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The recent acquisition of Nest by Google ($3.2 billion) and the successful Opower IPO shed light on a crowded sector where the first success have long been expected  : the smart-home. With the first deployment of smart meters, the increase of energy bills and Obama’s “stimulus” for smart-grid in the US, the smart-home concept was attracting considerable interest by the end of the 2000’s but it has taken until recently for a company to make an impression on the market. Nest has now accrued sales in excess of 1 million units of its Thermostats ($250 per unit) and Opower gained 32 million users across almost 100 Utility companies. These two success stories reflect a realignment of the market around three segments and the increasing importance of data analytics, software and the ability to understand customer behavior.

  • Segment One: Energy efficiency and demand response through utilities companies (Opower model)

Data analytics is the key capability of this segment as it provides deep knowledge of users’ energy consumption patterns and behavior whilst enabling customer feedback that rivals best-in-class web standards.. The customer value proposition is focused on energy bill savings,  with utilities companies offer their services for free (or even better with compensation for demand response) to their customers without equipment (or with basic equipment).

Several companies have given up global connected home solutions (and the associated hardware) to focus on software and data analytics (Tendril, Onzo or EnergyHub). Others have specialized in “energy disaggregation” (PlottWatt, Bridgely, Onzo). This technology consists of abstracting client’s energy usage (heating, hot water, lighting,…) from global usage. This measure, relying on a single piece of equipment, is considered less intrusive than installing multiple sensors for each point of energy usage (i.e.: smart-plugs). The reliability of the result depends on the granularity of the data available. Companies such as Opower offer free data analytics services for end customers based on smart-meter data, but real-time data adds more value to the service that can be priced to the customers.

  • Segment Two: The smart thermostat and the connected objects (Nest Labs model)

This segment requires strong competencies in both data analytics and product development (i.e.: design) to attract clients with an interactive, easy to use and install product, enabling a direct B2C relationship. Saving energy and greater comfort at an attractive price are the crucial value propositions of this solution. The French Netatmo designed by Starck and Nest, whose founder designed the very first iPod at Apple, are good examples of positioning directly to the end consumer. Others start-ups with a lower value proposition strategically create partnership with utilities companies. For example, the Hive thermostat offered by British Gas uses the thermostat of AlertMe (>50,000 sold since September 2013 and now directly integrated to an energy tariff).

  • Segment Three: The Connected Home

This segment attracts a very large number of players from many industries (telecoms, security companies, domestic appliances manufacturers, retailers, micro-generation installers etc…) but is struggling to take off. The promise of saving is not sufficient for clients to invest in expensive equipment and services. The challenge is being able to bundle diverse services in a compelling way around with a clear collective value proposition of increased comfort and security enabled by simple installation. New construction and renovation are markets to exploit for companies with the right network of partners. One of the biggest challenges is to arbitrate between a closed global solution or allow the customer build its own solution. There is a need to create new cross-sector partnerships to share the solution between diverse services.

Boundaries are still moving. Companies promoting the connected home want to integrate the energy know-how of  the efficient energy players (acquisition of EnergyHub by and the latter seeks to integrate specific  products to position themselves in new markets (smart-thermostat Opower – Honeywell for the demand response market). It is also believed that the smart thermostats and connected objects vendors will continue to develop new products to extend their presence in the connected home (see, for example, the fire detector produced by Nest).

For the utilities companies, the challenge is to keep control of the energy efficiency and demand response segments as well as defend its position in the smart thermostat and connected home segments. The possibility of failure on both grounds is real. Opower started helping utilities companies by educating their customers through paper based energy bills. Today, Opower analyses more than 100 billion meter readings per year and manage data representing 37% of all US households. Can we realistically expect that it will stop here? Google presumably bought Nest Labs with grand plans well beyond acquiring its current connected objects revenues. All these players are starting collate extensive knowledge of users’ energy consumption and behaviours and using this knowledge to drive efficiency. Nest and Opower have already entered the demand response market in partnership with several utilities companies. Tomorrow will they position alone? And the day after? What barriers remain before they provide energy to end-customers in the same way OTT players have captured the digital value at the expense of traditional telecoms players ?

Adrien Mathieu, Manager

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