Connected Device Market is at ‘Transition Point,’ Nest Labs CEO Says

DENVER -- The connected device market is at a “transition point,” said Nest Labs CEO Tony Fadell during a Q-and-A session following his CEDIA Expo keynote speech Wednesday. “The old brands you have known are not necessarily the brands you are going to be installing in the next two or three years,” Fadell predicted, citing a “major sea change” that’s occurring in the cloud-based, app-driven world.

Fadell, a designer whose resume includes fashioning the iPod and iPhone before devising the Nest learning thermostat, said companies that embrace the app-based world and cloud services -- and understand safety and security and user experience -- “may not be the same ones you knew 10 years ago.” He encouraged integrators to talk to their vendors to determine whether “they get it” or are “perfuming the pig” by simply labeling a product connected as opposed to “reinventing the experience.” He encouraged integrators to talk to one another about their experiences with connected products to find out what’s working and what isn’t.

If it takes installers a week to integrate a product because they don’t have the right tools from a manufacturer, that could indicate “they don’t really understand the experience,” Fadell said. While integrators have long staked their claim in the home on technology products that are not from the do-it-yourself realm, Fadell said products that can’t be installed by a hobbyist or a friend down the street might indicate the manufacturer doesn’t “really understand experience.” Nest and the iOS devices he designed have succeeded because of the experience, he said.

Although the look of the Nest is part of its popular appeal, Fadell shunned the technological “fashion” of touch screens and buttons. “Just because you can, doesn’t mean you should,” he said. He spoke of touch screens on car infotainment systems where menus are “six layers deep,” calling the designs for a vehicle “a disaster.” An interface should be chosen based on application, he said. The reason he selected a dial to control the Nest is because “99.9 percent of the time, all you're doing is turning it up and down,” Fadell said. He envisions a “revolution” in interface design across home automation product categories as manufacturers “get down to the basics. There’s a reason why we didn’t put 25 buttons on an iPhone,” he said. An audience member who identified himself as from Samsung asked what convinced Nest that consumers want more energy management tools. Fadell said a manufacturer can’t ask consumers what they want because they'll tell you “buggy whips and faster buggies.” Manufacturers should be thinking instead about creating a new experience for customers, Fadell said. “You have to tell them what they want through marketing,” he said.

The AV industry isn’t at the top of Fadell’s world, which is about comfort and energy savings. He said a typical electronics installation starts with AV and then “maybe ends up at energy.” Fadell sees that changing, citing the arrival of products such as Apple TV. “You used to have huge racks and now it’s getting down to one box, and maybe it’s even in the TV,” he said. Integration, he said, is going to shift to convenience and energy. Other things that can integrate with the Nest in a connected home include fans and shades, and those are the types of relationships Nest is seeking among CEDIA vendors.

Potential commercial partners can expect a vetting process with Nest to approximate that of a company developing an iOS app. “This is not going to be a free-for-all Android kind of thing,” Fadell said. Nest is concerned about user privacy and security, he said, referring to recent articles about smart homes or cars being hacked. “That is the way to ruin your brand,” he said. Fadell encouraged potential partners to be creative. “I would've never dreamed where the iPod connector went and then where iPhone went,” he said, adding he’s looking forward to “dreaming together” what future Nest-based experiences will be.

It hasn’t been all glory for Fadell’s designs, and his portfolio has its share of failures to draw on, too, he acknowledged. Before starting Nest, Fadell was senior vice president of Apple’s iPod division and is often referred to as the “father of the iPod.” However, before that and the iPhone, he helped develop a personal handheld communicator at Apple spinoff General Magic and later started the Mobile Computing Group at Philips, where he was chief technology officer. The General Magic device was a “disaster,” with only about 10,000 units sold, he said, describing it as being like the iPhone, but “20 years too early.” The company probably “gave away” about half of them and lost about $500 million on the devices, he said. “The market wasn’t ready” for it, he said. But from the experience, he said, he learned several important lessons, including not to provide too many features in a device, not to “over-engineer” it, and to provide features that consumers want, not what the developers want. The General Magic device took too long to get to market and took four hours to explain to consumers how to use it, he said.

Fadell didn’t want to rush making Nest’s application programming interface available to third parties, he said. It took three years after the iPod’s launch to introduce the Made for iPod licensing program, and Apple didn’t launch the App Store until a year and a half after the first iPhone’s launch, he said. It “takes time to create a loyal customer base” and “create a platform,” and to “do it right,” he said. Nest is now “ready” to expand its platform, he said.

More than 800 people attended the Fadell keynote, “by far the largest” attendance ever for a CEDIA Expo keynote, CEDIA Director Gordon van Zuiden said before introducing Fadell. Some in the custom integration channel had blasted CEDIA pre-Expo because they felt Fadell was a poor choice for keynoter. For example, one posting on CEDIA’s Residential Systems blog (http://xrl.us/bpv2ko) called Fadell’s Nest a “gorgeous and completely useless device for any integrated system.” The writer, who identified himself as Orrin Charm, automation product manager at Gefen, sarcastically beckoned attendees to show up at the keynote “with a big basket of rotten tomatoes” to show Fadell “how much we appreciate all that he’s done for our industry.” Still, the audience greeted Fadell warmly when he was introduced, and Fadell gave every indication he knew he was walking into a possible minefield. Using slides, he started off by acknowledging the negative comments that had been made online about him, including Charm’s, without listing Charm’s Gefen affiliation. But Fadell said he’s accustomed to playing the role of the “new kid on the block,” and hoped his talk would appease detractors who fear that Nest Labs is no friend of the custom integrator channel.

Besides the record turnout for the keynote, there were several other early encouraging signs for this week’s CEDIA Expo, said van Zuiden, who’s also president of custom installer cyberManor in Los Gatos, Calif. First-day attendance was up almost 8 percent from last year, while the number of exhibitors was almost up 5 percent from 2012 and the number of new exhibitors was up about 20 percent, he said.

More than 1.5 million home automation systems were installed in the U.S. last year and that’s expected to grow to 8 million by 2017, said van Zuiden, citing ABI Research data. A “driving force” of the recent growth has been the “advent of broadband Internet to the home and later throughout the home over wired and wireless distribution methods,” he said. Nearly 75 percent of U.S. homes now have a broadband-supported networking infrastructure that allows them to install network-connected devices there, he said. “In many cases, the foundation of that network was put in place by a CEDIA member,” he said. The “tipping point” for the sector came April 3, 2010, when the iPad launched and “changed our industry forever,” he said. It created an “affordable, high-resolution graphical interface that we all instinctively know how to use,” he said. To date, about 700 million iOS devices and “nearly a billion” Android devices have been sold, so “we live in a world” where many people are always walking around with a connected, touch-screen device that they know how to use, he said. Every CE manufacturer now has an iOS and Android app for their products, he said.