Introducing a thermostat Steve Jobs would love: Nest

Can gorgeous design, learning algorithms and millions in venture capital funding make a simple home thermostat as coveted as the iPhone? If anyone can achieve such a lofty goal it’s Tony Fadell, the former chief architect at Apple (s AAPL), who led the development of the iPod and the first three versions of the iPhone, and who left Apple two years ago to start connected thermostat company Nest Labs.

While Palo Alto, Calif.-based Nest has been operating for about a year and a half, has 100 employees, and funding from Kleiner Perkins, Google Ventures and Al Gore’s investment fund, it just came out of stealth on Tuesday to reveal its smart thermostat design and energy efficiency ambitions. Nest says the thermostat is the first “learning thermostat” in the world. It will be available for $250 in mid-November, and can save 20 to 30 percent in a home’s energy consumption.

The idea behind Nest

Fadell explained to me in an interview that he and his wife (who led human resources for Apple) decided to leave Apple about two years ago to spend more time with their young children, and basically retire. But you know how that goes for the ambitious, young, Silicon Valley types. While designing a green home in Tahoe, Calif., Fadell became hung up on the lack of options for a thermostat for the home — they were expensive, not smart, ugly, and basically “crap” says Fadell. And like all good entrepreneurs he thought to himself: there’s got to be a better way.

That option ended up being getting back on the Valley treadmill, and creating one of the most ambitious greentech ventures I’ve seen to date. Nest has raised tens of millions of dollars (they wouldn’t disclose the amount) from high profile venture capitalists including Kleiner Perkins Caufield & Byers, Google Ventures, Al Gore’s investment group Generation Capital, and Shasta Ventures.

While other companies are targeting the smart thermostat market (see my article on The next home energy battleground: the smart thermostat) like Opower and Honeywell (s HON), Radio Thermostat Company of America and EnergyHub, and EcoFactor, Nest is the first company that has created an end-to-end smart thermostat service, which offers the software, a gadget and a data-filled website. Fadell tells me that everything that the consumer touches has been designed by Nest.

That’s why it has 100 people and have raised a lot of money. The team building the learning algorithms includes Yoky Matsuoka, the former head of innovation at Google (s GOOG), and machine learning expert while Stanford Professor Sebastrian Thrun is an advisor to the company.

How Nest works

What will stand out most to energy nerds like me that look at a lot of thermostats, is the unique design of Nest. The thermostat’s form is a simple circle, with a ring on the outside and a single button, that controls the entire interface. Like the iPod and iPhone, Fadell wanted to make the device intuitive and simple to use and he says for the Nest system to work “it needed to be a coveted, cherished object that sits on your wall.”

In contrast, a major problem with most thermostats is that only two out of five are programmable and of those that are programmable, only 6 percent are actually programmed by the owners, says Fadell. Most thermostats are confusing, boring, or just not smart enough to keep the home owner’s attention.

The Nest thermostat, on the other hand, is supposed to learn your energy consumption behavior and program itself, and then automatically help you save energy in a convenient way. Once installed, the thermostat takes about a week of hardcore learning to recognize the standard way you heat or cool your home, and then recommends settings that are slightly more efficient than what you already do. It also automatically turns down the thermostat at times that are convenient to you. The device also continues to do lighter learning of your behavior via pattern recognition and your manual interaction with it, throughout the life of the device.

The recommendations and energy efficient mode appear to the Nest user as a leaf on the interface, giving direct feedback on energy choices. But the automatic control of heating and cooling will likely have a bigger impact on energy use. The Nest thermostat has five sensors — temperature, humidity, light and two activity sensors — and the activity sensors can notify the device to turn down the heating and cooling when no one is in the house.

The Nest thermostat also has a feature called “time to temperature,” which shows the home owner how long it will take to heat or cool the home. Say, you set the thermostat for 75 degrees, the Nest interface could read, 75 degrees in 25 minutes, letting you know how long it will take. The idea behind that feature is that most people set a thermostat like an accelerator, says Fadell, increasing the temperature or cooling way above or below the actual desired setting. But giving the user more feedback can help curb this problem — think of it like seeing how long a download of a file will take.

In addition to the thermostat device itself, Nest has created mobile apps and a website to be able to remotely turn up or down the thermostat, and also to give far more detailed data about home energy use. For example, you can log into the Nest website and see how much money you’ve saved, how many times you’ve turned up or down your thermostat.

The smart grid and Nest

The Nest thermostat also has Zigbee and Wi-Fi chips, so that it can connect with both your home broadband connection, and also other Zigbee devices like a smart meter, or smart appliances. Fadell says that thermostats are installed only every decade or so, so when the smart grid is fully deployed he wants the Nest thermostat to be ready.

Other companies like Opower and Honeywell are using a smarter thermostat as a way to connect with and control the smart energy home. While a lot of companies have focused on fancy dashboards that can monitor and control a home’s energy consumption, these devices haven’t really caught on, and smarter thermostats seem to be a better way in.

However, Nest is one of the only companies that is directly targeting consumers for its thermostat. Nest plans to sell its thermostat at Best Buy,(s bby) via building specialty channels, and through its website. Fadell tells me the company wants to “connect with the iPhone generation where it shops.”

But at the same time that Nest is going direct to consumer, the device will clearly have a utility play, which the company is being quiet on right now. Like EcoFactor’s smart thermostat service, I could imagine utilities could work with homes that have Nest installed, to collectively curb energy consumption during peak grid events. This type of service is called demand response, and the saved energy per household helps utilities manage their grids during really hot summer days. Since the device also has ZigBee installed it could potentially connect with utilities’ smart meters, too.

Nest says that home owners can save 20 to 30 percent on their energy bills, which is one of the highest estimated ways to curb home energy use on the market. In contrast, mailed detailed energy bills from Opower are helping home owners cut around 2 percent. EcoFactor says with its similar thermostat service (but no designed gadget) it can get home owners to cut their energy consumption by 17 percent. If Nest actually takes off, utilities will be interested in working with that double digit energy reduction, though I’d like to see that 20 to 30 percent reduction validated in larger real world customer deployments.

My impressions

I think Nest is one of the more ambitious, and cool, ideas I’ve seen in the greentech space. The Nest thermostat is also beautiful and the idea is game changing on its own. However, I’m not so convinced it will work (I want it to! Prove me wrong!). I just don’t know if people will spend $250 on a thermostat, particularly in this economy. You can buy a connected, digital, programmable thermostat for $50, and $100 on the high end.

Also while Nest includes detailed instructions on how to install the thermostat (including a Nest screwdriver), installing a thermostat is actually kind of confusing. I’ve tried to tinker with some of the newer connected thermostats, and usually I end up wishing I hadn’t tried to do this myself — it involves circuit breakers and electrical wiring. Nest says it will offer Nest-approved installers, if people don’t want to install it themselves. Maybe the Best Buy Geek Squad will be able to help with this.

At the end of the day, it will take an army of Nest-inspired early adopters to convince the rest of the country and world to adopt Nest. Silicon Valley will probably rave about it, as they should, but will the other 99 percent of the country get on board with a $250, do-gooder, smart thermostat that’s as pretty as the iPhone?