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9 February 2018

Post-CES, smart home gets pro focus, Google brings Nest back in-house

Eighteen months ago, it looked like Google was preparing to offload Nest, its rather expensive acquisition that still likely hasn’t seen a return on its investment. This week, it was confirmed that Google is holding onto Nest, but bringing it back in-house. The news comes as Control4 and Crestron announced new offerings in the professional installation space – one that will remain lucrative, but does not promise the scale that retail or operator channels do.

Control4’s new CA-1 Automation Controller does what it says on the tin. The $350 box is aimed at installers looking to provide customers with comprehensive smart home installations – whether that’s for a single home, an MDU, or even hotels. The CA-1 includes WiFi, ZigBee, and Ethernet, as well as a serial interface for more bespoke options. An optional Z-Wave module is available, if needed, although that will ad $70 to the price – which is pretty steep.

The addition of Power-over-Ethernet (PoE) is a nice feature, meaning that the CA-1 can be installed using just one cable – meaning that installers can run the power line straight back to a network switch, for rock-solid backhaul. Control4, a veteran of the smart home game, will be looking to tie these customers into the Control4 OS platform, which currently has around 11,000 third-party device integrations, and is available in 101 countries.

Crestron, another veteran (since 1971) has announced a partnership with Google to integrate its home automation line with Google’s Assistant. Beginning with Crestron’s home lighting systems, and later moving to the rest of the rather comprehensive range of devices, the goal is to enable voice commands via Google Assistant (i.e. Android smartphones) to manipulate the Crestron deployment.

For Crestron and its network of installers, the integration should help bring the value of an easy voice-based UI to a smart home. As Google pushes to add Assistant to more devices, it should give Crestron installers more options for covering a home with voice interaction capabilities. As per John Clancy, Crestron’s VP of Residential Systems, “lighting control is an exciting first step, but it’s just the beginning.”

But the bigger news for Google this week came from internal sources. For Google, moving Nest back in-house brings an end to a pretty messy chapter. The subsidiary, which was initially acquired for $3.2bn in 2013, was spun out shortly after the purchase – but then Google recently started stepping on Nest’s toes with the launch of the Google Home hardware range.

It would have seemed sensible to use one brand for all the Google hardware, and there was a definite air of sibling rivalry between the two companies. Nest’s CEO Tony Fadell was encouraged to leave, after reports of a pretty uncomfortable working environment emerged, and Marwan Fawaz was brought in to replace him – a man known for preparing companies for sales. Instead, it seems that Fawaz was in charge of the transition to bring Nest back in-house, where Google can trade on its mostly intact brand reputation.

After all, Nest is probably the most prominent smart home brand, thanks to its thermostats. Sure, it is less known for its line of cameras (which it acquired by buying Dropcam for $555m in 2014), and its smoke alarms were an early embarrassment, and while Amazon and its Echo fall under that ‘smart home’ umbrella, that device family isn’t really comparable with actual smart home devices like lights, thermostats, or cameras – they are hubs that might control connected things, rather than functional devices.

But Google knows that Amazon is its most pressing rival, thanks to the penetration of the Echo range – in homes that are only a few Prime promotions away from jumping from just the Echo unit to ones that have bought a dozen bulbs and a thermostat, and are then thoroughly entrenched in the Amazon ecosystem.

Google wants to ensure that its combined offering is as attractive as possible, and trading on the established Nest brand is key to that strategy. However, it does feel like our opinion is something of a broken record at times. Since the Nest acquisition, it has been clear that Google was in an excellent position to push its Android platform as a means to drive sales of smart home devices – which would in turn help Google squeeze more money out of its core advertising business.

Chief smartphone rival Apple would likely follow suit, hoping to trap people inside an increasingly valuable HomeKit ecosystem, and for a time, the pair seemed level – both preparing for a Fall launch in 2014 that might have blown the doors off of the smart home game, through the introduction of Android Home and HomeKit device ecosystems.

Instead, the pair stalled and managed to leave that door wide open for Amazon to stroll in with its surprise hit – a Phoenix apparently salvaged from Amazon’s abortive Fire Phone project. Its skunkworks engineers apparently developed Alexa entirely for the phone, and then were allowed to stick it inside what must have been a Pringles can for prototyping.

The design worked, and has led Amazon to sew up the smart home assistant market. Figures from CIRP estimate that the home automation device market has grown to 27m devices in the US, with Amazon’s Alexa range accounting for 20m of those devices – or around 73% share. Google is in second place, with 7m units (27%), meaning that between the two of them, there is no room for rivals.

Anyone looking to enter that market from a pure consumer electronics retail path is facing a very steep uphill battle – unless your name is Apple. The launch of the HomePod should see Apple secure a distinct third-place, although the HomePod is noticeably ($200+) more expensive than the Home or Echo, and is more of an audio rival to the likes of Sonos.

Samsung’s SmartThings strategy seems to have gone off the rails, although that might have been more of a market problem than one inherent with the SmartThings family of devices – still the most comprehensive on the market, if you can find a store that carries a comprehensive range, or if Samsung ever gets around to properly restocking its online stores.

However, we really can’t see Bixby ever threatening Alexa or Assistant in the smart home, although even a dead cat must at some point bounce. Similarly, Microsoft’s Cortana seems competent, but it seems very unlikely that it will ever make the leap into smart home hubs, given that it has no smartphone penetration and very little uptake on the PC. Xiaomi has ambition, but it is another major outlier – lurking on the edge.

Instead, it seems that smart home penetration is going to be driven off the back of operators, looking to provide Smart-Home-as-a-Service packages as a way to grow ARPU and cut churn from their core TV or ISP businesses. Comcast has just taken a major step in this market (following on from a deal with SunRun to push solar panels too), and is very well placed to try exporting its IP in a licensing model to other such operators (as it does with its X1 set tops).

Deutsche Telekom has a similar approach with Qivicon, and both companies will be hoping that 2018 proves productive for these smart home expansions. Thanks to the operators’ existing customer relationships, a SHaaS bundle can be upsold or offered as a promotion fairly easily, locking that customer into a contract and earning the company a margin on the devices supplied too. In terms of the route to a ‘comprehensive’ smart home, it is still far easier for the average consumer to pick a package from their TV supplier than it is to walk into a DIY store or retailer and walk out with an easy-to-install equivalent system – both in terms of cost and installation.