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2014
Nest Labs – a Google company
Author: Boy Jacobs
142202
Email: [email protected]
Grenoble, 06 December 2014
Nest Thermostat: a unique interpretation of Internet of Things, Artificial Intelligence and Big
Data
A report submitted by:
Boy Jacobs / Student nr: 142202 / Email: [email protected]
Professor:
Mr. Mathieu Chuat
Grenoble Graduate School of Business
Msc. Innovation, Strategy and Entrepreneurship
Intake 7
Introduction to Innovation
Grenoble, France
Date 06/12/2014
Word count (chapter 1-7): 3299
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INTRODUCTION
The dissertation is written in order to gain deeper and different insights in the innovative Nest
Thermostat. This paper analyses the novelty of the innovation based on the class Introduction
to Innovation that was lectured by Professor Mathieu Chuat.
It brings you an analysis that shows the innovation from different perceptions; moreover, it
showcases the innovation its diffusion and technology performance considering the
performance S-curve. It provides a brief explanation about how technology push and demand
pull is operated and how the company went from a closed innovation to an open innovation
model. Consequently, you can look at how Nest Labs tries to gain a dominant design, together
with how they try to operate standardization by means of compatibility, network effect and
platform building.
Then, the late-mover advantages Nest Labs benefitted from in order to successfully compete
with Honeywell and the first-mover Ecobee; as well, the business models behind the
innovation that supports the customer value proposition, sustainable growth and foothold in
the market for the company.
Lastly, the Intellectual Property was explored for understanding how IP could support the
business in growing and competing within a market. It was seen that when it comes to
innovations, IP plays an important role for protecting your novelty and uniqueness for
infringements of competing parties.
Nest Thermostat was chosen because of the fact that it combined three modern trends (AI, IoT
and Big Data) in a conventional product that did not evolve for over 150 years. Many people
would think that it was easy what they did; however, nobody could copy the intelligent,
strategic and interesting way they used to protect their innovation.
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GLOSSARY AND ABBREVIATIONS
Adjective Abbreviation Description
Artificial Intelligence AI Artificial Intelligence will be considered as the computerization of ‘’human-level’’ intelligence, simplified by the way an electronic device can understand and learn from the intelligent humans (Nilsson, 2005). Consequently, nowadays there is an increasingly interaction between AI systems that interact with the human being human (Hopgood, 2005).
Internet of Things IoT A system of computing, Internet, sensing technologies, communication, and embedded appliances are joined together, in which the physical and digital world meets for interaction (Roman, Zhou, & Lopez, 2013).
Big Data - Data that is accessible through sensors, websites, pictures, videos, online transactions, smartphone signals etc. It is used to find answers to new types of data and content for making businesses more responsive and to answer questions that before were unanswerable (Dobre & Xhafe, 2014).
Application Programming
Interface
API Structure of uniform protocols, customs and equipment to build software appliances (Orenstein, 2000)
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TABLE OF CONTENTS
1 HISTORICAL BACKGROUND ON NEST THERMOSTAT .................................. 6
1.1 NEST LABS & GOOGLE INC. .................................................................................................................... 6
1.2 NEST THERMOSTAT ............................................................................................................................... 6
2 DEVELOPMENT ......................................................................................... 7
2.1 DISRUPTIVE AND INCREMENTAL VS. ARCHITECTURAL AND RADICAL ................................................................ 7
2.2 MODULAR, DISCONTINUOUS, SOCIAL & PRODUCT INNOVATION ................................................................... 7
2.3 TECHNOLOGY PERFORMANCE CURVE AND INNOVATION DIFFUSION ............................................................... 8
3 SOURCE OF INNOVATION ....................................................................... 10
3.1 TECHNOLOGY PUSH & DEMAND PULL ..................................................................................................... 10
3.2 SWITCH FROM CLOSED TO OPEN INNOVATION ......................................................................................... 10
4 STANDARD BATTLES AND DESIGN DOMINANCE ...................................... 11
5 TIMING OF ENTRY ................................................................................... 13
6 BUSINESS MODEL ON THE NEST THERMOSTAT ....................................... 14
6.1 CUSTOMER VALUE PROPOSITION ........................................................................................................... 14
6.2 EXTERNAL VALUE CHAIN ...................................................................................................................... 14
6.3 BUSINESS MODELS & BUSINESS MODEL INNOVATION............................................................................... 15 6.3.1 BUSINESS MODELS .................................................................................................................................. 15 6.3.2 BUSINESS MODEL INNOVATION & MANAGEMENT ......................................................................................... 17
7 INTELLECTUAL PROPERTY ....................................................................... 18
7.1 TYPES OF INTELLECTUAL PROPERTY ........................................................................................................ 18 7.1.1 PATENTS ............................................................................................................................................... 18 7.1.2 TRADEMARKS, COMMERCIAL NAMES & DOMAIN NAMES ................................................................................ 18 7.1.3 INDUSTRIAL DESIGN, COPYRIGHT & TRADE SECRET ........................................................................................ 19
7.2 IP TRANSACTIONS WITH OTHER STAKEHOLDERS ........................................................................................ 19
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8 REFERENCES ............................................................................................ 20
9 APPENDICES............................................................................................ 25
9.1 INFORMATION REGARDING OPEN & CLOSED INNOVATION MODELS ............................................................ 25
9.2 COMPETITION .................................................................................................................................... 26
9.3 NEST LABS TIMING OF ENTRY ................................................................................................................ 27
9.4 KEY INFORMATION OF THE BUSINESS MODEL CANVAS .............................................................................. 28 9.4.1 KEY PARTNERS ........................................................................................................................................ 28 9.4.2 KEY ACTIVITIES ....................................................................................................................................... 29 9.4.3 VALUE PROPOSITION ............................................................................................................................... 29 9.4.4 CUSTOMER RELATIONSHIPS ....................................................................................................................... 31 9.4.5 CUSTOMER SEGMENTS ............................................................................................................................. 31 9.4.6 KEY RESOURCES ...................................................................................................................................... 32 9.4.7 CHANNELS ............................................................................................................................................. 32 9.4.8 COST STRUCTURE .................................................................................................................................... 33 9.4.9 REVENUE STREAMS ................................................................................................................................. 33
9.5 EXTERNAL VALUE CHAIN ...................................................................................................................... 34
9.6 NEST LABS INTELLECTUAL PROPERTY ...................................................................................................... 36 9.6.1 PATENT IMAGES ...................................................................................................................................... 36 9.6.2 PATENTS USED FOR THE NEST THERMOSTAT ................................................................................................. 37 9.6.1 TRADEMARKS ......................................................................................................................................... 38
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LIST OF FIGURES
Figure 1 – Position of Nest Thermostat on the performance S-curve and diffusion curve ............ 9
Figure 2 – Learning curve influencing the unit cost (Chuat, 2014) .............................................. 11
Figure 3 – Multi-sided networks (Nest Labs, 2014) ..................................................................... 15
Figure 4 – Business Model Canvas .............................................................................................. 16
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1 HISTORICAL BACKGROUND ON NEST THERMOSTAT
1.1 Nest Labs & Google Inc.
Nest Labs was founded in May 2010, in a garage in Palo Alto, California by Nest Labs’ current
CEO Tony Fadell and Head of Engineering Matt Rogers. Within Apple, they started the idea of
creating a smart home, in which devices would be interconnected to each other (Andersen,
2013; Nest Labs, 2014).
In January 2014, Google Inc. bought Nest Labs for $3.2 billion, whereas they were the
originator of the self-learning thermostat and smoke detector. Why Google paid that much for
a newly start up, originated in 2010? One of the answers might be that Google endeavours to
be ahead of the next trend, in which Nest Labs plays an emerging role in energy efficiency and
Big Data (Bodell, 2014).
1.2 Nest Thermostat
The thermostat idea started back in the days that Tony Fadell and Matt Rogers were still both
working for Apple, in which Tony asked Matt to create him a thermostat for his energy
efficient house (Andersen, 2013). The former Apple engineer innovated the traditional
thermostat into an Internet connected appliance. Additionally, the thermostat is also able to
learn from its environment and collects data on the environment its energy consumption.
As a result, the thermostat supports the sustainable evolution in the energy sector. Nowadays,
an Austin power utility is paying Nest to lower customers their air conditioners for conserving
power on summer days, when electricity is at its peak price. This, for lowering the electricity
consumption just below peak, and thus avoiding the chance that high polluting stand-by plants
start producing energy (MIT Technology Review, 2014).
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2 DEVELOPMENT
2.1 Disruptive and incremental vs. architectural and radical
Basically, both founders were contaminated with the ‘Apple Effect’, referring to trendy and
stylish designs that creates high value for products, resulting in Nest adding more value to their
thermostat by its stylish appearance (Acello, 2013; Pullen, 2014). Besides, the traditional
thermostat was pioneered during the 19th century; yet, Nest reinvented the appliance for the
ease of the 21st century with IoT, Big Data and AI. For this reason, the Nest thermostat is a
disruptive technology that fosters a new value network and market of interconnectivity and
consequently disrupts the traditional market and value network by replacing former
technologies. Additionally, the thermostat introduces an incremental change or innovation to
the public, maintaining the fundamental purpose for households, but more advanced with
sensors and intelligent algorithm for understanding and interacting with people. On the
contrary, Google might have bought Nest for architectural and radical innovation purposes,
since it contains existing Google technology implemented in new markets; such as, gathering
more data on customers and establishing foothold in a new industry (energy sector) with
existing or new technologies from Google (MIT Technology Review, 2014; Rothaermel, 2012).
2.2 Modular, Discontinuous, Social & Product Innovation
Nest innovated the traditional thermostat on purpose, since it has not evolved over the past
150 years. The product itself maintained the traditional functionalities, but incorporated
enhanced technicalities applied as modular or component changes improving the customer
experience and conventional functionality (Thomke, as cited in Pil & Cohen, 2006). Moreover,
the integrated features are part modern trends; namely, gathering Big Data on end users, AI
for understanding and interacting with people and IoT for connectivity and remote purposes,
that impacts product value and customer experience.
Additionally, it presented a discontinuous innovation to the market because Nest is introducing
modern knowledge into new applications, generating external knowledge to produce new
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appliances and combines internal and external technologies within the company, which is
breakthrough (Picaud, Johnsen, & Calve, 2013). As stated by Birkinshaw, Bessant, & Delbridge
(2007), if discontinuous innovation becomes successful, technological discontinuities have a
range of opportunities to lessen the competitive situation of present rivals. In fact, Honeywell
organized lawsuits against Nest Labs for patent infringement, which might be a reason for
feeling competitiveness in the market of home connectivity. Nevertheless, the thermostat can
be perceived as social and product innovation since it involves a product that is considerably
improved with modern specifications and functionalities supporting sustainable energy
consumption by the society as well as the development of social relationships among human
beings through interconnected networks (OECD & Eurostat, 2005).
2.3 Technology Performance curve and innovation diffusion
The product is at the beginning of the diffusion cycle, since the thermostat was introduced in
2011, which means that the product has been bought mainly by early adapters so far. The
diffusion will probably be influenced by people’s behaviour, human reactions on the
innovation and market awareness regarding Nest. Customer reviews are commonly spread via
Social Media (i.e. Youtube or forums), which is crucial to spread the positivity. Also, the pricing
might influence, since traditional thermostats sell at lower prices than the Nest product,
causing uncertainty for consumers to recognize value for money. In addition, the distribution
channels influence this as well, because for decades mainly electricians buy thermostats for
installation. Nest is aware that the product is not compatible with all the heating and cooling
devices, which can negatively impact the diffusion. Similarly, compatibility issues and the
software issues harm the position considering the technology performance curve, while the
thermostat is almost equally performing regarding the traditional ones and thus going to
disrupt the current market within one or two years (tipping point). In contrary, the competition
is low and customers start looking for alternatives to standard thermostats since these have
not considerably changed since its existence. A possible way to stimulate diffusion is to
enhance exclusivity by limiting the supply that stimulates product yearning; likewise, Tony
Fadell will make use of market psychology and consumer behaviour.
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Pe
rfo
rman
ce
Time
Figure 1 – Position of Nest Thermostat on the performance S-curve and diffusion curve
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3 SOURCE OF INNOVATION
3.1 Technology push & Demand pull
The innovation is considered technology push and demand pull. Customers are willing to look
for alternatives rather than buying the traditional ones as well as the customers were
searching customs to decrease their ever-increasing energy bills. Nonetheless, the energy
industry was searching for more sustainable improvement as well. The technology is mainly
pushed to the customer by means of implementing Artificial Intelligence (AI), Internet of
Things (IoT) and Big Data in one device. Especially AI will be perceived as technology push,
since customers are not in the need of products containing AI so far. In the context of the Nest
Thermostat, the lead users are identified as the early adapters that provide positive feedback
via Social Media. However, not only positive feedback is posted, as seen by Constine (2014),
since Nest had malfunctions in their product its software that caused a wave of rumours on the
web.
3.2 Switch from Closed to Open Innovation
At the beginning, Nest Labs pursued closed innovation to generate, develop, manufacture,
market, and distribute its innovation with hiring skilled, experienced engineers and designers
to cooperate on the thermostat project ‘’in secret’’ directed by two former Apple employees
(Chesbrough, as cited in Huizingh, 2011; Andersen, 2013; Nest Labs, 2014). According to Weiss
(2014) and Nest Labs (2014), open innovation is stimulated by the company through its Nest
Developer Program to boost its API and to work on partnerships driving additional innovation
for customers. Specifically, Nest Labs engaged in inbound and outbound open innovation, since
the firm makes use of highly experienced personnel that bring external knowledge to them.
Also, Nest Labs creates partnerships perceived as an innovation network, with for example
Mercedes, Whirlpool or Logitech , ‘this in order to use external exploitation of internal
knowledge in different industries’, but with the same mindset for interconnectivity (Huizingh,
2011).
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Figure 1 & figure 2 in paragraph 9.1 of the appendix presents a closed innovation model and
an open innovation model.
4 STANDARD BATTLES AND DESIGN DOMINANCE
First of all, considering the 2% annually growth in the energy sector worldwide, provides more
understanding why companies look for sustainability or smarter use of energy resources. This
product is one of the first devices in the wave of home connectivity supporting connectivity
and sustainability. The learning effect is in its early stages, since the product was
commercialised in 2011, and the firm is still working on performance development through
software updates and trying to make it compatible with heating and air conditioning devices.
Moreover, the partnerships stimulates the learning effect through knowledge sharing by
mature multinationals; as a result, costs of manufacturing this thermostat could decrease over
time. An additional reason for these partnerships is that the IoT trend is rapidly evolving, thus
the network effect can play a significant role in the maturity of Nest Labs and with capturing
more people in the network, to increase the probability of others perceiving to get value and
to join this network (Srinivasan, Lilien, & Rangaswamy, 2006). With these partners, Nest can
both evolve the home-connectivity market as well as connect to other markets, such as the
automotive industry (Lohr, 2014).
Figure 2 – Learning curve influencing the unit cost (Chuat, 2014)
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Nest Labs also manufactures a smoke and monoxide alarm that is connected to the
thermostat, and it acquired Dropcam for connected home security. Moreover, all the partners
are complementors to the Nest Thermostat, because it is established to create
interconnectivity between the partners’ products and the Nest Labs’ products. According to
Nest Labs (2014), 14 million thermostats are sold in the US annually and the device is installed
in more than 130 countries worldwide, resulting that their product is rapidly accepted globally
and is getting increasingly famous in the US, leading to a broad installed base. Nevertheless,
the downside of the thermostat is the low switching cost due to low-compatibility with
complementors (high compatibility network, people that have other connectivity products
tend to choose you); however, there is only Ecobee and Honeywell that produces a product
with similar technological functionalities.
Table 1 in paragraph 9.2 of the appendix presents the competitive products regarding the Nest
Thermostat.
Currently, the product includes both de jure standards and de facto standards in their product
design (Srinivasan, Lilien, & Rangaswamy, 2006). In fact, the de jure standards in the product
are common protocols to connect your device to the WiFi and common protocols for Internet
Security. In contrary, the de facto standards comprises of, Dubbed Thread, ‘’a low-power,
mesh network protocol that supports IPv6 developed by a partnership of seven companies’’
(Higginbotham, 2014). Also, own compatibility standards that link Nest devices among or
within the partnerships they developed, assumable that they haven’t generated compatibility
with the mass market yet. Probably, this is what the founders have learned at the time they
were working for Apple (network lock in to increase switching costs); moreover, this also
accounts for the added value in the product, creating the trendy design and incorporation of
high tech functionalities in a conventional product. For this reason, the firm plays an important
factor in the development of the dominant design; nonetheless, Nest Labs manoeuvres
organized in the environment for strategic partnerships.
Overall, Nest Labs is continuously engaging in strategic decision-making for gaining foothold in
the market(s) intelligently; furthermore, there might be a considerable chance for a
technological lockout and the Nest Thermostat aims to gain the dominant design (Schilling,
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1998). This could change, in case the low-compatibility of the thermostat is going to be a
crucial consideration when the market evolves exponentially. For this reason, the company
should regularly consider its mission and strategic partnerships and should benchmark with
the HomeKit alliance of Apple, since the battle for home connectivity will be among the Nest
alliance and Apple HomeKit.
5 TIMING OF ENTRY
Regarding Ecobee and Honeywell which are the most considerable competitors compared to
the intelligent thermostat of Nest, Ecobee produced the first WiFi-enabled thermostat in 2009,
and therefore can be seen as the first-mover into the market. Ecobee has an open API, to
stimulate developers for open innovation on ideas and solutions; however, a current downside
of this firm is not being engaged in strategic alliances or partnerships, which will not bring
them the network effect in the home connectivity (Ecobee, 2014).
In this market, the Nest Thermostat is the second-mover with the introduction in 2011 and the
Honeywell Lyric as the third-mover with the introduction in 2013. In this instance, Nest Labs
united Big Data, IoT and AI, by imitating an existing product and adding a novel technological
feature into it. Moreover, Nest Labs took also advantage over Ecobee with capturing revenue
in an increased pace, announced to be $300 million when Google Inc. bought the company
(Winkler, 2014; Yarow, 2014). On top of this, Nest Labs took advantage with their
complementary assets in case of marketing, by getting acquired by Google Inc., it gained a
boost in publicity. Partnerships foster strategic benefits which are not utilized by the first-
mover; consequently, in this fast-moving home-connectivity arena it can be assumed that
Ecobee will fall behind with its competitiveness, pace of influence and innovation (Johnson,
Scholes, & Whittington, 2008).
Table 2 in paragraph 9.3 of the appendix presents the entry together with the first and late
mover aspects of the competitive products.
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6 BUSINESS MODEL ON THE NEST THERMOSTAT
6.1 Customer Value Proposition
Motivated by Osterwalder and Pigneur (2010):
A stylish, WiFi enabled self-learning thermostat that is high performing and enhances
cost savings on energy due to eco-friendly and sustainable programming; moreover, the
updates are automatically received via WiFi, it provides easy access to information regarding
energy consumption and tries to make life more connected and pleasurable.
Table 5 paragraph 9.4 of the appendix presents a customer value proposition within the current
business model of Nest.
6.2 External Value Chain
Figure 3 in paragraph 9.4 shows that the partners (complementors) are generally selling
through the same distribution channels as Nest Labs does; consequently, the bargaining power
of Nest due to the alliance and partnerships increases in order to influence the channels its
margins they make on the products the companies produce and market. Nest Labs sells mainly
through eight different distribution channels, mentioned in figure 3 (Nest Labs, 2014).
Besides, figure 4 in paragraph 9.4 shows the external value chain of the Big Data Nest Labs is
producing. In this, the end customers and businesses supply Nest Labs and the alliance with
data. The company is distributing this to Google Inc. and energy companies for economical
reasons and the alliance and partnerships use it for the purpose to understand the customer
better for customization, personalization and marketing reasons.
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6.3 Business Models & Business Model Innovation
6.3.1 Business Models
Nest Labs utilizes five business models:
Develop Unique Partnerships – The company created partnerships in order to increase
compatibility, so the partnerships mention the logo ‘’Works with NEST’’ in case they
are compatible with the Nest products. Moreover, the alliance in the Nest Developer
Program should stimulate the creation of a unique radio frequency used by the
partnership network;
Disintermediation – The products are sold through the Apple Store and Play Store,
which are typical stores either for own branded products or online applications;
Leverage new influencers – Nest Labs is partnering with companies that have the
same mission and mindset as them and that are currently influencing the home
connectivity market; as a result, they create a network that drives additional
innovations for customers (Weiss, 2014);
Servitzation of products – The product is sold at a price of $249 and includes
maintenance and updates through WiFi; therefore, no extra charges for servicing;
Multi-sided networks – Nest Labs is creating an economic platform through its label
‘’Works with NEST’’ and its Nest Developer Program to extend compatibility and
enhance the network effect. Furthermore, through this it generates a platform of
companies that can economically and digitally benefit from each other (Chen, 2009).
Figure 3 – Multi-sided networks (Nest Labs, 2014)
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Figure 4 – Business Model Canvas
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6.3.2 Business Model Innovation & Management
Nest Labs creates and emphasizes products with as main goal to generate home connectivity
through a network that is connected to the Internet and going beyond to connect products
from partners as described by IoT and a platform business model (Roman, Zhou, & Lopez,
2013; Choudary, 2013). Additionally, the company combines selling tangible electronic
products with a digital interest, namely gaining access to more customer data for deeper
understanding of customers and intense data. Moreover, the thermostat provides value to the
customer in terms of cost savings and self-learning comfort, as well as easier access to control
home equipment.
Nest Labs used Business Model Innovation due to the fact developing the company from a dual
business model to a portfolio of business models, which was actually a positive consequence of
setting up the alliance network and partnerships. Management of it goes through the platform
of compatibility and distribution of Big Data to one another for economical and knowledge
purposes.
Table 3 till table 11 in paragraph 9.4 of the appendix presents each part of the business model
canvas.
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7 INTELLECTUAL PROPERTY
7.1 Types of Intellectual Property
7.1.1 Patents
According to Nest Labs its Intellectual Property and Other Notices (2014), they use 116 patents
in the Nest Thermostat, the Nest Protect Smoke and Carbon Monoxide Alarm, the Nest Mobile
Client and the Nest Web App. In more detail, Nest Labs was granted 90 patents regarding
thermostats (Cardona, 2014).
In figure 5 and figure 6 in paragraph 9.6 you can find images that are collected from patents
used in the Nest Thermostat.
7.1.2 Trademarks, Commercial names & Domain names
Table 13 in paragraph 9.6 shows the registered Nest trademarks in Canada, United States,
Singapore, Australia, Israel and Philippines; for this reason, they are allowed to use the
registered trademark logo ® after its name. According to Nest Labs its Intellectual Property and
Other Notices (2014), 30 trademarks and commercial names have been licensed by them. The
WIPO Madrid database (2014) also showed that Nest obtained a trademark for the European
Community and refusals for protection in Australia, Korea, Japan, Russia and China, because
the trademarks were similar to already registered trademarks in these countries.
Besides this, Nest Labs acquired domain names regarding their (future) products and the
company its name (checked with www.checkdomain.com). In example: nestprotect.com,
nest.com and nestthread.com are owned by Nest Labs. However, it was seen with
fr.godaddy.com that some similar web domains are owned by third parties.
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7.1.3 Industrial design, Copyright & Trade Secret
According to Epperson and Kassaraba (2014), Nest Labs possesses 21 US Design patents;
moreover, it won several design awards such as the Red Dot and was introduced on
technology and economic forums according to Nest Labs (2013). Besides, it is assumed that
Nest Labs uses copyright to protect their databases, mobile application and design and artistic
work as part of the ‘Terms of Service’ (Nest Labs, 2014).
Assumable is that Nest Labs states confidentiality in the ‘End User License Agreement’ (Nest
Labs, 2014), there will be a Trade Secret within Nest Labs, because their product has a unique
mixture of functionalities in one device, whereas competitors have to add additional sensors or
additional devices to create the same functionality, as seen with the Ecobee and Honeywell
Lyric.
7.2 IP Transactions with other stakeholders
Nest Labs agreed with Intellectual Ventures to buy and license Intellectual Property
(Intellectual Ventures, 2013). Nest Labs itself is active in IP as well, and bought Dropcam for
$555 million in 2014; moreover, Google might have bought Nest Labs for deeper settlement in
households and acquired the IP of the company. In addition, most of these partnerships for
open innovation and involved in the API can be seen as complementors with the purpose to
standardize a radio frequency for their connectivity among each other its products; as a result,
it is assumable that IP was shared or licensed (Higginbotham, 2014; Choudary, 2013). Also, any
submission to Nest Labs, without them asking for it, becomes property of them (Nest Labs,
2014).
Lastly, next to IP transactions, there are also lawsuits regarding patent infringements, which
are between Honeywell and Nest Labs, for slowing down the company in terms of growth and
distribution (Rao, 2012; Your Story, 2012).
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9 APPENDICES
9.1 Information regarding Open & Closed Innovation Models
Figure 1 – Closed Innovation Model (Chesbrough, 2003)
Figure 2 – Open Innovation Model (Chesbrough, 2002)
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9.2 Competition
Nest Lux TX9000TS Honeywell Focus Pro Honeywell Lyric Ecobee Warmup 3IE
Generated savings
$200 - $300 per year Near 33% on energy bill
Near 33% on energy bill Near 30% on energy bill
- 23% on energy - Ongoing efficiency till maximum level
Near 10% on energy bill
Features - Connectivity to other devices through internet - Log in with the Smartphone - Updating automatically
- Energy usage monitor - Vacation mode - Possible temperature overrule - Week program
- Weekday and weekend programming for your needs and wants
- Automatic temperature regulation (geofencing) - Humidity control - Anywhere distance control
- Connected to other products through web browser - Humidity control
- Interactive touch screen - Energy graphs on usage related to cost
Ease of use - Technology similar to the iPod - Self-learning
- One of the easiest and programmable thermostat - Touch screen
- Easy to program - Simplified touch screen - User-friendly icons
- No need for programming - Similar to PC interface
- Actual colour screen - Automatic adjustment
Service reliability - Connected to be serviced - Automatic updates
- Professional needs to service it
- Professional needs to service it
- Service through WiFi
- Service through web browser or Android app
- Serviced in home by a professional
Internet communication
- Internet standards - Security by HTTP, SSL, Dubbed Thread
Not integrated Not integrated - Apple HomeKit - Internet standards
WiFi Security Encryption
Not integrated
Price at Amazon $249 $80 $59 $230 $265 $150
Table 1 – Competitive products
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9.3 Nest Labs Timing of Entry
Nest Thermostat Honeywell Lyric Ecobee
Time of Entry 2011 2013 2009
Free-riding - Imitate Ecobee - Included Artificial Intelligence
- Imitation of Ecobee & Nest - Included Geofencing
First-mover
Learning - Learned from Ecobee
- Learned from Ecobee and Nest
- First-mover - Better experience curve
Capacity for profit capture
- 300 Million revenue at the moment of acquisition by Google Inc. - Increases the switching costs through alliances - Increases added value through alliance
- Increases switching costs through alliance - Increases added value through alliance
-
Complementary assets
- Marketing boost due to Google Inc. - Benefits from the partnerships in different industries
- Tech-giant itself - Tries to benefit from partnership with HomeKit - Traditional and experienced home equipment manufacturer
-
Fast-moving arenas Home-connectivity with partnerships/alliance
Home-connectivity with partnerships/alliance
Home-connectivity without partnerships or alliances
Price at Amazon $249 $230 $265
Table 2 – First and late-movers
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9.4 Key information of the Business Model Canvas
9.4.1 Key Partners
Company Industry or experience
Google Inc. Experience and knowledge in Big Data, Artificial Intelligence, Internet of Things
Mercedes-Benz Car manufacturer
Dropcam Home security
LIFX Smart Lightning
JAWBONE Smart wearable’s
Whirlpool Home equipment
Life360 App for connecting with family
Wally
Sensor and service company on home safety, security and loss prevention
IVEE Company that enables talking to give commands to products
Rachio
Company to let people interact with their yard
Big Ass Fans Producing Smart Fans
Chamberlain Produces garage doors
IFTTT
Web-based service which allows other services to be programmed by means of simple conditional statements
Logitech PC and Tablet accessories
Samsung
Electronics manufacturer. Partner for the new radio standard
ARM Holdings Semiconductor and software design company
Table 3 – Key partners (Osterwalder & Pigneur, 2010)
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9.4.2 Key Activities
Activity Description
Production of home connectivity devices
Design, engineer, and market the product
Problem-solving Within the alliance, they focus on innovating home equipment together
Platform/network
- Developing an alliance for home-connectivity and alliance compatibility - Increasing added value of individual products and increasing switching cost
Table 4 – Key activities (Osterwalder & Pigneur, 2010)
9.4.3 Value Proposition
Aspect of the Value Proposition Description
Newness Nest Thermostat offers a combination of new functionalities that are WiFi enabled. For this reason, the thermostat became unique, easy to use and self-learning;
Performance A high performing product, that meets the needs of the customer in terms of energy saving, compatibility, self-learning and low or simpler maintenance. As a result, the performance can be improved by providing updates via WiFi (Nest Labs, 2014);
Customization It allows the customer to customize the interface via the settings menu they provide (Nest Labs, 2014);
‘’Getting the job done’’ Energy companies pay a fee for the information the product collects, this in order to decrease pollution (B2B); moreover, customers have free of charge service (product automatically updates and can be serviced on a distance) and it saves on the energy bill, which makes customer’s life comfortable and easier (B2C);
Design Apple Effect in the design of the stylish,
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trendy and modern product, which is therefore part of the value it creates;
Brand/Status Rapidly known brand in the home connectivity market; for this reason, Google Inc. maintained the brand as it already gained status and image;
Pricing
Traditionally, thermostats cost around €50, but this product is with its particular high price part of the exclusive image Nest Labs is creating;
Cost reduction
Free 24/7 service provided via WiFi and enhancing partnerships and an alliance to increase compatibility within this network;
Risk reduction
Free updates as part of the maintenance and increase in performance; moreover, the compatibility alliance for the opportunity to connect other devices;
Accessibility Customers (B2B & B2C) can access information regarding the energy consumption and they know when they consume energy eco-friendly and sustainable;
Convenience/Usability
Easy to use device, which adapts to the customer’s way of living.
Table 5 – Value proposition (Osterwalder & Pigneur, 2010)
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9.4.4 Customer Relationships
Table 6 – Customer relationships (Osterwalder & Pigneur, 2010)
9.4.5 Customer Segments
Table 7 – Customer Segments (Osterwalder & Pigneur, 2010)
Aspect Description
Personal assistance
Only available when you buy it at a wholesaler or via a Nest Pro electrician
Self-service
Applicable via online sales
Automated services
Updates and servicing via WiFi
Communities
Nest has an online community in their website to stimulate people to talk about home connectivity
Co-creation
This in terms of that developers have access to the API used by Nest via the Nest Developer Program, so they can come up with modifications, solutions and ideas
Segment Description
Mass market Home-connectivity industry
Diversified Segmentation & Multi-sided platforms (B2B & B2C)
Connectivity Segment 1. Connectivity for Households Segment 2. Connectivity for Businesses Big Data Segment 3. Energy companies (Big Data is interesting for them, see Austin example) Segment 4. Companies that are interested in Big Data on customers to analyse customer behaviour and daily lifes of customers
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9.4.6 Key Resources
Resource Description
Physical
Offices, vehicles, computers, systems, distribution network (professional electricians, wholesalers, retailers)
Intellectual
Brand name, proprietary knowledge, patents and copyrights, partnerships, customer databases
Human
Experienced, skilled and knowledgeable workforce. Highly trained engineers, business people and scientists
Financial Google Inc. company
Table 8 – Key resources (Osterwalder & Pigneur, 2010)
9.4.7 Channels
Channel Description
Direct: Web sales Sales through their own website
Indirect: Partner stores
- Google Play - Electricians recognized by Nest as ''Nest Pro'' offered through Nest's own website
Indirect: Offline/Online wholesaler or retailer
- Lowe's - Home Depot - Amazon - Apple Store - Best Buy
Table 9 – Distribution channels (Osterwalder & Pigneur, 2010)
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9.4.8 Cost Structure
Aspect Description
Value-driven
Nest Labs is focussed on value adding and value creation. Especially now, since the acquisition by Google
Fixed costs
Salaries, outsourcing fees, office rentals, leasing fees
Variable costs
Variable cost of manufacturing by a Chinese company
Economies of scale
Cost advantage due to Google and the partnerships / alliance
Economies of scope Cost advantage through Google and their partnerships / alliance
Table 10 – Cost structure (Osterwalder & Pigneur, 2010)
9.4.9 Revenue Streams
Revenue stream Description
Asset sale Selling home connectivity products
Usage fee
Selling Big Data via Google Inc. (i.e. report based), to Energy companies and Partnerships & Alliances
Subscription fees
Access to Big Data obtained by Nest Labs' products via Google Inc.
Lending/Renting/Leasing
Partnerships & alliance to benefit from each other expertise and network
Licensing
Licensing revenues via Intellectual Ventures for patents (Intellectual Ventures, 2013)
Table 11 – Revenue streams (Osterwalder & Pigneur, 2010)
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9.5 External Value Chain
Customer value chains
Channel value chains
Organization's value chain
Supplier value chains
Chinese manufacturer
Nest Labs
Amazon
End-customer (Businesses or
customers)
Google Play
Nest webshop: B2B & B2C
''Nest Pro'' B2B & B2C: installation for the customer
Best Buy
Apple Store
Lowe's
Home Depot
Chinese manufacturer
Chinese manufacturer
Figure 3 – External Value Chain on the product including complimentors (Porter, as cited in Chuat, 2014)
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Customer value chains
Channel value chains
Organization value chains
Supplier value chains
Nest Labs' Customers
(B2B & B2C)
Nest Labs
Google Inc. Marketing departments of
companies
Analytical companies on Consumer Behaviour
Energy companies
Electricity consumers (B2B & B2C)
Partnerships & Alliances
Personalize & Customize their offer to B2B and B2C
Figure 4 – External Value Chain on Big Data including complimentors (Porter, as cited in Chuat, 2014)
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9.6 Nest Labs Intellectual Property
9.6.1 Patent Images
Figure 5 – Image in patent US8620841 (B1)
Figure 6 – Image in patent US8606374 (B2)
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9.6.2 Patents used for the Nest Thermostat
Publication number Publication date
US2014346362 (A1) 2014-11-27
US2014346240 (A1) 2014-11-27
US2014346239 (A1) 2014-11-27
CA2868844 (A1) 2013-10-03
WO2014176223 (A1) 2014-10-30
US2014263679 (A1) 2014-09-18
US8868219 (B2); US2014222220 (A1) 2014-08-07
US2014207721 (A1) 2014-07-24
US2014175181 (A1) 2014-06-26
CN103890676 (A) 2014-06-25
US2014058567 (A1) 2014-02-27
US2014058806 (A1) 2014-02-27
CA147669 (S) 2013-12-13
CA147668 (S) 2013-12-13
CA147667 (S) 2013-12-13
CA147666 (S) 2013-12-13
CA147665 (S) 2013-12-13
CA147664 (S) 2013-12-13
CA147663 (S) 2013-12-13
CA147662 (S) 2013-12-13
CA147661 (S) 2013-12-13
CA147660 (S) 2013-12-13
CA147659 (S) 2013-12-13
CA147657 (S) 2013-12-13
CN103443729 (A) 2013-12-11
US2013274928 (A1) 2013-10-17
US2013218351 (A1) 2013-08-22
CN103262041 (A) 2013-08-21
US2013211783 (A1) 2013-08-15
CN103229116 (A) 2013-07-31
TW201245653 (A) 2012-11-16
US2013090767 (A1) 2013-04-11
TW201235807 (A) 2012-09-01
US8523083 (B2); US2012273580 (A1) 2012-11-01
US2012267089 (A1); US8627127 (B2) 2012-10-25
WO2012092625 (A3); WO2012092625 (A2) 2012-07-05
WO2012068591 (A2); WO2012068591 (A3) 2012-05-24
US2012131504 (A1) 2012-05-24
Table 12 – Patents used for the Nest Thermostat (EPO Patent search)
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9.6.1 Trademarks
Source Reg. Date Company Trademark ID Score Status Brand Nice Class Origin
PHTM 2013-12-20 Google Inc. Attn. Trademark Dept PHTM.1201816 8.738.828 PEND NEST 9;35;38;42 PH
AUTM 2012-09-19 Google Inc. AUTM.1535062 8.738.828 ACT NEST 42 AU
AUTM 2012-02-14 Google Inc. AUTM.1512643 8.738.828 ACT NEST 9;35;38 AU
AUTM 2011-11-01 Google Inc. Attn. Trademark Dept AUTM.1484827 8.738.828 ACT NEST 9;35;42 AU
ILTM Google Inc. ILTM.265016 8.738.828 PEND NEST 9;35;38;42 IL
AUTM Google Inc. AUTM.1639479 8.738.828 PEND NEST 9;38;42 AU
CATM 2014-08-15 Google Inc. CATM.1594812-00 6.307.209 ACT NEST 42 CA
USTM 2014-07-22 GOOGLE INC.;Nest Labs, Inc. USTM.86143642 6.307.209 ACT NEST 42 US
USTM 2014-07-22 GOOGLE INC;Nest Labs, Inc. USTM.86143639 6.307.209 ACT NEST 9 US
MAD 2013-12-20 Google Inc.;Attn. Trademark Dept MAD_ACT.1201816 6.307.209 ACT NEST 9;35;38;42 US
SGTM 2013-12-20 Google Inc. Attn. Trademark Dept SGTM.T1412545Z 6.307.209 PEND nest 9;35;38;42 SG
CATM 2013-08-21 Nest Labs, Inc.;Google Inc. CATM.1564094-00 6.307.209 ACT NEST 9;38 CA
CATM 2013-08-20 Nest Labs, Inc.;Google Inc. CATM.1550030-00 6.307.209 ACT NEST 9;38;42 CA
USTM 2013-06-18 GOOGLE INC.;Nest Labs, Inc. USTM.85576267 6.307.209 ACT NEST 42 US
USTM 2013-03-26 GOOGLE INC.;Nest Labs, Inc. USTM.85462396 6.307.209 ACT NEST 9;35;38 US
USTM 2013-01-22 GOOGLE INC.;Nest Labs, Inc. USTM.85317520 6.307.209 ACT NEST 35;38 US
USTM 2013-01-15 GOOGLE INC.;Nest Labs, Inc. USTM.85454994 6.307.209 ACT NEST 42 US
MAD 2012-09-19 Google Inc.;Attn. Trademark Dept MAD_ACT.1143728 6.307.209 ACT nest 42 US
MAD 2012-04-09 Google Inc.;Attn. Trademark Dept MAD_ACT.1128774 6.307.209 ACT NEST 42 US
USTM 2012-02-28 GOOGLE INC.;Nest Labs, Inc. USTM.85317518 6.307.209 ACT NEST 9 US
MAD 2012-02-14 Google Inc.;Attn. Trademark Dept MAD_ACT.1125632 6.307.209 ACT nest 9;35;38 US
MAD 2011-11-01 Google Inc.;Attn. Trademark Dept MAD_ACT.1111166 6.307.209 ACT NEST 9;35;42 US
Table 13 – Trademarks owned by Nest Labs from the WIPO database
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