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When Apple’s former Chief Architect Tony Fadell, who designed 18 generations of the iPod and 3 generations of the iPhone, took the stage at GigaOM’s RoadMap event last Thursday, he did so with a spring in his step. Why? After 18 months of operating in stealth mode at his new company, Nest, he emerged with a product that he felt was revolutionary. And it isn’t a tablet or some other ingenious design that will change how we listen to music, watch movies or access information. Instead, it’s a thermostat.
Nest estimates that its smart thermostat can reduce its customers’ home energy use by 20–25 percent, or about $250 dollars on an average annual home heating and cooling bill of $1,200.
But before we dive into how home energy management (HEM) can save consumers energy and money, we should consider why HEM has struggled, despite the clear advantages, and whether Nest can show the industry what it can do better.
I see three important strategies that distinguish Nest from others.
- Start with design, not sustainability. Fadell has spoken about how his children have caused him to think about the environment they will inhabit, but he went after the HEM market from a product-design perspective. Describing the thermostats he saw when building his new home, he said, “They looked like PCs from the 90s. They were all square, beige, the same kind of LCDs, the same kind of interfaces, nothing innovative at all, and they were very expensive.” He set out to design something unique, simple and beautiful. Tesla, one of the few great design companies with a sustainability angle, took a similar tack when it designed a one-of-a-kind electric vehicle, the Roadster, at $109,000. Now that it has established itself as the brand for innovation in electric cars, it is going after a larger market with its base-model S sedan ($49,000 after U.S. federal tax credit), which is due next year. Starting with exceptional design makes the sustainability pitch a lot easier.
- Market to the consumer. One of the reasons that thermostats are ugly and unimaginative is that they are chosen by contractors, not homeowners. Only because Fadell was building his own home did he look at hundreds of thermostats and decide to build his own. The problem of smart, energy-saving devices not being marketed at consumers transcends HEM. Think about smart meters and how they are designed for utilities. It’s not a coincidence that Best Buy is rolling out HEM sections at the same time the Nest thermostat is being released. Best Buy is selling what it believes is a must-have product.
- Imagine the entire product. In 2005, Fadell noted, “You have to imagine the entire product in advance before you build it.” In the past two years, both Tendril and GE have shelved HEM products, explaining that they were too expensive to build and pivoting toward minimal hardware combined with software that runs on iPads and iPhones. While I think these companies did the right thing by leveraging great existing hardware devices, I could never imagine such a move taking place at Nest or Apple. The culture at these companies is to consider the design process and the final product before building. From the product design to the cost of production to the value to the consumer to the marketing, it all has to be imagined in advance.
The thermostat market represents 10 million units sold per year. Fadell wouldn’t give numbers, but he said that designing Nest cost about as much as designing the iPod. If Nest can grab 5 percent of the market, it will have revenue of about $125 million per year toward making up that investment. More importantly, it could do what Tesla did for the EV and what Fadell did for portable music: It could take something ordinary and make it beautiful, easy to use and, yes, energy saving.