Last month, Nest Labs managed to haul in a further $80 million of VC funding for their Internet-connected smart thermostat. That’s good news for Nest, but makes one wonder what the investors are hoping to get back? There is no questioning its success in the US. Nest claim to be shipping about 40,000 thermostats every month. That equates to around 5% of the 10 million a year US market, which has historically been dominated by Emerson, Honeywell, Johnson and Lux. But how much of the other 95% can they win?
A basic programmable thermostat in the US costs under $20, not the $250 price tag of the Nest. As such, Nest appeals to those who like buying technology and form rather than function – it’s no surprise that it sells as an accessory in Apple Stores in the US. It has all of the glamour and pizzazz of Apple products, but with a worrying limitation – it is just hardware – there’s no service model. In other words, it’s a bit like an iPhone without an App Store.
There is no doubt that it’s a lot easier to use than most conventional thermostats, which seem to be exclusively designed by engineers who failed their user experience courses and want to get their own back on society. However, there are plenty of alternatives which are cheaper, just as easy to use and which work outside the US. And there have been for the last few decades. But these alternatives have historically failed to sell. That’s changed, but this new generation of connected wireless thermostats has an Achilles’ heel – they need someone to support the web service for their life, which may be ten to twenty years, and I can’t see where that’s been factored in. So is Nest going to feather the pockets of its VC backers, or make an omelette out of their investments?