“You’re going to build a what?”
That’s what Tony Fadell’s wife, Dani, said to him in 2009 when he told her his idea for a new company. Fadell is one of the most sought-after talents in the world of gadgetry—he designed the hardware for the iPod, and headed Apple’s iPod and iPhone division before leaving his VP post to spend time with his wife and two young children, living an idyllic year in Paris.
But even before he moved back to the U.S. he was mulling over his next step. Many assumed that the 42-year old technologist would continue his brilliant career in consumer electronics. He might even become a contender to run an existing multi-billion dollar business—in electronics, in mobile, maybe even Apple.
Instead, he told Dani, he was going to build a thermostat.
Fadell explained his concept: Untold tons of carbon were being pumped into the air, with people losing billions of dollars in energy costs, all because there was no easy, automatic way to control the temperature. But what if you could apply all the skills and brilliance of Silicon Valley to produce a thermostat that was smart, thrifty and so delightful that saving energy was as much fun as shuffling an iTunes playlist?
You could revolutionize an important but neglected tech backwater—and significantly improve the environment. Within 15 minutes, Dani got it. As did the others Fadell would talk to over the next few months. These included a dream team of Silicon Valley engineers, designers, and computer scientists who became the first employees of Nest Labs, the company Fadell founded.
Investors were equally enthusiastic, and though Nest won’t disclose the size of the total stake, it is reasonable to assume that upwards of $50 million has come from a consortium that includes Kleiner Perkins, Google Ventures, Lightspeed Ventures, Shasta Ventures, Intertrust, and Generation Investment Management (backed by Al Gore, who was enchanted with a demo that Fadell gave him at TED in 2011.)
“In other green startups, ideas are incremental—we haven’t found breakthrough ideas,” says Kleiner Perkins partner Randy Komisar. “But this breaks the mold.”
Today comes the payoff, when Tony Fadell’s company introduces the Nest Learning Thermostat. It is available for preorder at Best Buy and Nest.com, and will ship in November. Units are already streaming from assembly lines in the Chinese factories that churn out advanced digital gadgets.
The Nest is the iPod of thermostats. A simple loop of brushed stainless steel encases a chassis of reflective polymer, which encircles a crisp color digital display. Artificial intelligence figures out when to turn down the heat and when to jack up the air conditioning, so that you don’t waste money and perturb the ozone when no one is home, or when you’re asleep upstairs. You can communicate with the Nest from your smartphone, tablet or web browser.
Fadell promises the Nest will pay for itself within a year or two of use, and ultimately save you up to 30 percent of your utility bill. And its presence on your wall will be less an artifact of the industrial age than a piece of high-tech art.
Can the unloved thermostat become an object of techo-lust? Will the Nest really save its users an aggregate billions of dollars? Can it spare our beloved pale blue dot endless tons of unwanted carbon?
Tony Fadell is about to find out.
Fadell got the idea for Nest Labs when he was building a green home in Tahoe. A long-time aficionado of architecture, he threw himself into the details of house design. His domicile would be as gorgeous as the products he worked on at Apple, endowed with the same love of detail. When it came to HVAC — the industry acronym for heating, ventilation, and air conditioning — he worked with architects to drill sophisticated geothermal wells to regulate temperature. Everything was looking great. And then the architects presented him with the options for the thermostats that would adorn the walls of his perfect home.
“What was wrong with them?” he now says. “They were ugly. They were confusing. They were incredibly expensive. They didn’t have half the features you would expect for a modern thing. None of them were connected, so they didn’t talk to each other. I wasn’t able to remotely control them. In Tahoe, you want to be able check on the temperature of the house or turn it on before you get there. Because it’s really cold in the winter. I couldn’t do any of that, and I was like, Why is this?”
So Fadell started researching.
Thermostats, he found, had not changed much in decades. The most popular model is known as the Honeywell Round, a white sphere circle with tiny meters indicating actual and desired room temperatures. When legendary designer Henry Dreyfus designed it, it was an instant hit — but that was 1953!
More recent, upscale programmable thermostats were not only hideous — displays were straight out the DOS era — but programming them was reminiscent of getting a 1970s VCR to tape a football game. In 2008, after a study that concluded that homes with programmable thermostats used more energy that similar ones without them, the Energy Star label was stripped from the entire category. A recent Lawrence Berkeley National Laboratory study found that “as many as 50 percent of residential programmable thermostats are in permanent ‘hold’ status.”
According to Alan Meier, the scientist who performed the study, “A large fraction of people didn’t know how to use them and didn’t have patience the learn.” The government estimates that the average home has a $2,200 energy bill, half of which is under the control of the thermostat. That means every household was losing hundreds of dollars because of that oblique gizmo on the wall.
It was an industry ripe for disruption. “Thermostats are made by very large companies with no incentive to innovate,” Fadell says. “Their customers are contractors or HVAC wholesalers, not consumers. So why spend to make them better? It’s a good business.”
How good was that business? Fadell ran some numbers. On the back of an envelope, he figured there might be 100 million homes in the U.S. Each one had between one and two thermostats — that’s 150 million. In light commercial spaces — small offices, restaurants, retail — there’s another 100 million, or so. Add 10 million more in hotel rooms. That’s a quarter billion thermostats already, and that doesn’t account for those in bigger commercial spaces! He looked deeper. Every year, 10 million thermostats are sold in the residential space alone. “That’s more than refrigerators, dishwashers, dryers; almost as much as bicycles are sold,” says Fadell. “It may not be the iPhone, but it’s bigger than most other businesses.”
On a trip back from Paris, Fadell shared his idea with former colleague Matt Rogers, who started at the company as Fadell’s intern and rose to manage teams on the iPod and iPhone. Rogers was enthusiastic, and the pair began due diligence to discover whether anyone else was working along the same lines.
“We assumed there might be someone, even some small company or startup, innovating along these lines,” says Rogers. “There was nobody.” And so, Nest Labs was born. The duo rented a garage in Palo Alto, on Alma Street near downtown, and began recruiting.
One of the first people they approached was a cell phone engineer named Shige Honjo, who was then the program manager for the iPhone. It was a dream job; Honjo worked with great people to make a hugely popular product and was making bundles of money. But when Matt Rogers invited him to the garage on Alma Street, Honjo was startled to find his old boss Tony Fadell there. That was a Friday. On Saturday Honjo told his wife that they had a decision to make: Should they follow through on the big beach house they were about to buy, or he should join a startup and save the world?
On Monday Honjo quit Apple. “The choice was to save the world,” he says.