Nest unleashes the power of its smart thermostat with data-driven services

Learning thermostat startup Nest plans to announce a variety of energy services Monday that, in partnership with utilities, can help consumers reduce their home energy consumption and save money on their energy bills. While Nest has been focused on selling its thermostats directly to consumers, these new energy efficiency services show the undercover power that Nest’s hardware can deliver while working with a utility partner.

Nest is initially launching three different types of energy efficiency services working with a couple of utilities in Texas, including Reliant Energy and Austin Energy, California utility Southern California Edison, and east coast utility National Grid. Nest has been working with Reliant Energy, the utility arm of NRG Energy, since the summer of 2012 to offer Reliant’s customers’ its thermostat.


Nest’s most important new service is its answer to a demand response program, which it’s calling Rush Hour Rewards. Demand response programs are widely used by utilities to better manage the grid, and utilities use them to collectively get some of their customers to curb their energy consumption during peak grid events, like late afternoon on a hot summer’s day. For Rush Hour Rewards, the Nest thermostat uses a variety of techniques to shave off energy consumption during a peak grid event, but while maintaining comfort levels within the home.

Customers opt into the Rush Hour Rewards program and agree to have their thermostat automatically managed during that time period; in return, they save money on their energy bill. They can override the programs whenever they want. Customers who participate can save between $20 to $60 per season, according to Nest.

The startup went out of its way to not use the words “demand response” in its service’s name and marketing, and it seems to have put substantial thought into how to market this to consumers to make it attractive. Nest has also been piloting Rush Hour Rewards for over two years, it said.

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Nest’s two other programs include an instant online rebate program, where customers can get one of the learning thermostats when they sign up for an energy plan, and a service called Seasonal Savings, which is a reoccurring energy efficiency tuneup. Seasonal Savings nudges the temperature or cooling slightly to see if the tiny changes affect your daily behavior. If you override those changes, the software will remember that and adjust, but Nest says that 80 percent of the time people acclimated to the small adjustments.

Behind these new services is the cloud-based big data algorithms that are the secret sauce of Nest, and which Nest has now named Auto-Tune. Now that Nest has gotten hundreds of thousands of thermostats out there in the market, and has done two years of field trials, it has been able to collect a large amount of data about how customers use and react to temperature and cooling changes. Nest uses this data about behavioral changes to inform its services and how its algorithms work.

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Nest combines this behavioral data with utility data, weather data, personal use data, demographics data and more to collectively manage the thermostats and deliver energy savings. Nest said its services sit between the consumer and the utility, and they approve eligible customers, monitor how the services are performing and how the customers are reacting.

Nest’s offering could be powerful because the company first worked to begin to build a brand and a consumer-focused buzz. Other startups are offering next-generation demand response services with utilities, including EcoFactor, Opower, EnergyHub and others. But the biggest difference between these startups and Nest is that Nest has developed and sells its own learning thermostat.

Nest was founded by a team from Apple (s AAPL), and is led by designer Tony Fadell, who developed versions of the iPod and iPhone. The company is backed by Google Ventures, Venrock, and Kleiner Perkins.