Matt Rogers, the excitable cofounder of Nest Labs, is the latest Silicon Valley entrepreneur hoping to tap into the Puget Sound area’s engineering talent pool. Nest, best known for its $250 connected thermostat that learns your temperature preferences, is opening an outpost in the Kirkland offices of Google, Nest’s sister company (Alphabet owns them both). To promote the move and publicize the company’s six-going-on-100 job openings, Rogers was in Google’s Fremont office in November to tout the company’s future.
“This is a new industry. There is a different way of building homes, and technology and services for your house, and we’re going to start it,” Rogers, leaning against the podium rather than standing behind it, told the engineer-heavy audience.
There are two ways to look at Nest’s industry. Categorize it as the Internet of things (IOT), the linking of physical devices through the Internet, and Nest is in a new industry. But its primary competitors aren’t other IOT companies; rather, they are companies that produce the same physical goods: thermostats, security systems, and smoke alarms. Through that lens, Nest isn’t pioneering a new industry, it’s just a new entrant into existing ones.
Nest’s Kirkland employees will focus primarily on its thermostat and camera products, as well as a new development Rogers wouldn’t shed light on. New products will be critical to the company Google (pre-Alphabet) paid $3.2 billion for in 2014, as the general populous isn’t necessarily clamoring for thermostat disruption. Most people probably would say their current devices work fine, and established players like Honeywell offer products similar to Nest’s at a lower cost. For Nest to really revamp the home, it may need to think more infrastructurally.
Success might hinge on whether Nest decides to focus on hardware or software. It’s best known for its hardware, but the inherent value comes in the data Nest’s products collect. Aggregate thermostat data, for example, can help utilities reduce energy use during the hottest times of the day, when utilities (but not customers) pay higher
One way to ponder Nest’s future is to compare it with a Kirkland neighbor. Inrix founder and CEO Bryan Mistele says the car largely has been unchanged throughout history, but automation and IOT innovations are about to fundamentally change the driving experience. Rogers took a similar tone in November, saying homes were still in the “stone age” and touting Nest’s ability to shake up a slow-moving industry.
“Look at windows,” Rogers said after his presentation. “There is some cool technology going on with windows right now. But windows are outside our domain.” So don’t expect to see Nest making new windows; rather, it could steal a page from Inrix’s playbook by partnering with manufacturers to incorporate their software into IOT designs. The thought is not to build a smart home or car, but to build the stuff that makes a home or car smart.
Focusing on software is probably a safer approach for Nest, and perhaps that goal is one reason it opened up shop in Kirkland. If it were to graduate beyond thermostats to more critical home hardware — appliances, furnaces, water heaters, windows — Nest would find itself trying to woo contractors and home builders, a group that isn’t exactly loaded with early adopters.
Rogers said Nest’s target projects are renovations, not new construction. That could be problematic for a hardware-focused Nest. For one, young, tech-savvy people are waiting longer than previous generations to buy homes, so the population most open to IOT products isn’t the population that is renovating properties en masse. Instead, those people are moving into apartments and condos being built in downtowns. Rogers said Nest devices are being installed in new skyscrapers in cities such as New York and Miami, but the company’s decision not to focus on these projects could distance it from the likely dwellings of the company’s likeliest customers.
Focusing on software can insulate Nest from this quandary, though. This approach in manifesting itself through the Work With Nest program, which fosters products from other companies that are compatible with Nest’s technology, thus ensuring a better-connected home. Seattle-area engineers are renowned for building infrastructural enterprise software. Get a hundred folks in Kirkland working on Nest’s core software, and the thermostat could become a showcase device for a home-IOT software powerhouse.
One challenge awaiting Nest, though, is the slow life cycle of home improvement products. Whether Nest builds windows or partners with another company who does, it’s often a yearslong process before homeowners decide to update their houses. Iit’s not hard, for example, to find a 1930s home on the Eastside with its original windows. Thus, even if Nest comes up with a groundbreaking, money-saving technology, customers likely still will tackle home renovation in the slow fashion they currently employ.
This post has been updated.