Home' Technology Review : July August 2014 Contents 74
MIT TECHNOLOGY REVIEW
BUSINESS REPORT — THE INTERNET OF THINGS
How Nest is turning its consumer hit into
a service for utilities.
● Google’s $3.2 billion acquisition of Nest
Labs in January put the Internet of things
on the map. Everyone had vaguely under-
stood that connecting everyday objects to
the Internet could be a big deal. Here was
an eye-popping price tag to prove it.
Nest, founded by former Apple engi-
neers in 2010, had managed to turn the
humble thermostat into a slick, Internet-
connected gadget. By this year, Nest was
selling 100,000 of them a month, accord-
ing to an estimate by Morgan Stanley.
At $249 a pop, that’s a nice busi-
ness. But more interesting is what Nest
has been up to since last May in Texas,
where an Austin utility is paying Nest
to remotely turn down people’s air con-
ditioners in order to conserve power on
hot summer days—just when electricity
is most expensive.
For utilities, this kind of “demand
response” has long been seen as a killer
app for a smart electrical grid, because if
electricity use can be lowered just enough
at peak times, utilities can avoid firing up
costly (and dirty) backup plants.
Demand response is a neat trick. The
Nest thermostat manages it by combin-
ing two things that are typically sepa-
rate—price information and control over
demand. It’s consumers who control the
air conditioners, electric heaters, and
furnaces that dominate a home’s energy
diet. But the actual cost of energy can vary
widely, in ways that consumers only dimly
appreciate and can’t influence.
While utilities frequently carry out
demand response with commercial cus-
tomers, consumers until now have shown
little interest. Nest Labs’ breakthrough
was to make a device that has popular
appeal. “ There’s a lot of digital Internet
thermostats out there, but Nest was able to
create a concept around it. They’ve created
something that people are relating to,”
says Mary Ann Piette, a demand response
expert and head of the Building Technol-
ogy and Urban Systems Department at
Lawrence Berkeley National Laboratory.
Once inside a home, Nest starts its real
work: gathering data. It has motion detec-
tors; sensors for temperature, humidity,
and light; and algorithms that learn resi-
dents’ habits and preferences and can pro-
gram heating and AC settings. A Wi-Fi
connection brings in weather data and
allows consumers to control the system
with a phone or Web browser.
Data is just the start. Just as Google
parlays what it knows about you into
tools for advertisers on the Web, Nest is
using its capabilities to create new types
of services for utilities to buy. “We can
go to utilities and say, ‘We’ve actually got
a lot of customers in your service terri-
tory who already have a Nest,’” says Scott
McGaraghan, Nest Labs’ head of energy
products. “And [then we] can flip it on.”
Austin’s municipal utility, Austin
Energy, is one of five utilities that have
signed up for Nest Labs’ Rush Hour
Rewards, as the service is called. Air
conditioners account for half of Texas’s
electricity demand on hot days, and that
demand for cooling drives the wholesale
cost of electricity from less than $40 per
megawatt-hour to well over $1,000.
Twelve months ago Austin Energy
started offering a one-time $85 rebate to
customers who agreed to let it automat-
ically trim their air-conditioning using
smart thermostats sold by Nest and other
companies. Each company earns $25 for
Once inside a home, Nest starts its real work: gathering
data. It has a motion detector; sensors for temperature,
humidity, and light; and algorithms that learn residents’
habits and preferences.
On a 104° day in Austin, remote control of home thermostats helped cut power demand.
6:00 p.m .
TVs, heaters, and other appliances will account
for more of the Internet-connected devices in
the average U.S. home.
n Home appliances
n Home computers and routers
6/2/14 8:47 AM
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