Business Plan and Analysis of Nest (Google's Smart Home Company)

Examination Thesis, 2016

32 Pages, Grade: 1,0



Nest Labs, Inc
Nest Labs’s company culture and atmosphere


Outside forces

Industry analysis
Porter’s Five Forces / Industry Profitability
Bargaining power of buyers
Nature and intensity of the rivalry amongst competitors
Threat of new entrants
Threat of substitute products or services
The bargaining power of suppliers
Industry Structure Type
Industry Life Cycle
Value Chain of Industry Structure

Competitive analysis

Market Analysis
Smart home market
Kinds of Markets

Marketing Analysis
The connected home market
Hero Devices and Service Providers leading the way
Awareness Channels
Customer Segmentation
Leading attitudes and possible barriers
Brand awareness and service provider
General market interest

Strategic recommendations

Reference List I

Appendix VI
Visualizations for PEST-Analysis VI
Nest Products VII
Nest Learning Thermostat (Release 1st generation 25th October 2011) VII
Nest Protect (Release 1st generation 19th November 2013) VII
Nest Cam (Dropcam adaptions) VIII

Awareness & Interest in Connected Devices VIII

Be SMART home program IX

Non-Users Frequently Exhibit Behaviors That Indicate Latent Demand for Connected Security and Utility

Solutions IX

Brand Awareness X

The possible influence of an acquisition X

Definition Smart Home Device X

Definition Ecosystem Platform X

Specialized target group X


It is important to state that most chapters already provide some strategic recommendations respectively directions.

Nest Labs, Inc.

Nest Labs is a home automation company and started off with programmable thermostats and smoke / carbon detectors. Its mission is to create a home that takes care of the people inside it and the world around it (Nest, 2016). The thermostats learn what temperatures the user prefers and adjusts accordingly. However, it also can be controlled from anywhere over Wi-Fi. Further a variety of information such as temperature, schedule or energy consumption can be cha

nged respectively viewed on the user’s account. The smoke and carbon detector informs the user of possible risks, gives information about the smoke or carbon amount, when the alarm goes off or the emergency batteries run low (Telegraph, 2014).

It expended its product line with indoor- and outdoor cams. An application is offered to control the variety of products and partner products. Nest Labs partnered up among others with JENN-AIR (oven technology), Whirlpool (technology regarding refrigerators, dishwashers, washers and dryers), Rheem (heating systems), Hayward (pool technology), SamsungElectronics (cleaning device technology) and one of the current key pieces Google Home, which combines Google’s search engine and voice assistant technology. Google home connects with and controls a variety of smart devices (Nest1, 2016). Detailed information about the products, the definition of smart devices, an ecosystem and the main market can be found in the appendix.

Nest Labs was co-founded by former Apple engineers Tony Fadell and Matt Rogers in 2010. To mention is that Tony Fadell is considered the father of the very successful iPod (Telegraph, 2014). Nest Labs was acquired for $3.2 billion by Google in January 2014. It was meant to be the centerpiece of the smart home strategy (Rethink-W, 2016).

Nest Labs replaced (June 2016) the former CEO Tony Fadell with Marwan Fawaz to get fresh ideas and a new device strategy into the company (Rethink-W, 2016). Marwan Fawaz is a cable and telecom veteran that ran Motorola Home, the company's broadband device unit. Fawaz has also the reputation of being a collaborator. Marwan moved on to be a tech consultant after Google sold the unit after the acquisition of Motorola. He advised the home security system manufacturer ADT, which might be an indicator where one of Nest Labs’ strategy might be heading to (Recode, 2016).

Nest Labs’s company culture and atmosphere

Since Google was reorganized into Alphabet Inc. the semi-independent units such as Nest Labs can completely run under their own CEOs which gives the CEO better control. This should be encouragement and independent thinking. However, problems occurred. Products were delayed and recalled. There were also complaints about poor management style and bad cooperation with Google teams (Rethink-W, 2016). Some of the engineers were unhappy, some of the most prized engineers are eyeing the door. Further, Google (Alphabet) is frustrated by the lack of new hardware. It is interesting that most of the reported problems appeared after the acquisition by Google (Alphabet) (BGR1, 2016).

“ Did the pressure of having to meet Google ’ s expectations somehow permanently change the company ’ s corporate culture? Did the company simply run out of viable ideas? Is it perhaps possible that there were always problems brewing at Nest and it was only a matter of time before they bubbled up to the surface? (BGR1, 2016)

A blink of mistrust appeared when Nest Labs was denied to work on Google Home, the recent smart home ecosystem device. It was said that Tony Fadell was the reason for Google’s (Alphabet’s) decision (Yibada, 2016). Tony Fadell seemed to have been not the most convenient boss. For instance, Fadell told Dropcam cofounder Greg Duffy that he could not report directly to him, because has not earned it. Further, after Dropcam developed some problems, Fadell spoke not so nice of the employees. Additionally, approximately half of the staff that came over left the company already (BGR2, 2016). People also describe Fadell as an obsessive manager. He personally liked to approve details of a product, much like Steve Jobs, which can be a bad or good thing, depending on the employees (Recode, 2016). Additionally, the consequences of the acquisition might have influenced Nest Labs’ culture. Extra information on that can be found in the appendix.


Nest Labs was purchased for $3.2 billion in January 2014. Nest grew from 280 to approximately 1200 employees in 2016. In the first year after the acquisition, Nest Labs used Google’s resources to acquire the webcam maker Dropcam for $555 million. In addition, the smart hub company Revolv was also acquired, whereas the price is unknown. Nest Labs seemed to have a fairly big budget inside Alphabet. It seems that the deal only happened under two agreements. The former CEO Tony Fadell would have an operation budget from Google. Also, the key executives and engineers would get a significant retention plan to make them stay aboard. Apparently, the budget was set for 3 years. Unless there will be a new agreement with Alphabet, the budget would run out at the end of the year. (Recode1, 2016; Arstechnica, 2016). Nest Labs had a revenue of $340 million in sales in 2015, which is impressive in the early stages of the smart home market and exceeded Alphabets goal of $300 million at first right. But according to people in the industry, it seems to be below Google’s expectations due to the fact that Dropcam contributed a big proportion (BI3, 2016).

Outside forces

Before having a close look at the industry it is important to examine the outside forces, because external factors like new technology or customer needs can rapidly change the industry and its structures. General global trends about the world in 2030 can be labeled as individual empowerment, diffusion of power, growing demand for food, water and energy and change of demographic patterns what means that the population becomes older (Weller, 2016).

Growing problems/restrictions/demands with energy can be seen in all four branches. This is one megatrend which is mirrored by facts of today. The trend that people move to the cities instead of living on the countryside requires the construction of new buildings. Thus, new ways of smart houses and buildings must be developed to cope with increasing size of cities and the increasing number of people living together at the same space.


To start very general, it is to mention that nowadays the governments pay close attention to sustainable issues. Different kinds of laws and regulations concerning environmental issues have been passed. During the United Nations Climate Change Conference 2015 in Paris 195 nations have agreed on combating the climate change. The main aim of the agreement is to not exceed a global warming of 2 degrees within this century. This political statement affects Nest Labs as a smart home company in that way, that smart home is considered as an opportunity to improve energy usage and efficiency in both private homes and commercial buildings or fabrics. To fulfil the aim of the agreement, countries must invest in technologies and research about how to limit the temperature increase. But it is not only the invest which smart home benefits from, because with this agreement more and more government regulations regarding energy consumption will follow. United Nations Climate Change Conference is pushing sustainability. From the 07. until the 18. of November, the Marrakech Climate Change Conference was conducted. The attendants demonstrated successfully that the aims from Paris in 2015 are underway and the global cooperation gains momentum in the combat against climate change (UNFCCC, 2016).

To drive innovation and development in smart home the government is investing in start-ups. In total the funding of smart home start-ups is now above 3 billion dollars. The emerging start-ups are clustering themselves. One of the big clusters is for example in San Francisco. The government funding means that the government is interested in driving this industry and sees a potential in smart homes.


The real GDP has increased because of positive contributions from personal consumption expenditures, exports, private inventory investment, federal government spending, and nonresidential fixed investment that were partly offset by negative contributions from residential fixed investment and state and local government spending. The visualization, which can be found in the appendix, shows the steady growth of the GDP in the United States. The financial crisis in 2009 caused a short period of decrease, which is has been overcome quickly (OECD01, 2015).

2016 follows this trend of the GDP. In the third quarter of this year the United States economy expanded an annualized 2.9 percent, more than 1.4 percent in the previous quarter. Furthermore, OECD predicts that when America’s new president Donald Trump is following his agenda the U.S. economic growth is pushed to 2.3 percent, up from pre-election estimate of 1.9 percent (Nymag, 2016). Nevertheless, there is a big uncertainty about the influences of Trump becoming president.

When looking at the GDP long-term forecast on can see that the steady growth is forecasted to go on. OECD provides information until 2060, which show that the GDP trend is permanent growth (OECD02, 2016). Another factor, which determines economic influences is the unemployment rate, which is around 4.6 % in the United States in the third quarter of 2016. The trend of the last years shows that this number is decreasing (OECD03, 2016).

In contrast to the decreasing unemployment rate, the energy costs are increasing. The cents per kilowatthour have experienced an increase during the last decade. The use of electricity is getting more expensive for everyone. This affects the smart home industry, because people become even more concerned about waste of energy when the prices keep rising (EIA, 2016).


First, there is a change of lifestyle going on. The population developed a stronger responsibility for the environment and is considered as turning towards ‘green’. The awareness of and concern about the environment are increasing. Thus, the demands for sustainability and renewable energies are becoming louder. Because of its reputation of managing resources and energy in a more efficient way, smart home could be one of many conclusions of this lifestyle trend. Investigating the change of lifestyle more detailed you find more aspects affecting the smart home sector. People are always and everywhere online and connected to the internet. The use of smartphones and wearables like smart watches and fitness tracker prove that the population adopts to digital technologies, which are monitor, control and simplify their daily lives. A broad adoption of the mass market to smart homes is therefore very likely and should be accommodated.

Not only the lifestyle of the population is changing, but the demographics of the population. The first point which should be taken into consideration is that the population is about to get older. This will lead to different customer behavior and will thus affect the business of Nest Labs. Connected appliances can deliver solutions for helping the elder, blind or physically disabled persons. Instead of investing a fortune into apartments in retirement homes, smart home solutions can be considered as a sound alternative (Fortune, 2016). The second point, which is interesting when analyzing the development of the population is that it will be the digital natives who buy and build houses in the following years. Knowing that Nest Labs should adopt and prepare their strategy for that as well. Third and last point is that the global population is constantly growing. More people means more potential customers.


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Business Plan and Analysis of Nest (Google's Smart Home Company)
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Business Plan, Porter's Five Forces, Strategy, PEST Analysis, Management, Marketing Mix, VMOST, Development, Smart Home, Google, Nest, IT, International Management, Vision, Mission
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Maximilian Ott (Author)Sascha Hagedorn (Author), 2016, Business Plan and Analysis of Nest (Google's Smart Home Company), Munich, GRIN Verlag,


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