Vivint, which provides monitored security, says it plans to go public through a reverse merger with a Softbank-backed shell corporation. According to the company, most of the money raised through the deal will go to pay down debt. Though a little cash and publicly traded stock could help turn Vivint into a viable acquirer of some of the many smart home device companies that have a solid business but no real exit options.
Companies that raised venture funding in the early part of the smart home boom back in 2012 through 2014 benefited and then suffered from what I’ll call the “Nest effect.” The connected thermostat brought so much glamour to the industry, making the case that a smart home was just a few “unloved devices” away from reality. Yes, it was expensive, but it also was convenient, beautiful, and could be justified by the potential energy savings it could yield.
As the press fawned over Nest, other startups launched to bring their own version of connected devices to the market. We also saw several hubs launch that would help tie all these devices together. And when Google said it would pay an eye-popping $3.2 billion for Nest in 2014, it galvanized an entire industry. Companies that lacked significant traction suddenly had delusions of grandeur.
This continues to play out, in two ways: One, while investors saw the potential for huge returns in consumer hardware and plowed money into the industry, most of it didn’t go into new ventures. Instead, that money helped to prop up ventures that wouldn’t have otherwise gotten new rounds. And two, it made less experienced investors and entrepreneurs wildly optimistic about their valuations.
I’ve heard from at least two entrepreneurs who were fielding buyout offers during that time frame that they rejected offers they deemed too low because they had hopes of reaching Nest-like returns. And perhaps the biggest secret? For a consumer product, Nest wasn’t selling an insane number of devices.
Nest launched its first thermostat in 2011 and a second one in 2013. In January of 2013, my former colleague Katie Fehrenbacher reported that Nest was shipping 40,000 to 50,000 thermostats a month and was on track to ship 1 million thermostats sometime that summer. It also launched the Nest Protect smoke detector that year.
So at the time of the Google acquisition, Nest was shipping (not selling, although those numbers are closely tied) a little over 1.3 million thermostats, assuming a consistent trajectory. In other words, Nest was doing OK, but it wasn’t selling the number of thermostats needed to justify such a lofty valuation. In the meantime, Google was buying into the promise of the smart home with Nest, but unfortunately, the smart home wasn’t materializing in the way Google or Nest founder Tony Fadell had planned.
The catalyst for the second coming of the smart home was launched in December 2014, when Amazon put a connected speaker on the market. The Amazon Echo was an invite-only product and plenty of people doubted its utility. Then in the spring of 2015, Alexa gained the ability to control connected smart home devices, and by the end of 2016 analysts estimated that Amazon had sold 11 million Echo devices.
In roughly the same amount of time Amazon Echo had outsold the Nest thermostat by almost nine to one. In February 2018, a Google executive crowed that Nest had sold 11 million devices — seven years after the first thermostat had launched.
Nest was an example of the struggles the smart home faced in gaining adoption, but all the industry took from it was an overinflated sense of value. And this has left an overhang of good companies flogging decent products, but with limited growth and few exit prospects. Which is why we’ve seen smaller roll-ups happening thanks to EZLO and Resideo.
So now that Vivint has stock, there’s plenty to purchase should it want to create a stable of smart home brands to go along with its current smart home and security business. One challenge for the basic device companies is that Vivint already has companies making most of the major smart home components. Still, even if Vivint is in the market for them, there are a few companies that are marching along, yet — in some notable ways — seem stuck.
The first is Skybell, the maker of a connected doorbell that worked really well, but experienced production glitches that saw it lose customers to Ring and later Nest’s Hello doorbell. The company is still selling doorbells, although it does so now to security firms that then use the product in their systems. Vivint buying Skybell doesn’t make much sense because Skybell sells to Vivint’s competitors and may not want to enrich one side of Vivint’s business only for it to use those funds to compete against it on the monitored security side.
Also on the health and safety front, there’s Roost, a company that started out with low-power Wi-Fi radio tech that it embedded into batteries to add intelligence to smoke detectors. Roost now offers whole-home telematics and has several partnerships with insurance firms. What it already does feels like a logical extension of what Vivint is trying to do.
Canary is another security-focused firm that has a great product and what looks like a limited future. The company makes a standalone alarm system as well as outdoor cameras. These might make a nice addition for Vivint, although the standalone security device would compete with Vivint’s monitored security operations. And yet, there’s a large market for a device like that in rentals and dorms as well as for people who can’t afford monitored security.
When we discussed this topic on the IoT Podcast this week, my co-host Kevin suggested Wyze as a potential acquisition. I’d hate to see that happen, as Wyze has sold more than 1.5 million devices since launching its $20 security camera in 2017. It’s the opposite of Nest in many ways: selling a cheap, utilitarian device without a lofty story associated with an intuitive home, and yet it has exceeded the number of devices Nest had sold two years into having a product.
Wink is another Kevin suggestion. The hub maker was sold to Wil.i.am’s investment group in 2017, and it’s unclear what is happening with the business. The software still gets regular updates but planned products haven’t launched and whenever I request information or comment my requests go unanswered.
Meanwhile, other smart home gadget startups have been bought by bigger players that make home fixtures; Legrand, for example, bought Netatmo and Assa Abloy bought August. I’d love to see some of the better products out there find good homes and continued support, especially since more devices are launching all the time. So if Vivint’s deal, which should close in the fourth quarter of this year, can help alleviate this Nest hangover, that would be fine.