Nest Labs Reaches for a New Market

Even before Nest Labs unveiled its first product in October 2011, the start-up had a strong trailing wind of Silicon Valley buzz.

Nest, based in Palo Alto, Calif., is led by Tony Fadell, a former Apple executive with a stellar pedigree, having helped bring the iPod and iPhone into the world. He and co-founder Matt Rogers recruited an A-list team of alumni not only from Apple, but also Google, Microsoft, Logitech and elsewhere. The venture backers were Valley blue chips including Kleiner Perkins Caufield & Byers, and Google Ventures.

The product was undeniably cool - a so-called learning thermostat, elegantly designed, and infused with artificial intelligence smarts.
Still, the basic question about Nest was whether its fancy thermostats could succeed beyond a relatively small market of affluent, environmentally conscious, technology enthusiasts.

The question remains, but the progress so far looks encouraging, and on Monday Nest announced distribution partnerships with utilities that serve more than 90 million people. The utility partners include NRG Energy, its subsidiaries Reliant and Green Mountain Energy, National Grid, Austin Energy and Southern California Edison.

The Nest thermostats and software are enabling energy- and cost-saving programs, especially for using less electricity in times of peak demand. Nest is calling these offerings Rush Hour Rewards and Seasonal Savings. Some utilities are offering incentive rebates to reduce the cost of the Nest thermostats, which sell for $249.

“We’re partnering with progressive utilities to go to the next stage,” said Maxime Veron, director of product marketing for Nest.

Nest’s early expansion seems to be going well. In 2011, its thermostats were sold directly from the company’s Web site and at a few Best Buy stores. Today, Mr. Veron said, the Nest devices are sold in more than 3,000 retail stores in the United States and Canada, including most Best Buy outlets, Apple stores and Lowe’s stores - as well as on Nest’s Web site and Amazon.com.

Mr. Veron is also encouraged by the brisk “smuggling,” as he puts it, of Nest thermostats abroad. Amazon and the Nest Web site only ship them to North America, but Nest thermostats are in 80 countries, with many of them in Australia, France and the Netherlands, for example. Nest knows from the IP addresses of the Internet-connected devices. They phone home, digitally.

David Crane, chief executive of NRG Energy, said it’s too early to tell how great the demand for Nest thermostats will be. But its technology creates an easy-to-use, interactive environment that not only learns from consumers’ energy use but also communicates with them, helping people adopt more thrifty patterns of electricity consumption. “Our sector is increasingly going to be information-based,” Mr. Crane said. “And Nest is an early mover in helping raise that window.”