Legrand’s acquisition of smart home device company Netatmo highlights the more prominent role an end-to-end ecosystem is playing, and will play, in the smart home market. Brands help companies stoke demand and earn new customers, and a healthy ecosystem boosts customer loyalty that leads to additional purchases. This is a trend Strategy Analytics has highlighted earlier this year in published reports (“Digital Assistant Ecosystems: Competitive Comparisons”) and commentary (“Soft Launch, Loud Message: Amazon takes a Leap into the Smart Home Security Market”).

The acquisition of Netatmo by Legrand isn’t particularly surprising. The companies have been sales partners and technology collaborators since 2015, and also in 2015 Legrand purchased a stake in the company alongside long-time Netatmo investors Bprifrance and Iris Capital. Netatmo’s team will be integrated into Legrand’s research and development group, and Netatmo founder and CEO Fred Potter has been named Chief Technology Officer of Legrand’s “Eliot” IoT platform.

Ecosystems are emerging as a critically important differentiator in the smart home market. Independent device companies still exist, but the likelihood is increasing for those companies to be acquired by larger consumer technology brands. Consumers want their smart home devices present in their homes to better communicate and interact with one another, regardless of their brand or supported digital assistant. For smart home device companies, it’s no longer a question of if they have an ecosystem, but how robust, diverse and integrated it is.

Being Acquired Gives Netatmo a Lifeline

For Netatmo, the acquisition is an important, if not crucial, next step in its lifecycle. It follows a familiar storyline: small company earns customers by designing innovative, interesting devices but struggles to generate the momentum necessary to move beyond early adopters and into the mass market.

According to Legrand, Netatmo was generating about 45 million Euros (about $52 million) annually in sales and has an installed base of more than 1.3 million devices. For a startup, this scale may be impressive, but for a 7-year-old company (Netatmo was founded in 2011) the results are underwhelming in the context of the 2018 smart home market.

It’s yet another example of the struggles small smart home companies face to compete. Innovative technology and marketing buzz can only take a company so far, especially with huge consumer technology brands such as Amazon and Google making stronger pushes into the smart home market. For example:

• In October 2018 European IoT company Smartfrog took a controlling interest in US smart home surveillance camera maker Canary. Considered at one time to be one of the leading-edge smart home camera companies, Canary has now been relegated to the fringes of the smart home market by Arlo, Nest, Amazon, and many, many other camera companies.
• Smart light switch maker NOON likely doesn’t have the firepower to compete over the long-term with Lutron, Legrand, and a host of other light switch makers.
• The acquisition of smart lock company August in December 2017 by Swedish conglomerate Assa Abloy, which also owns Yale, wasn’t surprising, as August’s small scale enabled Assa Abloy to quickly add a boutique brand to its portfolio of locks.
• Smart home surveillance camera maker Blink and video doorbell company Ring were acquired by Amazon in December 2017 and February 2018, respectively.
• Smart thermostat Nest was acquired by Google in February 2014, and in June 2014 Nest acquired smart home camera company Dropcam.

Acquiring Netatmo Bolsters Legrand’s Broader IoT Ambitions

This is less of an “add-on” acquisition and more of a “spin-in”. The Legrand-Netatmo partnership has since 2015 produced a handful of smart home management solutions such as “Celiane with Netatmo” and “Living Now with Netatmo”. These solutions combined Netatmo’s home-grown artificial intelligence and devices with Legrand’s electrical switches and power outlets to create smart home solution bundles.

Acquiring Netatmo enables Legrand to expand its consumer smart home footprint without much difficulty. Netatmo makes 13 devices, most of which do not overlap with any of Legrand’s existing portfolio. By integrating the Netatmo team, Legrand increases the amount of AI-focused brainpower and best practices for its Eliot IoT platform, which will help ease some of the growing pains the platform has experienced since its debut in 2015.