This Is What Google Should Do to Make Nest a Big Deal

Photo credit: Google  

Earlier this year Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) spent $3.2 billion to buy Nest Labs, which makes the Learning Thermostat and a smoke and carbon dioxide detector called Protect. These two devices provide a nice foundation to a home automation system. There's just one problem, the center of most of today's home automation systems, the security system, is missing from Nest's offerings. That's why if Google wants to compete in this market then it needs to offer its customers the full package.

My story
My wife and I recently moved into a newly built home in a quiet suburban community a few miles outside of town. One of our first visitors was a salesman from ADT (NYSE: ADT  ) . He wanted me to sign up for ADT's home security system. It's something I'd never really considered before so I took the information and said I'd review it.

Soon thereafter we had two more visitors, both wanting us to purchase their home security systems, which of course were better and cheaper than anything ADT had to offer. That of course got me curious as to what was out there and if we really needed the extra bill each month as this was known to be a safe community. However, apparently one of the reasons the community is so safe is because nearly all of our neighbors are paying to keep it safe as virtually every house has a sign noting that it's protected by a home security system. Needless to say I don't want to be the odd man out. 

What I discovered
I discovered three very interesting themes in my research. First, home security is a very, very fragmented market and while ADT is the top dog with 6.5 million customers and more than $3 billion in revenue, there are at least a half dozen other home security options in my community alone. However, while all offered home security monitoring, it was tough to get an apples-to-apples comparison. What seemed to be the deciding factor for most people was being "sold" the system either by word of mouth or a compelling salesperson.

Photo credit: ADT

The second interesting theme in my research was the rise of disruptors to this system. "Do-it-yourself" security systems like Iris, which is offered exclusively at Lowe's (NYSE: LOW  ) or SimplySafe gave consumers a new alternative. These systems were installed by the consumer and came with a much cheaper overall cost as the monthly monitoring services were a lot less.

The final theme I discovered was that most of these companies offered some form of home energy management as part of a total the home automation package. For example, ADT's Pulse service allows its customers to adjust their thermostat remotely, much like Google's Learning Thermostat. It also enabled customers to turn off lights or appliances remotely so that they can save on their energy bills. ADT's Z-Wave technology unifies home electronics into an integrated wireless system, which could be used for both security and energy management.


Photo credit: Google

Add it all up
What I found was a highly fragmented market that is slowly being disrupted by new technologies, which are increasingly focusing in on the total package of home automation. This could potentially be a real sweet spot for Google because it could take Nest to the next level by creating a full home automation system around those two devices. The only thing that's missing is the security system, which is where Google could provide a big disruptive impact.

In comparing "do-it-yourself" rivals, Google's technological lead already gives it a leg up on the Iris offering, which can only be purchased at Lowe's. The system, which offers both home security and energy management, was poorly reviewed by enough customers on the Lowe's website that I didn't feel comfortable purchasing it for my home.

Further, the system's programmable thermostat actually needed to be programmed-as opposed to Google's Learning Thermostat-which is easier said than done as I still haven't gotten our programmable thermostat optimized yet. Meanwhile, SimplySafe's security system is enthusiastically endorsed by its customers, but it lacks the energy management aspect that I would love to add to my home. 

Final thoughts
Needless to say my options are to lock myself into an expensive long-term contract with a company like ADT, purchase what appears to be a still emerging Iris system from Lowe's or do without the energy management side of things and opt for SimplySafe. That makes it a difficult choice for me and so many other consumers. It's a choice that could be made a lot easier if Google would simply expand its nest and start protecting homes too. 

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  • Report this Comment On June 01, 2014, at 7:40 PM, junseth wrote:

    You're right about the market being very fragmented. I wish you'd found and mentioned companies like Alarm Grid ( - full disclosure: I am a partner. You would have seen that we offer the best of both worlds. You can get the same high-quality products that ADT installs, put them in yourself, and get the monitoring prices that Simplisafe offers without being locked into a system that requires you to use their service (which is the same as a contract, frankly).

  • Report this Comment On June 02, 2014, at 7:55 AM, TMFmd19 wrote:

    Thanks for letting me know about Alarm Grid, I'll definitely look into it. I never came across it in my search. For whatever its worth I first found SimplySafe on a facebook ad. That might be a good way to get the word out on Alarm Grid.


  • Report this Comment On June 02, 2014, at 4:50 PM, junseth wrote:

    Hey Matt, we have been growing organically for a few years. Facebook ads are definitely something we'll do more of in the future. But when you're a smaller player in a market that is seeing $57M capital infusions (Sequoia just invested in Simplisafe), you need to be a bit more frugal :). That said, we're committed to being everywhere, and if you check us out, you'll see that our users believe that their experience with Alarm Grid has been unparalleled. That said, we appreciate you looking at us. We are literally working to disrupt this industry in the way you described.

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Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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