The move shows how energy efficiency services sold to utilities and energy providers are becoming an increasingly attractive business. The news follows the announcement earlier this week that smart thermostat company Nest acquired an energy data company called MyEnergy.

Alarm.com is a Virginia-based 13-year-old company that makes wireless security and energy management systems that use cellular networks and mobile apps to enable customers to manage their homes. The security systems have connected video cameras, and door, window and cabinet sensors, while the home management system has connected thermostats and controllable lighting.

Alarm.com says it has at least 1 million subscribers for its services, and has a partnership with Verizon Wireless to use its network. Verizon is interested in renting space on its network for so-called machine-to-machine services.

EnergyHub’s former business of high-end energy dashboards.

EnergyHub, founded in 2007 and based in Brooklyn, sells software that powers the management of connected thermostats and helps utilities conduct energy efficiency services like demand response. Demand response is when power companies collectively turn down heating and cooling during peak energy times, like a hot summer afternoon. EnergyHub says it expects to have over 200,000 thermostats under management by the end of the year (the company said it had 100,000 under management back in January 2012).

EnergyHub pivoted a couple years ago and previously the company sold a line of connected energy gadgets, including a high-end energy dashboard product. Stand-alone energy dashboards haven’t taken off, particularly high-end ones. EnergyHub raised at least $18 million from investors including Acadia Woods, New York City Investment Fund, .406 Ventures and Physic Ventures.

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So it took that data and tweaked its approach. Now when it sees a slowdown it reaches out to the client to try a new plan or just make sure the clients don’t cancel. In the future it may offer new pricing plans to adjust for slack usage.

That’s just one way connected devices and the data they offer can be used for benefitting a business. But the value of constant connectivity to a firm goes far beyond that — and could change the way businesses operate. Even after a product goes out the door, the company responsible can still keep an eye on it. That has big repercussions for business and consumers — and not all of those repercussions may be welcome.

Always be talking … to your device.

For example, the constant contact can also help tweak a design or improve the function of a product — even out in the field. In a recent conversation, Splunk’s Tapan Bhatt walked me through a few examples such as the one above, where the company’s machine logging data helped businesses adjust. For example, the makers of the Nest thermostat use Splunk to analyze data uploaded from hundreds of thousands of homes, and tune their algorithms for energy performance.

Medical device manufacturer iRhythm uploads remote monitor data to Splunk to make sure devices run as expected, as well as help ensure that patients can use the devices intuitively. In many ways this isn’t new. Jeremy Conrad at Lemnos Labs pointed out to me in a conversation last month that many manufactured devices are tweaked again and again after the first manufacturing run to smooth out perceived and real flaws in the design.

The shift is that it can now happen constantly and that the changes might be implemented weeks or months after the product has been manufactured. Advertising firms and online publications have been using such data to refine their products for years. The Huffington Post’s love of A/B headline testing is well documented, while the use of eye tracking in web site design is a common practice. But more connectivity in devices means the fine-tuning and easy tracking that are common in digital products are now available in the real world.

Want to tweak a feature? Send out some software

Connected devices not only offer you the ability to get data from your goods (while software like Splunk’s helps you log and later analyse it), but it also allows you to change how they feel and function. For example, Orbotix, the company that makes the Sphero not only knows the moment someone activates one of the Bluetooth-controlled balls, but can give it new abilities with an over the air update.

This connectivity and resulting data can also help with business goals, like improving manufacturing, anticipating demand and even holding reviewers accountable for their articles as was the case when The New York Times and Elon Musk, the CEO of Tesla got in a public battle over a poor review of the electric car.

The board at the Orbotix HQ that tracks all the active Spheros in the wild.

At Orbotix a billboard in the office tracks how many Sphero’s were activated that day, that month and even over longer periods of time. If you stand in front of it for a few moments the numbers will change. Paul Berberian, the CEO of Orbotix told me that during the holiday season the numbers were changing so fast it was hard to keep up. During the rest of the year evenings and weekends were popular times for seeing the numbers flip more rapidly.

Just in time manufacturing gets a data infusion

As this data accumulates he’s finding that he can better anticipate demand and plan inventory to meet it. Perhaps if he wanted to, he could implement a similar program to that elevator company, watch the data from individual Sphero’s and when interest seems to wane perhaps the company sends a notification to the user about a new app available for the ball.

But it’s not always about the customer — this data can be used to monitor manufacturing partners or suppliers. For example, Electric Imp, which makes a tiny module that device makers can insert into their products to give it connectivity (it’s a radio with access to a cloud back end), connects its modules as they come off the line. One of the final steps in the packaging process is each module gets an ID laser-etched onto it.

This process requires the module to “wake up,” connect to its virtual machine in the cloud to get its ID number, and then tell the laser etching machine (which has its own Imp module) what number to print on it. As part of this process Electric Imp’s management can track all of its modules off the manufacturing line and get key information about yields and even product theft.

Of course the flip side of this constant connectivity is the disquieting sensation that even as you enjoy a product it’s not yours. It’s features might change at any point. Perhaps things you love about the product or even features you’ve purchased, might suddenly disappear. As a consumer, the idea of dynamic pricing can seem exciting if you don’t use something a lot, but it becomes a source of higher costs if you have a building with very active elevators, for example.

And perhaps most unsettling is the realization that these products can act as a doorway into your home, sharing information that perhaps you’d rather it didn’t. Your car tracking your trips. A toy that knows if you’ve skipped school to play video games. It’s unsettling enough that this happens on the web and with our phones. As this capability hits more devices, we may find ourselves taking the stairs instead of a connected elevator or playing with an old-fashioned doll instead of a Bluetooth enabled ball.

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Evolution of the home energy market

That Nest and Opower have emerged as the leading companies fighting over this business says something about the small and slow-moving industry. Over the years the market for devices, websites and services that attempt to get consumers to reduce their energy use — a largely unsexy and unappreciated task — has been riddled with struggling startups and failed clunky product launches.

Home energy dashboards never made a dent with consumers. Various startups from Tendril to EnergyHub realized early on that high-end energy dasboards were not the way to go. People don’t care enough about energy and didn’t want to spend money on an energy-specific device.

At the same time, residential-focused energy efficiency services from utilities have taken years to roll out in any meaningful way. Utilities are notoriously slow moving and cautious. Companies that tried to work in these markets got frustrated, too. Google and Microsoft both shut down their energy efficiency web tools after failing to gain much interest or develop any partnerships.

Opower’s entrance

When Opower launched almost six years ago, it found early success with an energy efficiency product that provided immediate value to utilities: mailed energy reports. While Opower has always been an energy software and data company, it were these mailed reports that were initially valuable to utilities that (particularly back then) had unsophisticated digital presences.

Honeywell & Opower’s iPad smart thermostat app

The Opower reports came in envelopes that looked like bills (so were almost always opened) and they used behavioral techniques (smiley faces, peer competition) to gently convince the utility customer to reduce consumption. The mailed reports were also relatively inexpensive compared to home energy devices and dashboards.

But over the years Opower has had to morph into a company that largely sells digital energy data products to utilities. There’s only so much business — and so much effect on consumer behavior — that paper reports can have.

Opower now largely interacts with utility customers through email, text messages, and websites. Its newer digital products include a Facebook app and more recently software for connected thermostats, in partnership with thermostat giant Honeywell.

Opower’s work with Honeywell and its connected thermostat product was one of the first indicators of how competitive Opower and Nest could become. The thermostat has emerged as the great hope for creating a gateway into home energy efficiency following the demise of the energy dashboard. In addition, Honeywell saw Nest as a pretty direct threat, having previously sued Nest over patent infringement around the learning thermostat.

It’s unclear how much success the Honeywell/Opower thermostat is having, given that it’s such a new product. PG&E was the first utility that piloted it and some early results suggested that customers liked using the smart thermostats and particularly liked being able to remotely control the thermostat using their iPhone.

But one of the key differences between Opower and Nest’s business models is clear through that partnership. Opower’s utility products are almost always white-labelled for utilities, so, for example, if it creates a website and system of emails and texts for PG&E customers, then Opower’s alerts are branded with PG&E’s logo. In contrast, Nest has long been focused on selling directly to consumers and building a consumer brand.

Nest emerges

Nest was officially launched toward the end of 2011, though the company had been building its technology for a year and half before that. Its core business philosophy involves the production of a well-designed thermostat that users would covet and that could also collect data about the user and learn their behavior. The thermostat can use that knowledge to shave off between 20 and 30 percent of the user’s monthly heating and cooling, and Nest has mostly focused on selling the thermostat directly to consumers.

But Nest has more recently started to move into offering utilities and energy service providers energy efficiency services. Last month Nest launched a variety of energy services, including demand response, and also this week acquired a startup, MyEnergy, that aggregates and analyzes utility data. It’s clear that one of the most important aspects of the Nest thermostat is the services that can be run based on both the consumer’s individual and the collective Nest users’ data.

Nest appears to want to maintain its brand and its ability to connect directly with customers. When it launched its energy services last month, the company told me that its services sit between the consumer and the utility. It also approves eligible customers and monitors how the services are performing and how the customers are reacting.

This direct-to-consumer approach could also prove useful if (and when) Nest launched any more connected home products in the future.

Power in the data

Essentially, both Nest and Opower are cloud-based data analytics companies that are using various — and increasingly competitive — ways to access home energy data. Nest calls its cloud-based big data algorithms Auto-Tune, and the data that is collected is from its increasingly large amount of thermostats being installed throughout the world.

Opower has built out its big data platform, Opower 4, which collects data from at least 75 utilities, processes data from more than 50 million homes, and has 15 million homes fully connected into the Opower platform. Opower is analyzing 16 percent of all of the smart meters in the U.S.

Each company’s approach has unique benefits and hurdles. Opower has been widely successful with utilities using the approach of starting out with a basic data analytics service, and adding on more complexity and control over time. Utilities are hard customers to win over, so the benefits of winning their business early is invaluable. Nest, with its direct to consumer approach, could be slightly threatening to some of the more conservative utilities.

Nest, on the other hand, has the capacity to build a consumer brand that can make money from direct consumer electronics sales as well as working with energy service providers. Opower has little consumer brand presence and mostly subverts its brand to its utility customers.

Which method will prove more successful over time? It’ll be interesting to see, but in reality there will be room for both. It’s also refreshing to see different types of innovation and execution in the home energy efficiency space — an industry that has been neglected for quite a long time.

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MyEnergy is a startup that was founded back in 2007. The company was called Earth Aid for several years, and has developed algorithms that collect, analyze and provide recommendations around utility energy data. MyEnergy CEO Ben Bixby told me in an interview that MyEnergy is already hard at work stitching MyEnergy into the fabric of the Nest service, and he thinks that the union between the two services could be a “game changer” for energy data.

Unlike some startups like Opower that collect and aggregate energy data for utilities to deliver services to their customers, the MyEnergy platform aggregates utility energy data largely to deliver energy efficiency services straight to the consumer. For example, if your utility has an online account, and you gave MyEnergy permission to link that account to its system, then the site would pull your energy consumption data into its network. MyEnergy then would use that data to offer the user recommendations for how to reduce energy consumption and also create a sort of social network around energy consumption. The important part to remember is that your utility doesn’t even have to be involved in the process.

In recent years some utilities have embraced the Department of Energy-backed Green Button program, which is supposed to make this process of collecting and managing utility energy data even easier and standardized.

MyEnergy also has a utility-facing data product, but Bixby clarified that the utility data product isn’t white labelled (the way Opower’s is), and is branded with MyEnergy. Nest said it will also use MyEnergy to provide services for energy providers, so it clearly will be using MyEnergy for both straight to consumer data services and utility data services.

The acquisition move shows how Nest is increasingly working with utilities and energy service providers on energy efficiency and energy services. While Nest, founded by former Apple designers, is well known for making a chic learning thermostat, one of its under appreciated values is its ability to collect and use energy data in new ways. The move also puts Nest in closer competition with leading energy utility data companies like Opower.

Last month Nest announced a variety of energy services that its collective thermostats can provide to energy companies and utilities. Examples of energy services include “demand response,” which is when power companies turn down power usage of a collective group during peak times (like a hot summer afternoon).

MyEnergy doesn’t provide detailed numbers on how many users it has, and Bixby would only say that its customers are found within 1,500 utility service territories. Boston-based MyEnergy had 12 employees before the acquisition, and some of those folks will be coming out west to work with the Nest team. MyEnergy is backed by Point Judith Capital, Clean Energy Venture Group, and Conservation Services Group. Nest is backed by Venrock, Kleiner Perkins, and Google Ventures.

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Cisco, a company that stands to make a lot of money by bringing the network to the disconnected objects in our lives, has released a study exploring what the networking giant is re-branding the “Internet of Everything.” On the one hand, its content is comfortably predictable – essentially a wide-eyed promise that the market is going to be really, really big. More interesting though is the accompanying blog entry by CEO John Chambers, who doesn’t just summarize his company’s findings, but actually offers an important shoutout to the Internet of Everything Economy.

My belief is that the Internet of Things (IoT) will succeed or fail based on its capacity for creating its own economy. But counting devices and multiplying by people isn’t quite the right math to satisfy this equation. The real key to IoT success is how open – and more significantly, how accessible – the technology is to independent innovators. The real numbers game counts the number of potential developers, not the number of things.

It’s economies that drive innovation

Economies are a lot more interesting than technologies, because economies tend to be the real drivers of innovation. Take Apple, which created an economy around its iPhone by designing both a platform on which third parties could innovate, and then the means to capitalize on their applications. Facebook used APIs to build their platform and create around it a diverse economy ranging from social login startups to analytics and gaming. The lesson is that if you give people the opportunity and audience, they will build interesting products.

Internet of Things exists, often badly

If you stop and look around, you will find that the Internet of Things is really already here. It quietly crept into your house on the back of consumer society’s most desirable gadgets. And moreover, we can even identify the early winners and losers. Scattered among these are the clues that suggest how we might make IoT a success the next time around.

IoT done wrong is the much maligned Internet refrigerator. Seriously? People have been talking about this dog for years now and seemingly every year some earnest manufacturer actually demonstrates yet another realization of this dubious vision, which usually consists of little more than a screen stuck onto the door like some giant fridge magnet. This is IoT designed by a committee.

IoT done wrong is all of the proprietary protocol nonsense around home entertainment. When I purchased my last TV, I also bought the same manufacturer’s BluRay player in the hope I could get away with one remote and hiding the latter in a closed cabinet. Boy, was I naïve. I finally succumbed to an expensive universal remote and an IR repeater—a brute force approach if there ever was one. This is not IoT; it is the Tyranny of Things.

IoT done right is open and integrated

It doesn’t have to be this way. Take a walk into the living room and you will find an excellent example of IoT meeting its potential. IoT done right is the Nest. A brilliant team of ex-Apple employees found a completely moribund corner of everyday technology and transformed it. They created an irresistible object of desire that quietly adapted a ponderous machine of steel and natural gas into an Internet connected device. It’s brilliant.

IoT done right is Netflix, an innovator that came up with an open API that allowed all manner of devices to integrate using simple web-based protocols. Netflix could have easily screwed this one up. They might have decided to design arcane, binary protocols optimized to support minimalist devices.

Instead, they opted for open and well-documented APIs that leverage existing web understanding. The effect was to make integration accessible instead of intimidating—and in doing so, Netflix tapped into a vast developer population. The result was a Cambrian explosion of applications and devices streaming the service. You would be hard pressed to find a modern TV, disk player, or media streamer that doesn’t now have a Netflix logo somewhere on the box.

It’s time to worry less about trying to make the Internet of Things something different. Instead, we need to focus on making it more of the same, more like, well, the internet. Declare IoT open, base it on APIs, and then step back and watch the engine of Silicon Valley engage.

Scott Morrison is chief technology officer at Layer 7  Technologies. Follow him on Twitter @KScottMorrison.

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This week the folks at Engadget dug up a patent around Google Glass using wireless connectivity to control connected devices in your home. The glasses could use any number of wireless methods — from RFID, to infrared, to Bluetooth to QR codes — to identify a connected device that could be manipulated, and then, presumably, to manipulate it.

Picture arriving home from work, and the door of your house automatically unlocks to let you in as you walk up to it. Inside, your NPR app comes on the glasses screen and you can tune in or change the channel while you fiddle with turning on the connected sprinkler system for your lawn. Your Nest thermostat app then pops up on your Google Glass screen to let you know that you’ve been good this week and saved a lot of energy, but with a wink you override the conservation mode and crank up the heat.

The scenario isn’t as crazy as it sounds and all the basic technology is there. There are mobile apps that already do all of these things. Essentially you’d just be moving the control function from the cell phone touch screen and your fingertips to the screen in front of your eye and either a facial gesture or hand movement. All devices in the home that would benefit from having connectivity and control are getting it, and there will be a variety of remotes that will control them — why not one on your face?

Move outside of the home, and the world filled with the internet of things could be controlled, too. You could unlock your Zipcar with your Google Glass app, or start warming up your Tesla Model S electric car remotely before you take it for a spin.

As Om suggested in his recent data Darwinism post, the biggest changes coming for the connected world won’t be about technology; they’ll be more about how philosophical, legislative, and political norms evolve in response to this new world. And using Google Glass as a way to be the master of the internet of things would have interesting implications for all of these areas.

Getting the design, interface, architecture and ecosystem right for such a vision will no doubt be difficult. Mark Rolston, the chief creative officer at Frog Design, has noted the challenges inherent in designing interfaces in a world where devices are both trying to understand a user’s intent, and also test out new ways to interact with them, such as motion.

But ultimately these are design issues, and designers will spend the next several years trying to humanize such an experience.

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The company has raised this round to continue its growth; it’s now shipping 40,000 to 50,000 of its learning thermostats per month. If the company’s growth continues at this current rate, Nest could reach a shipment rate of 1 million thermostats per year by the summer, say our sources. Note, that’s shipments, not sales, though the figures are clearly closely related.

Some of that growth is happening in Europe, in addition to its shipments in the U.S. Nest sells its thermostats through big-box retailers like Lowe’s and Best Buy, as well as through the online Apple store and its own online website. It’s also struck some initial partnerships with utilities like service provider Reliant. Updated: Nest clarified with me that it doesn’t officially sell its thermostats in Europe but is seeing growing interest from individual customers in Northern Europe who have bought the thermostat. The previous version of this article inaccurately implied larger growth in Europe.

Nest also plans to use the funds to offer a more comprehensive smart home service along with its product, which could include lighting and alarm systems, too, we’ve heard. I don’t know too many details about this, but will add more if I hear more.

We’ve reached out to Nest and are waiting to to hear back on these figures. Venrock investor Matthew Trevithick responded in an email and said “Nest doesn’t comment on funding.” Other investors that have backed Nest include Kleiner Perkins, Al Gore’s investment fund Generation Capital, Lightspeed Venture Partners and Shasta Ventures.

Nest previously raised tens of millions of dollars before this round. Earlier this month Nest announced that it had brought in a new CFO, Tom vonReichbauer, last at Tesla.

Nest only officially launched in late 2011, with a plan to sell its sleek learning thermostat designed by former Apple designer Tony Fadell, who developed multiple generations of the iPhone and the iPod. The thermostat, which costs $250, learns its owner’s behavior and uses smart algorithms to shave off 20 percent to 30 percent of energy used for heating and cooling. The team that built the learning algorithms included Yoky Matsuoka, the former head of innovation at Google, and Stanford Professor Sebastrian Thrun is an adviser to the company.

Nest launched the second generation of its thermostat a few months ago, which has a slimmer body and is compatible with 95 percent of heating and cooling systems in the U.S. They’re also now on version three of the software.

Nest’s growth is one of the few success stories to come out of the cleantech sector in awhile.

Updated at 11AM, April 10, 2013, to correct that while Nest is seeing interest from customers in Northern Europe, its thermostat is not officially on sale in Europe, and it’s not sending considerable shipments there. Nest didn’t disclose how many customers in Europe have bought its thermostat.

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A Khosla Ventures-backed energy analytics startup called Bidgely is the latest to go after the next-gen smart thermostat, and it has told us that it has an agreement with thermostat maker Emerson to commercialize a thermostat in the coming months that syncs with Bidgely’s energy software. Bidgely’s algorithms can take home energy data and section out which appliances in the home are consuming what amount of power, without having extra hardware or sensors on each plug or appliance.

Consumers that can get that type of data can see, for example, if their pool pump is consuming too much energy in the winter time, or if their air conditioning unit is sucking down much more power than the average (see itemized bill). Utilities could offer such a smart thermostat to customers in their areas that want to be included in energy efficiency programs. Emerson’s thermostat wirelessly connects to smart meters or a home router with a Zigbee connection.

The deal between Emerson and Bidgely isn’t all that unique in the rapidly growing energy software sector. Emerson is also working with other software startups like EcoFactor, EnergyHub, and Calico Energy to have its thermostat sync with their software, too.

Next week at a major utility conference called Distributech, all of the energy software startups and large energy giants will be touting their smart, connected thermostats; including both new thermostat models and new services. The thermostat is a unique device. It’s an object that can provide demand response services for utilities, or the collective turning down of utility customers’ energy use during peak times (like a hot summer day in Texas). Software startups like EcoFactor can create algorithms that can do this, without making the climate of a home uncomfortable for the inhabitant.

On the other hand, because of its prominent placement in the home, the thermostat also has the potential to have a unique relationship with consumers. That’s the neglected path that Nest has chosen, designing a coveted thermostat to sell directly to consumers that can shave 15 percent to 30 percent off of air conditioning and heating bills.

The thermostat is also the latest device to become part of the growing world of the Internet of Things. In this always-on connected ecosystem, everything gets a connection, all devices are made smarter with software and data and these devices can make human lives easier, more interesting or more efficient.

Nest is one of the few that’s aggressively targeting consumers. Most of the energy startups are aiming for the utility market. One of the better known collaborations around a thermostat maker and an energy software company is between Opower and Honeywell. Honeywell is the giant in the thermostat maker market, and Opower is the leading energy software player.

Make sure to watch the buzz around thermostats next week at the Distributech show. We’ll be at the event and will be covering all the latest in energy software and connected energy devices.

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BuildingIQ, founded in 2009 with research from Australia’s national research group, optimizes building management systems with a predictive engine using real time data, such as the information from weather services and the power grid. The company also has machine learning algorithms that tweak the system to make the buildings efficient but without making them uncomfortable for tenants. Think of it like the Nest learning thermostat but for commercial buildings.

BuildingIQ’s system can also work with utilities’ demand response programs, or when a utility asks building managers to turn down their energy use at peak times of day (picture a scorching mid-Summer afternoon in Texas). It has partnered with Nevada Energy on a demand response program. BuildingIQ says it can deliver 20-to-30 percent reductions in energy use from the HVAC system.

Check out this video of BuildingIQ CEO Michael Zimmerman explaining how the system works

And me interviewing Zimmerman:

The full round came from Aster Capital — which is a group with funding from Schneider Electric, Alstom and Solvay — Siemens Financial Services (SFS VC) and Paladin Capital.

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At Philips, and at conglomerates that are much more financially driven, Fadell said that the vast majority of products that the designers work on are not shipped. “Nine times out of ten, or 99 times out of 100, they would kill the project, either at the beginning, the middle or right before the product was supposed to be shipped,” said Fadell.

Tony Fadell, Founder and CEO, Nest (c) 2012 Pinar Ozger pinar@pinarozger.com

If the management changed over, and they didn’t understand what the product was, they would just cancel it, explained Fadell.

Such a culture means that designers don’t do their best work and just go through the motions of creating a product. Why put your best work into a project that is just going to be tossed in the dustbin?

In contrast, at Apple, 99 percent of projects that made it past certain milestones shipped, said Fadell. All of the workers at Apple — from the management to the designers to the marketers — had a point of view, a story to tell, and a specific customer envisioned for the product. If management changed, everyone is still on the same page. “When you’re in a culture that has a point of view, and drives to launch everything it does, you know you’re on the hook and you better bring your best game every time,” said Fadell.

Fadell spoke at our RoadMap conference in November 2012, which focused on design in the age of connectedness.

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