A Smart, Sleek, Money-Saving Thermostat

The father of the iPod talks about his next-generati on thermostat

Tony Fadell and Matt Rogers, both former Apple executives, founded Nest Labs in May 2010
with a mission to build a better thermostat. The startup took shape as many do, in a garage in
Palo Alto, California. The pair tinkered for over a year, until commercially releasing the Nest
Learning Thermostat, which takes an active role in saving energy around the house.

The device—about the size and shape of a hockey puck—has a sleek, modern look that is
reminiscent of the Apple family of products. That’s not by coincidence. Fadell led the charge to
design the first 18 generations of iPod, with Rogers at his side, and they both went on to
develop the iPhone.

At Nest, Fadell and Rogers have given the often-ignored thermostat more than a facelift. “It is
not just a beautiful looking thermostat,” says Fadell. “We built so much technology inside.”
Over time, the thermostat learns from the adjustments a user makes and then automatically
alters the temperature based on these patterned behaviors, as a means of saving energy.

I spoke with Fadell, founder and CEO of Nest, about the $249 gadget—now part of the
Smithsonian’s Cooper-Hewitt, National Design Museum collection—and its novel features.

You had designed the iPod and iPhone at Apple. What then made you turn to the
thermostat of all products?
When I chose to take early retirement from Apple with my family, I started immersing myself
in the design of a home in Lake Tahoe. I wanted it to be the greenest, most connected home
that I knew of, so I started researching all the different things about designing a home.
Through that, I found the thermostat problem. It just wouldn’t leave my brain, so I started
working and designing my own.

What are the biggest problems with standard thermostats on the market and how
people use them?
In the U.S., there are a quarter-billion thermostats in operation. A very tiny percentage of
those thermostats are ever programmed to save any energy, because they were too difficult to
learn how to program. The first thing that we set out to do was to make a thermostat that
learns from your behavior the temperatures you like and when you like them and then it
programs itself. We can actually get people to save energy without all the hassle of
programming and learning about it.

What is the waste, on average, in both energy and money, for consumers who
don’t use programmable thermostats?
First, between $1,200 and $1,500 per year is spent in the U.S. on heating and cooling an
average home. We typically see between 20 and 30 percent of that energy wasted because of
unprogrammed thermostats.

What energy savings can one expect from the Nest?

On average, it is about $173 per year on a small size home. So, Nest can pay for itself back in
less than two years. We see a lot of people [in larger homes] saving that much even on a
monthly basis.
There are many things we use on a daily basis that contribute to our energy use
and our individual footprint—cars, lighting, and appliances. How do heating and
cooling systems stack up?
Typically, between 45 and 50 percent of your annual household energy bill is consumed by
heating and cooling. In most homes, it is the major source of energy usage. Then, after that
comes hot water and those kinds of things. Lighting is really on the low end of the scale. We
chose to go after the biggest consumer in the home, the one that has been unloved and that
most people ignore.

How does the device work?

Ninety-five percent of Nests are installed by the users themselves. They can put them in
themselves in under 30 minutes. Then, all you do from there is turn it up and turn it down. Say
you want a certain temperature in the morning and a certain temperature when you are going
to bed. It learns that pattern over a couple of days and through that repeats that pattern
moving ahead in the future. As you change what you like, you just change the dial.

So, you are not asking people to change their behavior.

We think the number one thing here is to get people to create energy efficient schedules and
turn down their heating and air conditioning when they are not home. That is, automatically
through software and algorithms. Then, we add this thing called the Nest Leaf. Whenever you
adjust the thermostat, Nest Leaf shows up just beyond what you normally like that
temperature to be. Let’s say in the afternoon when you are cooling, you like your temperature
to be 72 degrees. Well, the Nest Leaf will show up at 72.5 or 73 degrees. Basically, it is a nudge
to help you try to find a new level of comfort and energy efficiency.

What happens when you leave the house?

Sensors in the product can tell whether you are at home. If we don’t see you active around
eight or nine or 10 in the morning during the weekdays, we suspect that you are going to work,
so we will turn that down much more rapidly than maybe if you go away on the weekend or
later in the afternoon. It depends on what we’ve learned about your activity habits over the
course of you having the Nest installed on the wall. We can adjust the temperature as soon as
20 to 30 minutes after you leave or it could be longer, like two hours. It all depends on the
activity in the home and what we’ve seen previously. As soon as you walk in the door, it will
turn on again.

Since the first iteration of Nest in October 2011, the company has released
software updates. What, in your opinion, has been the most noteworthy
improvement?
I think the biggest one that we’ve been able to do was this spring. Even with Nest, people get
settled into a schedule that they like, a certain temperature at a certain time. [A new feature
called] Seasonal Savings is a challenge that you can opt into. It will actually look at your
schedule and figure out the times where it can shave off a half a degree or degree here or
there and, over a period of two or three weeks, create a new, lower-energy schedule for you.

The other feature is called Rush Hour Rewards. In times of peak energy use, during the hot
summer weekday, when everyone turns on their air conditioning at once, it is similar to a rush
hour, where everyone tries to use the road at one time and you get a traffic jam. In the case of
an electrical rush hour, we get brownouts and blackouts, or your prices go skyrocketing
through the roof. We have algorithms that will go in during those rush hour periods, if you opt
into this, and do some shaving.

The utility has to tell us when one of these peak loading days happens, maybe 10 days a year.
Then, we send out a notice to the individual Nest owners. They opt into it, and we modulate or
control their thermostat during that time frame. If you allow us to change your temperature by
one degree, we can move 50 to 60 percent of the energy usage during those peak times to
another time or not use it at all, so that we don’t put as much strain on the grid. If you opt into
that program, the utility will reward you with dollars.

Are there specific areas of the country where this Rush Hour Rewards program
has really worked?
We have run many, many events in Austin, Texas. It is working really well. Over 90 percent of
our customers are saying, “Hey, I did it. I earned money, and I actually didn’t feel anything. I
enjoyed it.” The utility loved it as well. Everybody is working together. The program is going to
expand across the country as other utilities work in concert with us.

What is typical for the cash rewards?

In Austin, for opting into the program you get an $85 rebate. In other parts of the country, you
can get $3, $4 or $5 per event. Those add up when there are 10 events over the year.

What about other energy-saving features?

Let’s say you want a certain temperature at 6 a.m. Well, under different weather conditions,
there are different times when you want to turn on the heating. [A Nest feature called] True
Radiant understands the temperature outside [and] the temperature you want when you want
it. It turns on the system 15 minutes early, 27 minutes early, an hour and a half early—
whatever it takes to get to the right temperature without you having to guess.

Nest provides users with a free monthly report. What types of data does this
include?
We accumulate all of the savings that the Nest community has saved together. We are almost
at 1 billion kilowatt hours just 22 months since we came on the market. Then, you can see your
history of how much energy you used this month versus last month. We also break it down
into the individual reasons why you are using more or less energy that month compared to the
previous month. It could be because of the weather. It could be because of your adjustments
or that you were away. There is a whole host of factors. We give you that right in the report so
that you can make behavioral modifications if you want to save more. We also show things like
the typical nighttime temperature that people set in your region, to show whether you are
doing something that everyone else is doing or you are outside the average.