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A Tale of two Thermostats

April 16th, 2014 |  Published in Smart Energy  |  3 Comments

Once upon a time there was a start-up in California that thought that the world needed a smarter thermostat. Headed up by some ex-Apple executives, they raised over $80 million for their company and three years later sold it for $3.2 billion. That company is Nest Labs.

Four years before Nest was formed, two experienced technology start-up executives in Cambridge thought that the world would benefit from energy use reduction. Their solution was to design a smart in-home display which showed householders how much energy they were using. They’ve sold almost 1.5 million of these. From that experience they also decided that the world needed a smarter thermostat. Because they had limited funds to complete its development (largely because DECC had constantly delayed the UK smart metering market for their IHDs), they decided to use the crowdfunding site Kickstarter to raise enough to make the first prototypes. They didn’t raise $3.2 billion. They didn’t raise $80 million. They only just scraped together $32,000 before the Kickstarter campaign finished. To put it into perspective, that’s equivalent to the UK retail cost of just 80 of Nest’s smart thermostats. This company is GEO.

I don’t know whether GEO’s smart thermostat – called Cosy, is any better or worse than Nest’s. They both look attractive, competent products from companies that know what they’re doing. GEO’s appears better suited for a Northern European climate, where most energy expenditure goes on heating in winter. Nest’s is probably better for homes with air conditioning as well. But the one hundred thousand times difference between $32k and $3.2 billion that investors are prepared to put into two different smart thermostat companies suggests that certain sectors of the smart thermostat market may be at serious risk of overheating.

Immediately after Google’s eye-watering purchase of Nest, investors got very interested in any of their portfolio companies which might be able to emulate that sale. In Europe, where energy usage was moving into its annual spring-time decline as the weather warmed up, Tado and Yetu started getting some unseasonable media attention. Meanwhile, in a move that acknowledged the rising April temperature in the UK, British Gas began giving smart thermostats away for free to anyone who would switch to them for their energy supply.

British Gas’ Hive is an interesting smart thermostat, which is made by AlertMe. From what I hear, it’s selling more than the Nest smart thermostat.  It’s unusual in that it’s the only real example of a utility-led, large scale deployment. It is fairly obviously being used as a customer acquisition and retention tool in a deregulated market rather than a smart thermostat sale per se. The current Spring offensive follows British Gas’ strategy of trying to sell boiler upgrades in the summer when their boiler maintenance staff are underutilised (in the UK and Europe smart thermostats operate at 230V and generally need to be professionally installed, unlike the low-voltage systems in the UK, which allow customer installation of a Nest). Using the Hive as a loss-leader for energy supply shows that British Gas continues to lead innovation in the UK market.

Customers seem to like the Hive, although there is currently little hard evidence about how much money customers save. Some recent stats from OPower show that the bulk of energy savings in the US are in the summer, presumably from air-con changes. These don’t apply to most European homes. Which is probably why Hive and Cosy sell as much on comfort as cash savings.

Incidentally, British Gas could probably answer many of the questions about the efficacy of smart thermostats, smart meters and in-home displays.  They have a large enough cohort of users who have one or both of these, along with a control base of almost 10 million consumers to provide a real evidence base for these technologies.  It would be good if they could open this up to independent research. It could save customers billions of pounds from programs and sales messages which are founded on hope rather than evidence.

What’s interesting is that none of these offerings appear to do much with the data that the smart thermostats produce. Although Tado are trying to sell a service plan, Cosy, Hive and Nest don’t – you buy the hardware and hope that someone supports the servers at the back-end for ever, for free. That’s a very out-dated business model, even for an industry as old-fashioned as the utility sector and one which can have a nasty sting in the tail.

We’ve just seen why it might be more expensive to support these products than many had considered, because it’s not been a good month for Nest. First came the product shipment stop for their new CO monitor, which doesn’t appear to like you waving at it. That didn’t affect their smart thermostat, but the Heartbleed crack of the OpenSSL did, as OpenSSL an integral part of their firmware, used to send data from the thermostat to their servers. At the time of writing, their website claims it does not create a vulnerability for the thermostat itself, but they’re working on an update with a fix. It’s worth highlighting that remotely upgrading connected devices is not trivial, particularly where the updates involve security and key distribution. You only need to get it wrong once and you may end up needing to physically replace all of your products, as they stop connecting and in the worst case, stop working. For start-ups, that can be a terminal activity.

It’s an interesting warning shot for the whole of the home automation industry, which often fails to pay much more than lip service to security. It amazes me how many companies ignore security. I wrote an article on security for the Internet of Things eighteen months ago, recommending the use of TLS instead of SSL. I’ve yet to see anyone doing that. Nest should at least be applauded for incorporating SSL, assuming they use it. They’re one of the few to have implemented security at all, which shows how immature the industry still is. It also shows that these connected products, which consumers will expect to have a ten year life or more, carry lifetime support costs, which need to be covered in the business model. It’s not clear that they are in most cases.

I doubt that these concerns went through the minds of the 147 people funding GEO’s Cosy campaign, but it is disappointing that it wasn’t massively oversubscribed. You could just as validly argue that GEO’s big mistake was in only having three letters in their name. Companies with four – Nest, Hive, Tado and Yetu appear to do much better at raising money, rather than having to rely on friends and crowdsourcing sites. But the reality is more likely that investors are just demonstrating their short attention spans. Since the Nest purchase, Google has acquired other news-worthy companies like Deepmind, Green Throttle and Titan Aerospace. And in any tech investor’s brain, space trumps thermostats.

But struggling to get $32k funding for a smart thermostat with a proven pedigree is a damning indictment on the industry. It’s difficult to argue the case that consumers or utilities care about saving energy. Whatever Governments may try to say about engagement, most consumers still find energy deeply boring. GEO quietly made a good point when they registered www.comehometocosy.com as the domain for this product. Comfort is ultimately likely to sell more thermostats than energy savings.  Maybe we need to start realising that energy efficiency is not about saving energy, but making its use better fit our lifestyles.

3 comments ↓

#1 Paul on 04.23.14 at 7:29 am

Interesting how you see the same inertia to local investment attraction that we see in Oz and part of the reason we wave away so many ‘good ideas’ off shore.

#2 andrew on 10.27.15 at 11:09 am

Is this a review or a marketing advert. Please review the devices. As cosy has at least 2 servers bugs. 1 the stat over runs by up to 2 degrees and shows it sit down boiler but boiler is still running. Crowd funding just seems to be away for company’s to laugh UN tested devices early to market.

#3 Nick on 10.27.15 at 4:47 pm

I’m not sure whether this is spam or an honest comment. The article is about the vagaries of funding and is not a product review. I do agree with the caveat about crowdfunding, and have written about that elsewhere. Many of those products are just makers trying to do something at scale, which has little to do with a real business.

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About Creative Connectivity

Creative Connectivity is Nick Hunn's blog on aspects and applications of wireless connectivity. Having worked with wireless for over twenty years I've seen the best and worst of it and despair at how little of its potential is exploited.

I hope that's about to change, as the demands of healthcare, energy and transport apply pressure to use wireless more intelligently for consumer health devices, smart metering and telematics. These are my views on the subject - please let me know yours.

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