• Online installation support and for
software upgrades
Vertical Dis-integration – Supply Chain Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Financial might, global
reach
Infrastructure (servers etc.)
Analytics and s/w
intelligence
Sales & Distribution net
Vendor base (for electronics)
Acquisition by Google - synergies Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Nest can focus on the core value creation –
Making great new products, improving them and supporting users who use them.
Vertical disintegration…
STRATEGIC CONTROL
Strategic Control – Patents
Key Means of Strategic Control: Patents
• Patents covering both Technology and Applications
100 IP’s, 200 more filed with USPTO, 200 more in line ready to be filed.
• E.g. US 6429893, US 6686838, US 6943681, US 7042352, US 7047092, US 7102504, US 7102505, US 7142107, US 7142123, US 7156316, US 7163156, US 7168627, US 7168632, US 7199701, US 7218237 and more
30 Trademarks
• Nest®, the Nest logotype, the Nest house logo, the Nest leaf logo, Airwave®, Auto-Away®, Auto-Schedule®, Auto-Tune™, Heads-Up™, Heat Link™, Learning Thermostat™, Let’s Stop Wasting Energy™, My Energy™, Nest Learning Thermostat™,
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
User Friendly Interface for Control Unit - US
2012/0203379 A1
Thermostat Graphical User Interface - US 2012/0131504 A1
Thermostat User Interface - US 8,195,313
B1
Thermostat With Self-Configuring Connections
to Facilitate Do-It-Yourself Installation - US
2012/0248211 A1
System Methods for Updating Climate
Control Algorithms –Under Review
Adaptive Power Stealing Thermostat – Under
Review
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Strategic Control – Patents
The way forward – building an ecosystem
Build an ecosystem of innovative products, with proprietary standards , under the
home automation umbrella
• Similar to Apple’s Phone-Mac-Pod-iTunes ecosystem
Consumer Stickiness, , “invisible” strategic control on customers
Barrier to entry
Context Setting
Value Proposition
Customer Selection
Value Capture
Scope of Activities
Strategic Control
Transparency and ethical conduct
Stringent privacy policy, user data protection
Customer Segments
Customer Relationships
Value Proposition
Key Activities
Channels
Cost Structure Revenue Streams
Individual Houses
CommercialBuildings
Self Learning
Self Programming
Remote Control
Auto Away
Motion Sensing
Energy Conservation
Ease of Access
R & D, product development
Building partners and channels
Product sales and support
Key Resources
Patents , trade secretes & trade marks
Talented manpower
Sale of thermostat units (more home automation products in future
Apps revenues for home automation systems in future
Key Partners
Upstream
Component makers, contract manufacturing units
Downstream
Utility Suppliers
Construction companies
HVAC companies
Electronics retailers
R & D, talent and manpower costs
COGS, Manufacturing costs
Distribution, Sales & Marketing costs
Online( websites like Amazon), Apple stores etc..
Partnering with Energy suppliers .
Summary
