Google Axes ‘Works With Nest’ — Here’s What to Know

Earlier this week, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google division kicked off its annual developer conference, Google I/O 2019. While the new affordable Pixel 3a smartphones got much of the spotlight, the company also announced big changes with Nest, which is now called Google Nest and becoming the umbrella brand for all of Google smart home products. As part of that move and a new focus on privacy, the “Works with Nest” program will be axed by the end of August, replaced by Google Assistant. And that leaves a big opening for Google’s smart home competitors.

Everything You Should Expect From the End of 'Works With Nest'

Here’s why.

“Works With Nest” Will No Longer Work With Nest 

One of the themes at Google I/O 2019 was a commitment to privacy. Owners of Nest smart home products — now known as Google Nest smart home products — soon discovered that means big changes for their devices.

Google announced that at the end of August, it is ending the “Works with Nest” program. That means other smart home devices that integrated with Nest products will lose their access. The company is hoping product developers will release updates to make the devices compatible with its “Works With Google Assistant” program, but that requires investment on the part of the device makers. And it also means that most of these devices won’t have access to anywhere near the same data they currently get from Nest.

An Opening for Competitors

The smart home market is a big one, and it is seeing rapid growth. According to the latest numbers from IDC, shipment of smart home devices is expected to increase 26.9% year-over-year for 2019, hitting 832.7 million units. The market leaders are Amazon (NASDAQ:AMZN) and Google, with Apple (NASDAQ:AAPL) and Samsung both beginning to make an impact. Growth has largely been driven by smart speakers to this point, but for 2019, that segment is projected to slow significantly. Instead, the big gains are expected to be in categories like smart lighting and home monitoring.

According to IDC’s analysts:

“2019 will be more about tying the various devices together to form a more cohesive experience and more importantly, layering in additional services.”

And that’s where Google’s move to axe the “Works with Nest” program is going to hurt, at least in the short term. Third-party companies have already begun to notify customers that their smart home products will cease to integrate with Nest devices, “breaking” smart home systems that may have been working for years. The Verge notes that this extends to some pretty big partnerships. For example, Amazon’s Alexa will no longer be able to adjust temperatures on a Nest thermostat and users will no longer be able to ask Alexa to display video feeds from a Nest Cam. In addition, the loss of IFTTT support cuts Nest devices out of many other smart home setups.

Speaking from personal experience, I have a Nest thermostat that is integrated with both an air quality sensor (which kicks on the furnace fan to increase air circulation when elevated CO2 levels are detected), and my home security system (which uses the Nest to automatically adjust temperatures based on security status). Neither of these systems works with Google Assistant, so they are likely to cease functioning later this summer. Based on the data they require, neither is likely to work the same way, even if they are eventually transitioned to the Works With Google Assistant program.  

In other words, Google’s move runs contrary to the driving trend IDC and others see in the smart home market. The timing opens the doors to competitors to move in and gain ground on Nest in the smart home. Amazon will undoubtedly be pushing hard, and smaller competitors see an opening they are preparing to capitalize on. Ecobee, for example, is rumored to not only have a new smart thermostat in the works, but also an expansion into smart home security with a camera and sensors. 

Move Is Unlikely to Help GOOGL Stock … For Now

When Google bought Nest Labs in 2014 for $3.2 billion, it acquired the leader in smart thermostats and smoke detectors, and one of the biggest names in smart home integration. With the growth of the smart home, this had significant upside for GOOGL stock. However, for the first few years, Nest floundered under Google ownership and at one point, it seemed on the verge of imploding. The brand has stabilized recently and expanded into video doorbells, outdoor cameras and other smart home security components.

Long term, Google’s newfound dedication to privacy is likely to pay off. But in the short term, at least, there is going to be some pain as Works with Nest is shut down and many smart home adopters see their integrated systems suddenly become a lot “dumber as a result. That’s going to make Nest products a tougher sell, cause resentment and open the doors for competitors to move in.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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