As one of the higher profile companies participating in Amazon’s Alexa Fund, smart thermostat company ecobee received tens of millions of dollars from Amazon over the last few years to help ecobee develop and enhance its smart home portfolio. In 2018 ecobee launched its Switch+ smart light switch which featured an embedded Alexa hub and followed the same blueprint in early 2020 when it launched the ecobee SmartCamera. All signs seemed to indicate ecobee was next on Amazon’s smart home shopping list.

However, the writing was on the wall for ecobee when Amazon announced a new smart thermostat co-developed with Resideo at Amazon’s September 28, 2021, devices event. A little more than a month later, on November 1, 2021, energy technology company Generac scooped up Toronto, Canada-based ecobee in a transaction that, according to Generac, is “valued at $770 million contingent on the achievement of certain performance targets” and is expected to close by the end of calendar 2021.

Moving under Generac’s umbrella will let ecobee get back to its roots

Ecobee was a trailblazer when it was founded in 2007, arguably creating the smart thermostat along with Nest. Over the last five years, ecobee’s momentum has slowed. The company hasn’t released a new thermostat in almost two years and finds itself surrounded by lower-cost offerings from Nest, Resideo, and now Amazon.

Additionally, even though it has received more than $150 million in funding earmarked to help expand beyond smart thermostats, its broader smart home ambitions have either fallen flat or failed to get off the ground at all. Its Switch+ smart light switches never moved beyond a niche gadget and were quietly discontinued in mid-2020. At launch its indoor-only SmartCamera was overpriced at $180 and was effectively useless without ecobee’s $5 per month Haven smart home subscription service. In March 2020, ecobee laid off about 50 employees, or about 10 percent of its staff at that time, and indefinitely postponed its plans for smart lighting devices.

In terms of winners and losers in this acquisition, ecobee may be both. It’s a “winner” because the acquisition gives ecobee the time it needs to hit the reset button. It’s a “loser” because its addressable market will eventually be tied exclusively to Generac, a much smaller market compared to the consumer smart home market.

Generac adds an important piece to its energy management portfolio

One thing that needs to be made clear immediately that Generac is in no way preparing to go all-in in the global consumer smart thermostat market. The goal for Generac isn’t to use ecobee to go head-to-head with Nest. Strategy Analytics believes that would be a foolish endeavor for Generac. Generac’s primary business is and will remain its residential and commercial power generators.

Strategy Analytics believes that Generac is in the later stages of is assembling its next generation of energy management solutions. Over the last 18 months Generac has purchased three companies and aligned them under a new Energy Technology division tasked with expanding Generac’s portfolio of residential energy management and energy storage solutions.

How does ecobee fit into Generac’s plans? It’s quite simple, really, and in hindsight a no-brainer for Generac. Residential HVAC systems are by far the largest energy-consuming device in the home. Generac could leverage ecobee’s smart thermostats and sensors to help consumers save a few dollars a month on their heating bills, as well as support electrical grid operators’ efforts to better manage electrical supply and demand.

How will ecobee fare as a subsidiary of Generac? It depends on how effective Generac is when it comes to highlighting ecobee’s capability to enhance Generac’s energy management services to Generac’s customers and dealers. In a best-case scenario, ecobee will help Generac establish a larger footprint in a residential HVAC market and give Generac dealers a leg up against Resideo. In a worst-case scenario, ecobee simply becomes another part number in Generac’s portfolio and an afterthought for Generac’s customers and dealers.