When Google bought Motorola in 2012, its mandate was to get more millions people on the mobile web. Now with its $3.2 billion purchase of Nest Labs, Google could get millions of homes connected to a different kind of web: an energy management system powered by Big Data.
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The sexy world of smart homes aside, one easily overlooked but important part of Nest’s business is energy management. Though the company has booked an estimated $275 million in sales from its Leaning Thermostat since the device first went on sale, the company launched this small but growing revenue stream for itself seven months ago, a lucrative service it sells to energy utilities that helps them better manage the energy demand of households.
Nest founder and CEO Tony Fadell told Forbes last month that his company had struck deals with close to 20 utility companies, who paid Nest $30 to $50 per thermostat annually, to manage the energy usage of Nest customers who had opted into their utility’s demand-response program.
As part of the program, Nest temporarily take over the healing and cooling of a homes for a set period, perhaps a few hours, and customers are notified that an “event” is set to happen some time beforehand. When Nest does this over multiple homes in a neighborhood or county it can, Fadell claimed, lower energy costs for utilities by 50%, by re-routing peak energy being used in empty homes.
“We know how many people are home during those times,” he said “We know which homes have cooling, we can go through the data and we can say we believe we’re a five megawatt power generator or 10 megawatts in this county. That’s what we can deliver – 50-60% of the energy that was consumed in that window has been shifted away.”
The services makes Nest a middle man for utility companies, meaning that Google itself will now play a role in managing energy efficiency programs across wide swathes of home and even counties – something that Google has been keen to do for some time.
Google has already been trialling its own smart thermostat project called EnergySense, according to reports out in December, which lets consumer monitor and manage their energy use. Much earlier, in 2009, Google also launched a web-based energy management tool called PowerMeter, then closed the project in 2011, saying it hadn’t scaled as much as the company had hoped.
The answer seems to have been not in letting consumer manage their own power consuming, but getting a third party like Nest to do the job, infiltrating homes by way of a attractively designed, wireless gadget.
“The thing that is so interesting about a thermostat as entry point is that a very large percentage of the cost of energy of a home goes through the thermostat,” said Rob Coneybeer, one of the early investors of Nest.
Nest has been able to “crack” the smart home like no other company, says Peter Nieh of Lightspeed Venture partners, another one of Nest’s backers.
How might Google’s acquisition impact the growth of Nest’s energy management services? Nieh didn’t care to speculate, only saying: “What Google has done well is they have a track record of making substantial acquisition and making them very additive.” While Motorola was “still in the works,” DoubleClick, YouTube and Android had all become integrated but somewhat independent parts of Google’s drive to get more people on the web.
“I don’t think you’re going to be surfing the web from these [thermostats] but they will be connected and with Google they can’ only be enhanced and made more meaningful in consumers’ eyes,” Nieh said.
Here’s Nest co-founder Matt Rogers telling us what Nest has learned from Apple, a company that till today, many thought would be acquiring the Learning Thermostat maker:
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