IoT Homes and Nest

by Annie (Ningxin) Li, Demian Joel Gass, Doygu Budacamanak, and Saad Ashar Jalees


The Internet of Things (IoT) is an amazing initiative in the recent years; combining everyday appliances with the connectivity of the Internet and information exchange allows for a Smart Home to be created. It can be simple stuff: turning on and off the lights/dimming them depending on the time of day; moderating the house temperature (changing by the season). Most homes already have a variation of the previously mentioned examples but the more widespread usage currently falls under the category of automation. Very interesting in their own right but IoT presents the next, logical step. What makes IoT Homes distinct is that the appliances are not working independently; they work off each other. Constantly feeding data to a Central Computer that processes all the raw data. As an example, via several sensors, it’ll monitor light variations in the rooms and control the blinders accordingly; if you’re entering the home after a long day at work, it’ll switch on the lights automatically and music will start playing as you walk through the rooms of the house. Vice versa, if you have left the home, it’ll become a security unit by prepping intruder alarms in case unscrupulous people break into the house.

Of course, in this world of constant surveillance, IoT Homes presents itself as a credible concern to people. If the info is self-contained to only the home, then it’s not really a problem lest there’s a leak and even then, it would be relatively easier/faster to rectify. However, if the appliances have to communicate with instruments outside the home, then it raises several concerns about data protection and privacy.

In this post, we will look at Nest. To some, the poster child of IoT Home. To others, a cautionary tale of merging technology with the most intimate part of our lives, namely: our home. Majority of what we talk is not limited to Nest but in fact, encompasses majority of the IoT Home companies in the market as there is some remarkable overlap happening.

Key Partners

Nest, a Google-owned company, announced at CES (Consumer Electronics Show) 2015 that it was adding over 15 partners to their products. This could allow Nest consumers to, pair their August Smart Lock to their Nest products, or that your LG fridge can know when you are not home and automatically go into energy savings mode. Additional companies such as Automatic, Insteon, Lutron, Ooma and Withings will also support various integrations together with various products from Nest and allowing all the products to ‘talk’ to each other and, hence, simplify and automate your life.

Nest’s devices “can now notify users when they’ve left their LG or Whirlpool appliances on, control the shades, flash Philips Hue lightbulbs in different colors when they detect smoke and even phone the emergency services.” (

To know whether a product works with Nest’s products, all you have to look out for is the ‘works with Nest” sticker on the products.

In addition to integration with other IoT devices, Nest also partners with insurance companies. Google, has already many IoT services that influence our daily lives, all the while collecting a treasure trove of data. The Google-acquired company is expected to be become a big part of this strategy. “A review of Google’s acquisition activity and technology development provides an indication of what position Google is able to reach based on the insurance industry’s key revenue sources such as car, home, and life and health insurance.” ( Already today, Google provides a significant amount of data for insurance companies to use. Nest has already begun exploiting this avenue by offering their data in return for using their products. They have partnered with leading insurance companies to help you both get a Nest Protect at no additional cost, as well as possible lowering of your insurance premium by up to 5%. How do they do this? According to their main website, Nest products are connected to the internet and are able to inform the relative insurance company that your product is operational. The information that the insurance company receives is the status of the battery, the status of the sensors, and whether the Wi-Fi connection is good.

Wooing insurance companies with their data is one profit avenue for Nest, but another equally important set of partners are energy companies. Depending on the energy provider you use, you are able to receive a Nest Thermostat at no additional cost, or have the ability to partake in exclusive programs such as the Rush Hour Rewards and the Seasonal Savings that will allow the user to save on energy costs. Rush Hour Rewards allows the individual to save by having the energy pay you back for the energy you save by using the Nest Thermostat. The Seasonal Savings program can save you between 5-10% on heating and air conditions costs. The thermostat makes very small changes in the temperatures based on your personalized schedule of the day, and in the long-term, will save the user money. (

Key Activities

Nest Labs, a home gadget maker was founded by iPod inventor Tony Fadell, and acquired for $3.2bn by Google Inc. in 2014. Nest Labs is a home automation company that both designs and manufacturers programmable thermostats, smoke detectors, and security cameras.

The Nest Learning Therm76297_400x289ostat is a self programmable thermostat that automatically and seamlessly learns what temperatures you like, and can turn itself off when it knows you’re not at home and lets itself be controlled from anywhere over Wi-Fi. In addition, users can log into their Nest accounts to control their thermostat, view and adjust the schedule or settings, and have an in-depth look into how much energy you are using.

The Nest Protect, the smoke and carbon monoxide detector aims at keeping you informesmoke-co-alarmd about potential safety risks. It gives a more human touch to smoke detectors by giving the detector a human voice and giving you “a friendly heads-up” when smoke or carbon monoxide is detected. It informs you in which room the detection was made, and can switched off with just a wave. (

nestoutdoorcamThe Nest Cam Indoor and Outdoor are smart cameras that allows a user to view, record and get timely notifications on activities happening in and outside your home. You can observe anything before it even enters your home and allows you to get notifications directly on your phone when activity is detected. In addition, the Nest Cam’s have speakers and microphones built-in, and allow you to speak in real-time with anyone currently in the vicinity, all thee while knowing the difference between an animal and a person. (

Devices such as the ones mentioned above, are just some of many that form a part of the so-called ‘Internet of Things’, where a network of devices can communicate with each other over the Internet.

“It is thought that 50 billion objects worldwide will be connected to the Internet of Things by 2020.” (

Currently, Nest’s privacy policies do not allow the use of the data to improve their products, however, with the acquisition of Nest, Google has its sights on the data for the future.

Key Resources

Taking Nest’s star product as a first example, the 3rd generation Nest learning thermostat was marketed for its key features of energy-saving and learning the user’s preferences. The thermostats records the user’s habit, memorizes a pattern of usage and would start to set the heating on its own, such as turning up to a certain temperature or turning off automatically when the user is out of the house. It also collects data from the weather and details about the house or apartment, then sets the temperature accordingly. The gadget encourages its user to save energy through a little green leaf icon on the display: when temperature is changed to a most environmentally friendly setting, the leaf icon would appear.

Like many other smart home appliances, the user can change the setting via a phone app even when they are away. The smoke detector product of Nest, Protect, continued with the clean and user-friendly design of the thermostat. Similar to the thermostat, it sends notifications of the smoke status of the house to user’s mobile phones through the app. What distinguishes it from other smoke detectors is that the voice alarm from Protect is a human voice warning, indicating the type of alarm (whether it was smoke or carbon monoxide) and how users should evacuate (such as going to locations with fresh air). The alarm can also be switched off through the app. Nest’s two other products, the Indoor Cam and the Outdoor Cam were mainly advertised for their HD video quality, their ability to monitor in the dark, and sending a voice message through the cameras. Both of these are also controllable via the app. (

Value Propositions

What makes Nest stand out the most from its competitors is its user-friendliness. In all four of the products mentioned above, Nest emphasized on these gadgets being easy to use: from their design, their alerts, to their connectivity to the mobile app. Nest aims to guarantee users’ ability to monitor and control their homes at the touch of their hand. The gadgets were also made to be easy for installation, and users could do it themselves. Moreover, Nest truly aims to make the home “conscious” by integrating different aspects of the home maintenance, and even takes a further step to suggest changes in temperature, for example, for the users.

Customer Relations

IoTs offer something new in the realm of Customer Relations. Even in this day and age, there’s something, ironically, mechanical with how aftersales people are catered to by the companies. Best case scenario is that you’ll buy a product and hopefully, the company will never hear from you again (a testament to their product) and you will continue your daily routine using their product. However, if you do have a problem, the company will try their darndest to rectify the ‘problem’ by using the most inexpensive solution available while still maintaining a level of customer satisfaction. For years, this has been the accepted norm of customer relations.

IoT changes it by making the relations personable. The customer now has a greater stake in the state of the Home. IoT’s can be used by home insurance companies as a tool to get closer to their customers; readily providing solutions to their customers for their grievances that they control. It’s all about harnessing the technology to build a ‘stickier’ relationship, and giving the provider another angle with which to engage with the customer.

That is the case in theory. But, at the end of the day, companies are still run by humans and the expectations set can be let down. Nest has been facing several customer problems due internal server issues that has caused several of their customers


Internet Of Things provides us consumers with a lot of convenience as it makes our daily life so much easier. Want to make sure that you wake up in the morning and coffee to be ready? The Internet of Things makes this possible by waking you up by an alarm clock hence sending a sensor to the respective coffee maker and, voilá, your coffee is ready when you get out of bed.

This is just one of many examples that Internet of Things is capable of doing. In order to enact its capabilities, however, the Channels are essential to this.

Basically, Wi-Fi capabilities, Sensors, moreover Smartphones connect us people to our devices or our devices to other devices or networks – which got more extended by the new version of the Internet Protocol, IPv6 which provides the  possibility to connect many devices to a network.

The Channels of ‘Internet of things’ can be any device with Internet or other technical devices with network connection – be it cellphones, coffee makers, washing machines, headphones, lamps and wearable devices.

According to analyst firm Gartner, 26 million connections will exist by the year 2020.

Apart from technical devices with network connection being key channels for the functioning of IoT, people who try to connect with each other and/or with given devices (and stand behind the exchange of information), represent another channel for the process of IoT ( ).

With further focus on the Nest App, that brings everything together where one does not have to program all the devices to work together or switch from App to App since everything works automatically.

Four Nest Products, namely: the (1) Thermostat, the (2) Smoke+Co Alarm, the (3) Indoor Cam and (4) Outdoor Cam are the key resources for the concept of the Nest App. This devices can be controlled by (a) smartphones (under the requirement that the given smartphone’s operating system possesses iOS 8 or a later version or Android 4.1 or a later version), (b) PC’s (that possess the latest version of Safari, Chrome, Firefox or Google Explorer and regarding the operating system, Mac OS X v10.9 or later or Windows 7 or later) and by (c) Smart Watches (that work with the operating system of watchOS 2.0 or later and iOS 9.0 or later and Android Wear 5.1.1 or later and Android 4.3 or later). Lastly, it should be self-explaining that the key channel to the functioning of the connection of those devices working with the Nest products is a working internet connection (

Market Segmentation

According to McKinsey, a survey of 2000 US Households yielded the following results:

11% of the households use IoT for Security and Safety purposes followed by 6% for Utilities Management. 56% of the device owners only owned 1 device whereas 26% owned 3 or more devices. The device with the more popularity was the Connected Smoke/CO detector (with 7.1% of the households having such device) followed by a Connected Thermostat (at 5.3%).

About ~40% of the IoT Home services were catered by service providers (e.g. Vivint, ADT, Xfinity). ~60% IoT Home services were purchased from retail outlets however, there was noticeable different in purchasing habits. As people who pursued service providers were more likely to buy more devices.

Demand for Smart Thermostats is currently strongest in North America with 70% global market share. The overall market is currently dominated by US vendors with Honeywell and Nest emerging as the market leaders.

Cost Structure

One benefit that the Internet of Things industry may enjoy is the fact that the costs for its channels have decreased in the past years.  

Citing Hal Varian, Chief Economist at Google: “The price of sensors, processors, and networking has come way down.  Since WiFi is now widely deployed, it is relatively easy to add new networked devices to the home and office.”

The costs for making IoT work, have not only reduced due to the new version of the Internet Protocol, IPv6 (that makes the connection of many devices to a network) but also by the fact that the four major providers of network, namely Google, Cisco, IBM and GE,  added Fog layer and are planning to add Swarm layer, to facilitate network modification,  dramatic simplification and, hence, cost reduction for network connectivity.

However, it needs to be put forward that even though the costs for operating IoT is not high, the costs of acquiring or producing certain products/devices that are essential for IoT as well as human resources are essential when it comes to a given IoT company such as Nest.

Nest has not revealed its costs, however it is claimed to receive an annual budget of $500 million from its acquirer, Google, in order to produce the devices it is selling (Thermostat, Indoor cam, Outdoor cam, Smoke+Co Alarm) but also its labour – especially the engineers working at Nest. (

Revenue Streams

The profit that the IoT industry is generating is very big, despite the low costs for operating the procedure. When it comes to the revenue stream in the IoT sector, GE is estimating a revenue stream of up to $15 trillion to evolve and to be added to global GDP over the next 20 years, whereby Crisco goes even further and predicts a revenue of about $20 trillion to be added to global GDP.

With respect to Nest’s revenue, Google (which acquired Nest for $3.2 billion in 2014) set a sales target for Nest which amounts to $300 million a year. This target Nest only reached, once, its dropcam device was added to its products.  

In 2015, Nest generated about $340 million in revenue. Nevertheless, Google had higher expectations for Nest’s current revenue stream considering the fact that Google’s initial budget to Nest amounts to $500 million annually, for three years, according to sources.

All in all, the cost structure to operate Nest, is not really transparent since there are no official records revealed. Nevertheless, it can be hold in mind that the desired high profit (from sides of Nest as well as from sides of Google) is not met as sales, hence generated revenue are less than the initial annual budget of $500 million that Nest (apparently) is receiving from Google. (

Volume of Data

By 2020, the expected amount of smart home devices will likely double. This means that the expected amount of data produced by a home will also increase.

“The global home automation system market is expected to reach USD 78.27 Billion by 2022, at a CAGR of 12.46% between 2016 and 2022.” (

To give a good insight into the amount of data is produced in an average home, Stephen Sorkin, the chief strategy officer at Splunk, a Big Data company, built smart devices into his home. He mainly focused in collecting data, specifically accumulating it from his circuit breaker, his connected weather station and his pool. He fed this data back into Splunk and discovered that his home generates more than 200MB per day. ( Multiply by that by 7, you get 1.4GB per week, or 73GB in one year. However, this doesn’t take into account the data that is exchanged between other smart appliances that could be connected in the future.

This will be a world “As dusk falls, the lights in my flat start to come on, with those in the darkest rooms triggered first. When I walk into my bedroom, one of the lamps illuminates. At sunset, the garden light glows. If I get up during the night, my kitchen lights come on — but low, at 10 per cent of their full brightness, giving just enough light to save me from falling over the cat. They switch themselves off again once I have got back into bed.” (

This will undoubtedly generate very large amounts of data and a lot of smart devices, but the question will remain, on how and where all this data will be stored? Gartner has predicted that “By 2022, a typical family home could contain more than 500 smart devices.” Our homes are very private spaces, and such data could have both advantages, but also severe disadvantages or even consequences if it happens to land in the wrong hands.

Velocity of Data

Velocity of data deals with the rate at which the data generated flows from business processes, products, and human interaction with services back to the providers . As the volume of data has significantly increased, it is crucial to make use of the information and provide feedback, therefore helping the business gain competitive advantage in the market. Velocity of data doesn’t only concern incoming data; it could also be stored for later processing. For example, the Nest Outdoor and Indoor Cams allow users to record video surveillance for at least 24hrs, so that the video recordings could be played back for later viewing. Nest’s mobile app also enables the transmission of data immediately onto users’ mobile devices, such as alerts of smoke.

Variety of Data Used

One of the biggest advantages that comes with IoT Homes is the ability to monitor and measure things occurring in the real world. The trick is being able to present the data to the consumers without overloading them with unnecessary information. A monthly update is better than one that is up to date to the last 15 minutes.

IoT Homes uses 5 different kinds of data, namely:

  • Status:  Are the lights working properly? Did the radiator turn off at the right time? Status is the most basic type of data and it is invaluable to companies and consumers. Knowing the status of appliances at any given time can keep people abreast of any sudden changes and more aware of the goings-ons in their homes (think: fire alarms / intruder alarms batteries).
  • Location Data: Ideally, the house is not planning to physically move anywhere, anytime soon. However, it definitely has a place in IoT Homes. More specifically, the people who occupy the home. Where are they currently, have they returned home on time / safely; concerns like these are easily resolved by having data on hand.
  • Automation Data: This is a thorny issue. Nobody wants to be stuck in a dark room because the sensors didn’t detect any movement (read: Nordmetall and it’s bathrooms.) and it’s for hiccups like these that consumers are skeptical about completely automation. Ironically, it also spawns security concerns as nobody wants to locked out of their own home if the house detects the door open for more than 5 minutes. Nevertheless, automation is becoming popular, especially for small tasks such as thermostat management and light detection (re: blinds management).
  • Actionable Data: Status data with a follow-up plan. For example, we all want to save energy. It’s ultimately costly and it’s just being environmentally considerate. However, people are turned off from dealing with it because of the potential time investment, cost and headaches that seemingly outweigh the benefits. Automation is one way to solve it (see above); persuading people to change their behaviours is another way. According to Opower, when people are presented with energy consumption data of their neighbours, they are more inclined to try to cut back on their own usage. According to their own studies, such data can cut energy consumption by 2 to 3 percent..
  • Feedback Loop: Most companies have no idea how their products are used. Certainly brick and mortar stores; the products are shipped through distribution, bought at retailers (licensed or otherwise) and end up at homes or offices. The user and the manufacturer rarely, if ever, communicate. Thanks to IoT, manufacturers will be able to analyse real-time data and behaviours and use that to improve on previous iterations of the product..

Veracity of Data

Generally, as with all the different, existing devices there is almost always a certain point where the certain device stops working.

It is important to keep in  mind that data within technological devices are only accurate for a given period of time but not constantly (!) as one can observe by all the smartphones stop working at some point, or the Wi-Fi connection getting slower or even getting slower at a given point. According to an Article by Telematics Wire 4 out of 5 cars will have internet connection by the year 2017, providing a data of 25 GB – where one can question if the network will work at its most optimized level or be rather slow and/or send out wrong signals to devices.

Beyond that, however, the software and technology we use today for the cameras, for instance, is easy to hack which poses a security problem for our private sphere.

Nonetheless, the accurate data within the operation of IoT once can count on is the Big Data (including all the information of our habits) that we provide them with when using IoT. The given institutions get information such as when we wake up, when we control our coffee to be ready et cetera – which is providing ‘the spies’ with pretty accurate data of our habits and daily routine

As far as Nest is concerned, one can sum up that its provision of  Big Data of ours is quite accurate as we set the controls.

More important than that, it has to be mentioned that the DropCam of Nest (or Nestcam) is way more secure than any other camera – making sure that hackers are barely able to hack themselves through all the data. So, it can be noted down that the data of the Nestcam software is pretty robust and accurate ( ).

Regarding the inaccuracy of the Data of Nest, though, there have been number of cases reported recently (November 2016) that Nest users cannot log in to the app.

Further on, despite the fact that Nest’s Dropcam has been labelled as a secure camera, Nest users recently started reporting that they lose connection on all cameras of the system, that cameras do not turn on when they arrive at home and that the video freezes when watching the camera history ( .

These problems are all connected to the inaccuracy of the data within the Nest App and System, causing dysfunctioning so that one can conclude that the veracity of Nest App and/or products are rather low at a given point.

NEST SWOT Analysis


  • Easy to Install
  • Investment from Alphabet –> Employee Growth
  • Satisfied Customers
  • Innovative Technology
  • Product shipping to 190 countries


  • Limited number of products
  • Products sometime unreliable
  • Limited consumer demand


  • Growing interest in Smart Homes & Home automation
  • Introducing new products down the line
  • Overtaking competition by removing a lot of barriers


  • Competitive companies
  • Possible selling of company by Alphabet
  • Open Source technology


IoT Homes presents an exciting future, one that is filled automated tasks and conveniences. But, it’s a rocky road; one that is threatened by fears of privacy invasion and nefarious usage of personal data. Nest has shown one path of how to deal with such worries; but now, it is one of many companies on the market (though it remains a market leader). Since the market itself is fledgling, we have to wait and see to what extent does IoT Home become a common, everyday occurrence.




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