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Nest: A small company and a big disruption enabled by cloud

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Innovation means being able to spot a trend or opportunity as well as being nimble enough to quickly adjust course to take advantage of the opportunity. It does not matter whether you were formally focused on extracting insights through analytics or simply had a flash of an idea.

Some companies are familiar to many of us but have an aspect to their story that we may not know. In a previous post, I talked about Starbucks and their new service allowing you to tweet a coffee. What these companies have in common is that they were able to see an opportunity, innovate in some way and change an industry. In fact, I was utterly surprised by how the cloud facilitated the next level of innovation.

The Nest Learning Thermostat started off as a $99 device that could learn your temperature preferences. The problem they were looking to solve was the frustration associated with overly complex home thermostats. According to Nest’s founder Tony Fadell:

“Turns out you change the temperature in your house 1500 times a year. 1500! Our thermostat learns what temperatures you like so it can program itself. It senses when you’re out and turns itself down. And we started from scratch with design, so it’s beautiful. Gorgeous hardware, easy install, fully integrated software, remote control from your smartphone.”

The Nest thermostat will create a profile based on your behavior and, in about a week, the thermostat will anticipate your needs and self adjust. Plus there is a cool mobile application integration component that can allow you to make manual adjustments.

What you may not have known was that Nest collects your information, removes your personally identifiable information and sells it to power companies. This way, the power companies better understand their clients’ needs and are better able to adjust their supply chain to serve their customer base.

Understanding customer usage patterns when the cost of coal and natural gas are only going up and ninety percent of electric power is fueled by nonrenewable coal, natural gas or nuclear power is good information for a power company to have, especially when you consider that renewable sources today will not cover the growth in demand. There is no excess in the system, according to Forbes.

Now consider a situation where a power company can accurately predict demand and adjust the supply chain, right down to the schedule of the trucks carrying the coal. In just a couple of years, Nest was able to do just that and change how the power companies did business.

It helps to understand what’s going on behind the scenes. According to the FastCompany article “Next For Nest: Building Out The Smart Grid, One Home At A Time,”  power companies had a government mandate to find ways to be more efficient and were getting nowhere.

“The energy companies have a handful of options for meeting that demand when these periods inevitably occur, but they’re all exceedingly expensive, and their various efforts to curb demand during these periods have been ineffective.”

After recently purchasing Nest, Google quickly added language to the license agreement that allowed them to reduce or increase their users’ temperature settings by a few degrees (up or down).

“…informs your thermostat of demand response events. After that, your schedule may be automatically adjusted to reduce energy usage during the event.”

As part of an opt-in program, Nest users can opt to have the power company automatically adjust their temperature settings in return for credits. Now, imagine a hot summer day in Southern California with no excess in the system and suddenly a demand response event occurs (a dangerous increase in demand). It has the power company on the verge of a rolling brown out.

However, the power company now has the ability to change the temperature setpoint for the air conditioner in your home or business on that day, as well as your neighbors who have Nest thermostats, and is able avoid the rolling brownout. That is huge!

What would the ability to stop rolling brownouts be worth to a power company?

According to Independent System Operator (ISO), the cost savings in Southern California alone is in the tens of billions per year. Imagine the savings if the entire country joined in!

A small company has the potential to not only redefine an industry’s supply chain and help it meet a government mandate, but is also able to put an end to events that occur yearly and cost the power companies tens of billions of dollars.

As you may have noticed, I have not mentioned the cloud. However, without the cloud, in isolation, Nest would not have been able to collect and sell customer usage patterns back to the power companies and would not have been in a position to help the power companies overcome a problem and satisfy a government mandate. Without the cloud, Nest would just be a cool little thermostat company.

Do you have a Nest thermostat? Let me know what you think by commenting below or following me on Twitter @GeryMenegaz.

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