Nest has a new home within Google — and a new boss.

Employees were notified Tuesday that Marwan Fawaz is stepping down as CEO of Nest Labs, and that the smart thermostat maker will now be combined with Google’s home devices unit.

The shift, first reported by CNET, comes five months after Nest reintegrated with the search giant. Nest had been operating independently as an Alphabet subsidiary, listed as one of its “other bets.” In February, Nest was brought into Google’s hardware division to leverage the tech firm’s artificial intelligence and machine-learning capabilities, and to begin co-developing products for the future smart home.

The merger with Google’s home devices unit this week is expected to enhance collaboration between the two businesses, as the Nest team looks to accelerate growth across its hardware, software and services offerings.  

With Fawaz’s departure, the Nest unit will report to Rishi Chandra, vice president of product management for Google's home and living room products, and a 12-year veteran of the company.

Fawaz was reportedly pushed out of the CEO role as employees complained about a lack of leadership and Nest struggled to retain talent. He will continue to serve as an adviser to Google and Alphabet. No other leadership changes or layoffs were announced this week. In contrast, Google seems intent on boosting momentum within the Nest group. And for now, the Nest brand name remains.

“We are accelerating the merger of our Home and Nest teams to provide our users and businesses with even better services under the leadership of Rishi Chandra,” said Rick Osterloh, senior vice president of hardware at Google, in Tuesday statement.

Nest was co-founded in 2010 by tech luminary Tony Fadell, creator of the iPod. In 2014, Nest purchased by Google for a cool $3.2 billion. Fawaz, who was selected by Alphabet’s board, assumed the mantle when Fadell left in 2016. Nest's other co-founder, Matt Rogers, left the company in February after it was rejoined with Google. 

Several unidentified sources told CNET that Nest employees had been pushing for a new CEO for some time, citing complaints that Fawaz was more of an operations manager than an inspirational leader. One source said he was so focused on operations that the team delivered "on-time mediocre products,” rather than smart home solutions that took "big leaps forward."

Osterloh rejected the unsourced comments calling Fawaz’s capabilities into question. He said Fawaz was “a strong CEO with a track record of operational excellence,” adding that Nest’s “employee retention and satisfaction have significantly improved over his time with the team.” Osterloh and Fawaz previously worked together at Motorola.

What’s next for Nest: DERMS

Last month, GTM sat down with Jeff Hamel, head of energy partnerships at Nest, to discuss the division’s reintegration with Google. The main takeaway, Hamel said, is that Nest’s mandate has expanded.

“When we were just Nest, we were obviously just chartered with the Nest hardware,” he said, referring to the company’s web-connected thermostats, smoke detectors and security cameras. “As we are now Google, basically we have all of the Nest hardware, of course, and energy services, but now we are bringing on Google Home and Google Assistant, and we are trying to bring voice [control] to utilities, and all of that good stuff.”

Hamel said the Nest team is busy with everything from market development, to business development, to new product development. Several Nest employees are also heavily engaged in “technical resource manual” processes, he said, which are used to calculate the energy savings value their technology provides, so that Nest can establish the rebates customers receive for lowering their energy usage.

The next task is to get the rebate into the hands of customers so that they can take advantage of it. That part requires working “aggressively” with Nest’s retail partners, said Hamel, including Home Depot, Best Buy and Lowe's. Nest is also working with partners like Simple Energy and CLEAResult to enable instant rebates.

Hamel said Nest is also doing a lot more work these days in collaboration with distributed energy resource management system (DERMS) providers, including EnergyHub, Tendril and AutoGrid.

A DERMS is a software-based platform designed to improve the integration of distributed solar, energy storage, demand response and other energy resources on the grid, and to control and aggregate those resources to benefit the grid. According to GTM Research, a true enterprise DERMS platform — one that goes beyond a pilot project and doesn’t have the fragmentation of multi-vendor integrations — doesn’t exist today. As a result, the GTM Research’s North American DERMS market forecast is relatively underwhelming (with over $380 million in cumulative spending expected through 2021).

Despite that market outlook, Hamel said he’s bullish on DERMS and aggregating distributed energy resources to serve utility needs. As the world of connected products proliferates, “I think the business opportunity just gets stronger and stronger,” he said.

Over the past couple of years, Nest has been moving away from one-off programs with utilities, and moving toward participating in much broader programs that link smart thermostats with rooftop solar, electric vehicles and residential energy storage. Nest thermostats are just one of the many devices in this ecosystem, but the company has been playing an outsized role in putting these programs together, along with DERMS providers and utilities. 

“We’re doing a lot of behind the scenes to help really accelerate the market, working with a lot of different partners,” said Hamel. At last count, Nest was working with about 50 outside partners, and is aligning “very aggressively” to support them.

From the utility perspective, harnessing DERs can help the grid, by reducing pressure on an over-constrained substation, for instance. A utility-managed DER solution also enables these century-old businesses to bring new and personalized products and services to their customers. That all sounds good in theory. But, again, these types of applications remain very limited at present (as we discussed in a grid edge roundtable this week, available for GTM Squared subscribers).

Voice control and serving low-income customers

Voice control is another major focus area for Nest going forward. And it’s an area where Nest’s integration with Google’s home device group could really benefit the business.

In January, Nest launched a voice control service with Reliant as part of the Texas retailer’s Speak & Save 24 plan. The plan gives customers 24 months of price security on their electricity bill, plus a Nest Thermostat E and a Google Home smart speaker that enable customers to use voice commands to control their energy usage.

Subsequent to that, Commonwealth Edison launched a program that allows customers to report an outage or check their bill through Google Assistant.

While pushing into new territory, Nest continues to execute on its Rush Hour Rewards program, its traditional thermostat residential demand response service. The business is also advancing its Power Project initiative to get 1 million Nest Thermostat Es — its newer, lower-priced smart thermostat — into low- and moderate-income households, which spend a disproportional amount of their income on energy.

To reach the 1-million-unit goal within its five-year target, Nest has partnered with Habitat for Humanity, so that every new Habitat home built this year will get a Thermostat E. Nest is also working with Fannie Mae on a low-income mortgage product, and has partnered with SoCal Gas on its recently approved Energy Saving Assistance Program, said Hamel.

Eventually, the technology deployed in these low- and moderate-income households could be wrapped into an energy services offering. If Nest successfully deploys 1 million units, that could be a meaningful opportunity.

Overall, that’s a big to-do list in a moment of internal turmoil, though. Google is also facing increasing competition from Amazon across the smart home space.

For Hamel, at least, there appears to be focus and momentum around making some of Google and Nest’s more advanced smart home applications come to life.

“We have a lot of work to do still on making sure that these [products and services] are compelling,” he said. “We want to make sure they're engaging and that people are using them and getting value out of them — and that it's not just tech for tech's sake.”