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Google’s Deal to Buy Nest: One Piece of a Larger Consumer Energy Puzzle

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(Photograph by Faz the Persian/Flickr)

With the acquisition of thermostat-maker Nest Labs for $3.2 billion announced Monday, Google might finally be arriving at the right moment in a quest for home energy data that began about five years ago with the now-retired PowerMeter.

Nest might be one of the few home energy start-ups that you recognize by name. Founded by two former Apple executives in 2010, the company’s visually appealing “learning thermostat” has quickly gained a retail foothold and plum publicity such as a plug on The Ellen DeGeneres Show. The company also makes Nest Protect, a smoke/carbon monoxide detector.  (See related post: “Can Ex-Apple Execs Turn Up the Heat on Thermostats?“)

The Nest thermostat aims to address one piece of a broader pain point for energy consumers: the difficulty of understanding—and optimizing—energy use at home. Though the proliferation of smart meters and apps for tracking energy use offer new visibility for consumers into their energy footprint, it’s not yet clear how far homeowners want to dive into the data. (See related post: “Green Button Initiative One Year Later: Got Energy Data?“) Nest allows consumers to bypass the charts on home heating and cooling, adjusting itself based on a household routine.

Google has made a number of significant investments in the energy space, including a transmission “superhighway” for offshore wind and $280 million in financing for residential solar projects. In 2009 with the launch of PowerMeter, the company hoped to provide users with a window on where and when electricity was being used in the home. (See related stories: “Banking on Connections to Spur Offshore Wind” and “Google Creates $280 Million Fund to Finance Solar Energy.”)

Dan Reicher, who oversaw the project as director of Google’s climate change and energy initiatives from 2007-2011 and now directs Stanford University’s Steyer-Taylor Center for Energy Policy and Finance, said PowerMeter “worked very well.” He fondly recalls that after he explained the PowerMeter concept to his then-7-year-old son—put bread in the toaster, watch the spike in electricity on a screen—his son ran through the house turning appliances and lights off and on to see the effect. “By the end of a half hour, he knew more about energy in the home than a large percentage of Americans,” Reicher said. (See related story: “Google Searches for Key to Energy Savings.”)

So what went wrong? When it retired PowerMeter in 2011, Google said simply, “our efforts have not scaled as quickly as we would like.” Part of the problem was that Google’s software at the time lacked an obvious hardware counterpart: smart meters had not yet been rolled out to the extent that they are today, and Google was left trying to negotiate partnerships with both utilities and independent device manufacturers.

“The energy market is a complicated one, whether you’re building wind turbines or developing energy monitoring capabilities,” Reicher said. “I think a judgment was made that this was a slower-than-usual Google product.”

Reicher pointed out that, aside from an entry point for home energy monitoring, Nest devices may ultimately give Google “an anchor into the connected home that it doesn’t currently have,” allowing it to pursue home-automation capabilities. Either way, the deal extends Google’s ever-proliferating reach into the connected consumer’s world, from thermostats to phones to televisions.

Reicher said he is glad to see Google investing in Nest, but thinks that Google should have stuck with PowerMeter. It ultimately might have been a “faster and cheaper path to home energy monitoring of the sort that Google just acquired for $3.2 billion,” Reicher said, and “Google might very well have figured out another route into the connected home” if it had given PowerMeter more time.

For consumers, Google’s Nest deal may be a double-edged sword. There are hopes that the price of Nest thermostats—now $249 and well above an average programmable thermostat—will come down now, and it may open up more of a market for the many companies seeking to help consumers manage their energy use.

On the other hand, Nest is already fielding questions about how, or whether, its privacy policy will change and what access Google will have to consumers’ home energy data. In a blog post, Nest co-founder Matt Rogers assured customers, “Our privacy policy clearly limits the use of customer information to providing and improving Nest’s products and services. We’ve always taken privacy seriously and this will not change.” But when pressed on whether Nest’s privacy policy would ever change, co-founder Tony Faddell said, “I’m not gonna say never.”