With news yesterday that Google is finally figuring out how to fully integrate Nest products into its hardware suite of products (lovely ad below), I thought it would be a good time to dig into a thesis I have about the water industry. I believe the things that worked for Nest will not work for most of the hardware startups that are trying to ‘catch lightning in a bottle’ for the water utility industry. And I don’t think the strategy Google is using here will work, as I’ve expressed here, but I hope I’m proved wrong.
How Did Nest Succeed?
Most utility industry folk, and investors who are bullish on energy-tech, point to Nest as the poster child of a successful product that snuck into the power utility industry and created a new ‘market’. By 2013 when we all really started paying attention to Nest, the company was started in 2010, they’d already raised ~$100M in venture capital having been founded by a group of ex-Apple product folk (Tony Fadell being the most popular amongst them). Nest took a dormant market lacking design thinking and created a brand. Beyond creating a brand, the Nest team did two things that helped them succeed
Design/Design Thinking: The team was obsessive about design — as evidenced by the ‘Apple-esque’ attention to detail that went into the product- and were focused on the ‘jobs to be done’ by old thermostats. The company took a go-to-market approach that no other company had thought to use in the thermostat space, the company decided to build a direct-to-consumer brand and committed to a consistent brand message that made the buyer ‘cool and trendy’. Even real estate agents saw the value in highlighting a Nest when selling a home, as shared in this NY Mag article, ‘It may or may not increase in actual monetary value, but it may facilitate a faster sale. Outside of the luxury market, it’s a new niche for us to consider. It brings a differentiating factor when you’re selling a house.’.
Distribution Strategy and Channel Clarity: There was also another distribution play that Nest tapped into; the energy efficiency programs being run by utilities. Most electric utilities had just started to focus their attention on getting energy efficiency (reduction of energy usage in your home without reducing quality of life through interventions like changing lightbulbs, sealing home/windows to keep heat in, etc.) programs into customers homes and along came this beautiful Nest device that was selling direct-to-consumer and enabled the power utility to achieve the mandated energy efficiency reductions. Or at least claim to do so. Many utilities partnered with Nest to make the product part of the energy use reduction packages and it aligned with their ‘rent-on-asset’ business model. Nest also partnered with solar companies, hardware stores (Lowes/Home Depot) etc. and utilized the traditional retail model.
Jobs-To-Be-Done translating into Product Strategy: For the ‘comfort’ connected home use case (‘safety/security’ and ‘convenience’ being the other two connected home use cases) the thermostat is easily the most important product in the home. There is a clear job that the thermostat does and (using experience design and technological advancements like predictive analytics) Nest made that job much easier for the average home dweller who will always desire to feel warm when it is cold or cool when it is too hot. Had the company started with one of the other products it now has it would not have seen as much success.
These three things worked in sync, the company had impressive growth and it led to an eventual $3Bn acquisition of the company by Google in 2014.
Great story all around (despite some of the stumbles afterward); Nest succeeded in a graveyard of energytech companies, power utilities got a partner that could show them what is possible when you utilize design thinking and consumers got a product that works (most of the time) towards reducing their energy usage. Win, win, win, win.
But there won’t be a similar story in the water industry.
Interactive Water Quality Report
Why There Won’t Be A ‘Nest For Water’.
What about those three levers above explain why there won’t be a ‘Nest for Water’?
Design/Design Thinking: There is no corollary product to a thermostat in the home. While there can be many designs to beautify the faucet, the one common thing across all homes with plumbing, there aren’t many ways to i) change the experience of collecting water from a tap. Nest could ramp up the convenience factor of getting warmth or cooling from your home but there is no designing away the act of collecting water to drink, bathe or wash. ii) There is also no water product that can aesthetically convey what Nest did in a consumer home.
Distribution strategy and Channel Clarity: There are ~3K utility regions in the US and some regions are covered by the same parent company. While there is some consolidation going on within the water space, the EPA suggests that there might be 150k water systems (from public wells, municipal water systems to public companies) in the US alone! This fragmentation and difference in the structure of the water system underscore a nuance that most folks outside the industry do not understand; the motivations for why the decision makers at a water utility/system would do things a certain way are different depending on the make-up of the stakeholders. Where the Nest product clearly aligned with both energy efficiency and business model, there are no clear alignments that a water ‘Nest’ can provide to a utility.
Jobs-To-Be-Done translating into Product Strategy: There is one primary job-to-be-done attached to electricity; energy. Considering the number of jobs-to-done attached to water (cleanliness, quenching thirst, cooking food, energy, etc.) all the best to a company that expects to move the needle by picking just one of those at the expense of the others. And, show me a company that tries to address all the jobs-to-be-done by water and I will show you a company that is bound to fail.
The Bigger Problem
There is an even bigger problem with the water industry and it is that consumers do not pay for the true value of the water that comes out of their taps. We do not realize that what we pay for is not the actual water but the cost of the resources and infrastructure that goes into ensuring the water we drink is potable. Unlike the power industry where it is salient to us when there is a problem (during an outage) or at the end of the month when we pay our electricity bill for the power we used, the water industry has (up until now) no mechanism to communicate the hard work that goes into clean water coming out of your tap.
So is it possible to succeed in bringing in new technology to this fragmented and conservative industry? Obviously, our answer at Varuna is a resounding ‘Yes!’. It lies in truly understanding the levers that matter to the water utility vs the levers that matter to the consumer and finding a product (or products) that align with those levers. It comes from sitting in conversation with the utility and the consumer and listening to them till they highlight the nuances that will provide the most value. The answer is…we actually can’t tell you that :) but we believe we are close to truly understanding it. So to the question ‘will there ever be a Nest-for-Water?’ our answer is ‘No’. There will be successful water-tech companies, they just won’t look like Nest. They’ll be bigger and more impactful.