Nest: Turning Up the Heat on B2B Innovation Too

Nest has been a pioneer in defining the unique role that connected devices and dynamic data will play in the home and in the insurance industry.

Digital disruption has made its way into the home as seen through technology startups like Nest. These innovative solutions provide convenience, security and energy savings not only to consumers but also to organizations such as insurers. Using the internet and leveraging big data, Nest is developing an entirely new business model that creates value for both consumers and insurers.


In-home devices such as thermostats and fire alarms have been around for decades. It is not until recent years, however, that these devices have been able to leverage the internet and facilitate meaningful data aggregation to become a holistic platform. Nest is a provider of connected hardware for the home that builds sensor-based devices for monitoring temperature, smoke and carbon monoxide levels. Nest currently has three core products: Nest Thermostat, Nest Protect (smoke and carbon monoxide alarm), and Nest Aware (cloud video recording device). Unlike prior solutions, the Nest system can proactively monitor energy usage and remotely run tests or shut off utilities to prevent harmful events. The benefit for consumers is more obvious; a homeowner can operate and oversee their entire home remotely, efficiently and even be notified when abnormal behavior requires their attention.


The original value proposition of Nest was energy conservation, which has become a significant issue for both utilities companies and consumers. Utilities companies are aggressively trying to reduce energy consumption in homes by managing the supply of energy. Using Nest’s system, homeowners can reduce their future usage 10-12%, or, $131-$145 estimated savings per home per year [1]. After successfully saving billions of kWh’s of energy in the US, Nest’s value proposition evolved into overall risk mitigation and the company continued to rollout additional connected devices including smoke alarms and in-home cameras.


Insurance companies quickly saw tangible value in these risk mitigating devices and knocked on Nest’s door. Currently, insurance companies are spending billions on claims and actively seeking solutions to mitigate these problems. Nest recently announced partnerships with two of the largest American insurance companies, American Family Inc. and Liberty Mutual, through which Nest provides further savings to its users [2]. With that, a company that was originally labeled a consumer “tech toy” became a bonafide catalyst to change in the B2B insurance industry.


For the first time, Nest can be provided to consumers for little to no cost and receive a discount of up to 5% on their insurance premiums [3]. These savings are ultimately passed from the insurers to the customers. Because the consumer provides insurance companies with the in-home data gathered by the Nest devices, insurers typically give the device to consumers at no cost.  This partnership isn’t just a new revenue stream for Nest, it’s also a new marketing and distribution opportunity. By the insurance providers having access, they can proactively prevent fires and burglaries from occurring, drastically reducing insurance payout costs [4].


Any disruptive innovation has its critics. Despite the many risk management benefits that Nest brings to the home, consumers are becoming increasingly concerned about their privacy. Nest collects a massive amount of proprietary data from their thermostats and other in-home devices, which is ultimately flowing to the Google cloud (Nest was acquired by Google in 2014) [5].  Consumers associate Nest with the tech behemoth’s parent company and as a result, are skeptical to what will be done with their private in-home data.


There will inevitably be privacy concerns with the digitization of the home, but it is important to recognize the value that this technology and its associated data has provided to the safety of homeowners. Nest is just one company in a wave of startups trying to capture a slice of this multi-billion-dollar market. It remains to be seen if they are the true winner in the space and will need to become ubiquitous in homes in order to reap the true benefits of these insurance partnerships. Regardless, Nest has been a pioneer in defining the unique role that connected devices and dynamic data will play in the home and in the insurance industry.


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[1] From Nest Website, , Accessed November 2016


[2] Nest Protect Users Get Insurance Discounts, Big Data Concerns, From Digital Trends, , Accessed November 2016


[3] From Nest Website, , Accessed November 2016


[4] Google’s Nest Announces Security Cam, Pushes Into Home Insurance Market, From Forbes,, Accessed November 2016


[5] Google closes $3.2 billion purchase of Nest, From CNET,, Accessed November 2016


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Student comments on Nest: Turning Up the Heat on B2B Innovation Too

  1. Thanks for putting this together Gabby! What I found interesting is how they were able to convert from B2C to B2B. There are a couple questions that I have. Do you know if Google is using any of their Nest data in their other online spaces? If I constantly keep my house cold would I begin to see ads for blankets and sweaters on my internet searches? Do you also know if there has been any malignant use of the data coming out of these homes? I have previously heard that burglars would hack into other smart thermostats and were then able to see when the home-owners had set the device to ‘vacation’ and then break into the home while the family was gone.
    One final thought on this would be that Nest / Google should partner with EnerNOC which provides ‘virtual power’ to the grid by shutting down or limiting high energy users. If Nest could collectively raise (or lower) the temperature in 1,000’s of home they could sell this ‘excess’ power to the grid and then reimburse their customers…

  2. Great post, Gabby. I also found it really interesting that they were able to transition into some B2B relationships to help their distribution. I wonder if there are other potential B2B partnerships that could further help them expand. They could potentially partner with utilities companies to promote their Nest Thermostat products.
    I also liked the point you brought up about the effects of Nest being owned by Google. I can definitely see how this might make some people uneasy about adopting the product given how data privacy is a a common customer concern around Google’s core products.

  3. Thanks for posting this, Gabby. Prior to reading this, I knew about Nest but did not know they had converted most of their business from B2C to B2B. While it appears Nest is currently focused on growing out their B2B platform, I’m curious what else they can be doing on the B2C front to grow their market share and take advantage of their first-mover advantage. One thought which comes to mind is to change their business model and give the devices away for free to consumers (or for a very minimal cost) and charge a monthly membership fee. The fee would be justified in the sense that customers would be saving more on their monthly utility bills than they would be paying for the monthly fee. I see this similar to what Apple did with the iPhone. This ensures that when Nest introduces new models in the future, users continue to use the product because all they have to do is continue paying the monthly membership free and get the device for free.

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