Analyst Report: Let the battle for the smart thermostat begin


The often-ignored and hardly ever programmed, humble thermostat is morphing into a unique and undercover gateway into the smart home — that is, the dream of the fully connected house where all the objects can talk to one another and be controlled remotely. In 2012 there will be a growing number of companies across sectors — from device makers to analytics firms to utilities to telcos — that are now suddenly looking at the networked, digital thermostat as an important way to connect with consumers.

Why 2012? After the growth of home Wi-Fi networks, consumers are just now becoming more comfortable with the idea of the connected home, and they are starting to use the mobile phone as the remote to manage connected devices like TVs, audio systems, cars and eventually appliances and thermostats. There are projected to be 50 billion connected devices by the year 2020.

Just like every other home device, the future thermostat will have a network connection — it will use wireless or wired chips from Wi-Fi to ZigBee to Z-Wave to cellular to sensors — and will use smart software to talk to the other devices in the home. The next-gen smart thermostat will be able to communicate with a mobile phone, a utility meter, a home heating and cooling system, a Wi-Fi router, a smart appliance, and any other connected device that would provide value for the consumer.

Thermostats in particular also offer the added benefit of being able to save a consumer significant money on an energy bill — as much as 30 to 50 percent in some cases. That’s a valuable proposition in difficult economic times. In addition, utilities are in the process of upgrading their power grids this year, and that includes finding devices to use to connect with home owners. The thermostat fits that bill pretty well.

However, there are a lot of motivations behind these varying types of companies that are interested in the connected thermostat, and not all the things that are driving them are clear and in sync with the other sectors. In addition, there are still a lot of barriers to consumers adopting smart thermostats, including the basic fact that the thermostat is just so boring compared to a sexier gadget like an iPad. Sigh.

Here are the players and what you need to know about working with them. I am focusing specifically on residential homes and not thermostats for commercial and industrial buildings.

Smart thermostat makers. We can divide the types of thermostats into two camps: the bare bones and cheap connected thermostats — where connectivity is the selling point and analytics are done in the cloud — and the smart thermostats that are coveted, high-end devices.

The traditional thermostat makers like Honeywell and Johnson Controls are mostly of the mindset that the thermostat should be as cheap as possible, as they know home builders, utilities and consumers aren’t willing to pay too much for a thermostat. These old-school companies already launched connectivity in thermostats years ago.

But more recently these giants are also looking to partner with some of the newer startups that make the smart software that can manage connected thermostats and deliver energy-efficiency services like those from EnergyHub, EcoFactor, Opower and Tendril. These startups get the scale and access from the big hardware players, and the big hardware giants can benefit from the innovation around behavior analytics and cloud services. Opower and Honeywell have developed an Opower-powered thermostat that is now available.

On the flip side of these partnerships is the high-end, cool smart thermostat that has all of the smarts baked into it. Yep, it’s more expensive, but the idea is that it will be coveted enough to convince the consumer to actually go out and buy it. That’s the plan for Silicon Valley startup Nest, which created enough demand for its $250 learning thermostat that it has been sold out for months.

The Nest thermostat was created by the designer of the iPod and iPhone at Apple, Tony Fadell. Apple’s strategy has long been to make the phone or music player so supremely designed that it becomes a sort of cult object, with fanboys singing its praises. Nest is looking to do the same thing for the thermostat, and it spent years and a lot of money on the design as well as the analytics.

The service providers. Both cable companies and phone companies have been discussing for years how they want to get into the connected home and the smart energy home. This year some of these projects are actually now commercially available nationwide.

About three months ago Verizon quietly launched its smart home products nationwide; the products enable customers to lock and unlock doors and windows, watch home video cameras remotely, and manage thermostats and lighting. This is the service Verizon launched in trials in New Jersey about a year ago.

Some early insights: Verizon told me that the stand-alone energy products aren’t as popular as the full smart home products but that at this point about 95 percent of its smart home customers install their own devices. That could be a good sign for a startup like Nest, but expect that number to go down as the market moves past the early-adopter stage.

Both cable companies Comcast and Time Warner Cable are also offering smart home services, with smart energy products and thermostats included. And both cable companies are working with startup iControl, a seven-year-old company backed by Comcast itself, as well as Kleiner Perkins, Charles River Ventures, Intel Capital, Cisco, GE and security firm ADT.

IControl provides the software layer while the cable companies provide the broadband connection, and third-party hardware providers make the dashboards and security gadgets. IControl has long had the strategy to white label its service and to avoid getting into the hardware market itself, making the service more attractive to the cable operators and enabling the consumer to have more choice for hardware.

A lot of the software startups I mentioned above will be looking to work with the service providers like EcoFactor and EnergyHub. The startups need as many big players as possible to partner with, and the telco and cable companies — with their broadband and cable networks — already have a pipe into the smart home.

The utilities. Utilities are beginning to launch early trials using smart connected thermostats as a way to deliver demand response, or essentially to remotely control a home’s thermostat by a few degrees during a certain time of day. The idea is that when the utility needs it — like during hot summer months — it can reduce the energy consumption of part of its customers to manage the demand on the grid.

One of the earliest trials I know about will come from Nevada utility NV Energy. The utility plans to provide 50,000 customers with a home energy dashboard from Control4 and a programmable thermostat. And another 50,000 are supposed to be signed up down the road.

EnergyHub’s CEO, Seth Frader-Thompson, told me that while many of the deployments of its smart thermostat software came from the consumer channel in 2011, in 2012 half of its thermostat deals will come from utilities.

Smart software startups. As I mentioned above, there are a bunch of startups that have been developing software to act as the platform to manage the smart thermostats. These companies include EnergyHub, EcoFactor, Tendril and Opower. Nest has put a lot of money into its software, but it also makes the hardware.

The latest thing for these startups is to emphasize behavioral analytics, basically using data about the consumer to shift the consumer’s energy-consumption behavior. For example, the software can give more finely tuned energy-efficiency recommendations based on what it knows about your prior energy use, your location, your demographics and your home. Opower pioneered this, as did Efficiency 2.0, and Tendril bought a startup that specialized in it a couple of years ago.

The other smart home vendors. Smart energy products and thermostats won’t be the most obvious — and glamorous — way into the smart home. But they are one of the newest and the most undercover paths. That means the smart thermostat crew needs to find partners in the broader worlds of consumer electronics (Samsung, Motorola, Microsoft), mobile phones (Motorola, Apple, Nokia), home office gear (Belkin) and alarm system companies (ADT).

The big-box retailers, like Best Buy and Lowe’s, also seem to have a stake in the game, trying to figure out if more shoppers will come into their stores to buy smart home, smart energy and smart thermostat gear. Both retailers made a significant push at CES: Lowe’s launched a service with the U.K.’s AlertMe, and Best Buy launched a new website and store section around the smart home.

The consumer. At the end of the day, a lot of this market will depend on how the consumer’s thinking evolves over the coming months and years. Will the thermostat remain behind the scenes as the boring, overlooked wall device? Or will consumers start to pay attention to it as it gets smarter and more interesting? Even if Nest learning thermostats don’t fly off the shelves, the connected thermostat is in a unique position to charm a certain segment of the population that is eager to try out gadgets, that uses smartphones religiously and is conscious of reducing energy consumption and saving money.

Table of Contents

  1. Summary

Join Gigaom Research! Become a subscriber and get reports like these, plus our collection of over 1,700 reports from world-class analysts for just $995 a year.