Careers at Nest Labs
Nest Labs‘s mission is to keep people comfortable in their homes while helping them save energy.
Tony Fadell, a former Apple executive who co-created the iPod, was in the midst of designing a smart home for himself. Fadell believed that Internet-connected homes were the future, and that having features enabling his house to be responsive to the environment would accomplish his goal of eco-friendliness. Alas, when it was time to select a programmable thermostat for his HVAC system, all he found on the market were expensive options with limited capabilities. Consequently, he decided to build one on his own. His vision involved a device constructed like and controlled from a smartphone.
Fortunately, around the same time in 2009, he met up with his former direct report at Apple, Matt Rogers. Rogers was heavily accomplished, having led work on products such as the iPod Shuffle and Nano, and managed teams while still in his twenties. However, he had a strong desire to start his own firm, and had settled on a smart home company. Tony told him that there wasn’t much of a demand yet for this type of residence, and convinced him to join in his thermostat effort instead – noting that the devices sell 10 million units in the U.S. every year. Matt agreed, and the following spring he quit his job and began working with Tony to launch their new venture, Nest Labs.
The two initially had no resources and hired ten people who worked around-the-clock for free for six months. Their efforts paid off, as they were able to generate enough interest to raise funding in a Series A round in 2010, from a group of investors that included Kleiner Perkins, Lightspeed Venture Partners, Google Ventures, and Shasta. In October 2011, Nest Labs shipped its first thermostat, a stainless-steel-ringed disc with a circular display. The product achieved wide praise, with the HVAC industry impressed by its ability to learn from owners‘ behavior and be directed by a mobile app.
In 2012, Nest unveiled a more advanced version that prevented the usage of 225 million kWh of energy, saving U.S. households an estimated $29 million a year. By this point, the company’s device was available in major chains such as Apple, Best Buy, and Lowe’s, and it was rumored to be selling at least 50,000 thermostats per month. In 2013 it announced its second product, a smoke and carbon monoxide detector called Nest Protect. The next few years saw major milestones. In January 2014 Google acquired Nest for $3.2 billion, seeing significant potential. In 2015 Nest introduced Nest Cam, an automated camera that that could integrate with its products. Later that year, Google divested Nest so that both could become subsidiaries of Alphabet, Inc. Nest generated $340 million in sales in 2015.
Business model of Nest Labs
Nest Labs has a niche market business model, with a specialized customer segment. The company’s customer base is consumers who desire to control/monitor their home environment’s features through smart devices.
Nest Labs offers two primary value propositions: convenience and cost reduction.
The company’s products create convenience with devices that have the intelligence to make decisions about home environment factors, through sensors and other components. This means that homeowners do not have to worry about proactively monitoring features such as temperature or carbon monoxide level. Even so, consumers can control settings with mobile devices if they so desire. Nest’s products also provide useful alerts such as a notification of when batteries are running low.
The company facilitates cost reduction by having its thermostats lower energy levels as necessary. The devices program themselves through features such as Auto-Schedule and Auto-Away. This means that less overall energy is consumed, particularly when consumers are not present in the home. Consequently, bills for HVAC systems are reduced. Independent studies show that the product saves an average of 15% on cooling bills and 10-12% on heating bills.
Nest’s main channel is its website, through which it directly sells its products; over half of its sales originate online. The company also distributes its offerings through third-party eCommerce sites Amazon and Google Store, and brick-and-mortar retailers Best Buy, Home Depot, and Lowe’s.
Nest’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service while having limited interaction with employees. The company’s website offers a comprehensive “Nest Support” section with user guides, videos, answers to common questions, and a product compatibility checker. There is also a community component as it features a forum, and a personal assistance component as the firm offers phone and e-mail support.
Nest’s business model entails designing and developing products. It outsources the actual production of the items to third-party contract manufacturers.
Nest Labs operates the five following partnership programs:
- Energy Partners: The company partners with energy firms who want lower customer’s energy consumption. The firms offer consumers who sign up for certain plans perks such as a free Nest Thermostat, an instant rebate with no paperwork involved, and “Rush Hour Rewards” ($20-$60 refunds for low energy usage). Specific partners include Con Edison and Direct Energy.
- Insurance Partners: The company partners with insurance firms who want the information that the Nest Protect monitor can provide (as it connects to WiFi). The firms offer consumers a free monitor and “Safety Rewards” (a discount of up to 5% on premiums). One of the partners is TotalProtect Home Warranty.
- Works with Nest: The company works with manufacturers of third-party devices to help them communicate with Nest Labs products. The long list of partners includes Whirlpool Washers and Dryers, LG Appliances, ChargePoint, Augusta Smart Lock, Life360, and Mercedes-Benz.
- Nest Weave: The company works with developers (big and small) to help them connect their hardware and/or app solutions to Nest’s cloud service and its app.
- Nest Pro: The company invites anyone to learn how to sell and install its products. Partners receive training and tools, customer referrals, and live VIP support.
Nest Labs’s main resource is its research and development staff that design and develop its product lines. It also depends heavily on sales/marketing staff. Another significant resource is its intellectual property.
Nest Labs has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions. Its biggest cost driver is likely sales/marketing expenses, a fixed cost. Other major drivers are in the areas of cost of goods sold (a variable expense) and product development (a fixed expense).
Nest Labs has two revenue streams:
Product Prices: The company prices its products as follows:
- Nest Learning Thermostat - $249
- Nest Protect - $99
- Nest Cam - $199
Subscription Fees: The company charges fees for Nest Aware, a service that provides video footage that the Nest Cam records; pricing is as follows:
- 10-day video history – Starts at $10 per month or $100 per year
- 30-day video history – Starts at $30 per month or $300 per year
info: Anthony earned a Bachelor’s degree in Computer Engineering from the University of Michigan. He previously served as Senior VP of the iPod division of Apple and Chief Technology Officer at Phillips Electronics. He has authored over 100 patents.
info: Matt earned B.S. and M.S. degrees from Carnegie Mellon University. He previously oversaw software development for the iPod at Apple, and worked on the first iPhone. He leads all product development at Nest, from software to mechanical design.
info: Tom earned a B.S. in Economics and an MBA in Finance from the University of Pennsylvania’s Wharton School. He previously served as Director of Finance at Tesla Motors and held many financial management roles at Ford Motor Company.
info: Richard earned a J.D. from Columbia University School of Law and a B.S. in Electrical Engineering from Rice University. He previously served as Chief Intellectual Property Officer at Apple and as an Attorney for Sun Microsystems and Micron.
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