Nest’s Tony Fadell on Smart Objects, and the Singularity of Innovation

 Before he started Nest, Tony Fadell held senior positions at Apple on the teams that created the iPod and the iPhone.
Marcio Jose Sanchez/Associated Press Before he started Nest, Tony Fadell held senior positions at Apple on the teams that created the iPod and the iPhone.

Tony Fadell is the founder and chief executive of Nest, a company that is trying to bring a high-end technology experience to some of the most prosaic areas of the home. Nest’s first product was a thermostat, which it followed with a smoke alarm.

The products draw rave reviews for their sleek physical design, but Mr. Fadell says Nest’s real success has much to do with the background technology, like networking and algorithms. These enable it to sell energy-saving services, and offer homeowners insight into what is going on inside their walls.

Before starting Nest in 2010, Mr. Fadell held senior positions at Apple on the teams that created the iPod and the iPhone and ran the mobile computing group at Philips Electronics. He holds over 300 patents.

The following is a conversation with Mr. Fadell:

Q.What is Nest?
A.We are a company that communicates to you, not just to your building contractors, about what you put in your home and why it’s important. It’s not just about turning up or down the heat, it’s about the other experiences that come with turning up or down the heat – what are we doing about energy, what are we doing about your health and safety.

We have energy services, like rush-hour rewards and seasonal savings, to consume less energy. We look at each home with sensor data and algorithms, and figure out which homes qualify. Is comfort or money your No. 1 thing, are you home a lot, does your home have great thermal characteristics? We won’t offer it if you don’t qualify.

With the Nest Protect [smoke alarm] we are reinventing something that is incredibly frustrating for most people. Smoke detectors beep. We try to give you information, like what to do in an emergency, or that there’s smoke in the kitchen. Is it a “heads-up,” or an emergency? Is it carbon monoxide? If it is, we might say you should turn off the furnace.

A promotional video for the Nest Learning Thermostat
Q.How did you get this idea?
A.I’ve been working with contractors designing and building a house on a nonstop basis since 2005. I learned about all these systems of audio, construction, electricity, energy, water systems. I started asking why are we doing this, why that?
Q.That sounds like the worst product review ever.
A.Call my contractor, he’ll tell you stories. The thermostat they showed me cost $350. I asked, “What does it do?” He said, “Well, it has a color screen, it has a calendar on it.” I wondered why I wanted it. I looked up and saw a blinking LED on my smoke detector, and asked why that couldn’t go away. He said, “That’s what we’ve got.” I wondered if that was really what people wanted.
Q.Why didn’t someone do this before?
A.People have been frustrated with these things for 40 years, but the things didn’t change much, because it was a price game. Now we have enough technology that we can optimize for really low cost points and bring a capability that has never been there before.

The key technologies are communications, algorithms, sensors and user experience, running over a network to the cloud. You have to go top to bottom, with knowledge not just of design, but of the device, the network, the data services, and back down to the sensors — and the battery life implications of all that. You need to have expertise at every one of those levels. Then we do a lot of analytics on products, sales and customer support.

Tony Fadell, left, and Matt Rogers of Nest showing off their company's thermostat in 2011.
Jim Wilson/The New York TimesTony Fadell, left, and Matt Rogers of Nest showing off their company’s thermostat in 2011.
Q.Why not just make a thermostat and partner with other companies?
A.I have not seen a true grounds-up revolution from a bunch of companies getting together. It takes one company to put it together, then people draft off of that, but they don’t build it top to bottom with a specific vision.

It wasn’t until the Apple Macintosh that people understood what true hardware-software integration was about. It took one company to line it up: low-cost hardware, cool graphics, third-party products built on top of it, in an all-in-one attractive package that was accessible to consumer marketing. Look at the iPod, the iTunes music store. People talked about MP3 players – one company lined it up. Mobile phones, one company top to bottom understood networks, data services and handsets applications, top to bottom. Same thing with tablets: It doesn’t happen until you put all those things to create one experience together.

Q.That’s a pretty Apple-centric view of the last 30 years.
A.Look at Nespresso, they changed coffee in the home. Tesla, it took one company to show it can be done. Toyota did it with hybrids. Dell did it with vertical integration of manufacturing and sales. The copycats come along after, and take some part of it. To begin, you need one company with a large, comprehensive vision, and real processes and understanding to get all the parts done.
Q.Do the incumbents in this business understand what you’re doing?
A.I don’t think the big manufacturers in this field really understand what we are trying to do. We came from the world of connected smartphones and apps. We don’t just see a thermostat with a better user interface; we see a smartphone that has thermostat functions. That is a very different thing. We don’t see a smoke alarm; we see a smartphone with a fire sensor. When you redefine the world that way, it opens it up to many more possibilities.
Q.What does it mean to have objects with awareness?
A.Every time I turn on the TV, that’s information that someone is home. When the refrigerator door opens, that’s another sensor, more information. Before, it was about one little brain and one little sensor, very tightly programmed. Now we have disparate things with an interconnection network, a brain that can evolve and sensor networks that can evolve, all interacting with these learning patterns.
Q.This doesn’t matter for thermostats.
A.That’s not true. There are people who are “just do it for me,” and people who want full control. There is another set of people who are on a different axis, they want energy efficiency and comfort, or energy efficiency without comfort. Each of our products adapts to what you like the most.
Q.What is the effect on society?
A.It allows you to become more insular and allows whatever thing you geek out on, you’ll be able to geek out to two orders of magnitude on that. We’ve already seen some of the effect with cable television – the all-sports channel, the all-news channel, the all-financial channel, and the all-shopping channel. They read the data and saw there was a demographic for that. Now it’s hypersensitive, hyperpersonalized.

Is that a good thing or a bad thing? The downside is the discovery of new things. We get locked into the music you like, never discover anything new. You go to a restaurant and always eat the same thing, versus the serendipity of finding something new. You can get constrained because everything is watching you. You have to inject that.

Q.Engineered serendipity, in other words?
A.You can’t let the algorithms take over, because people will geek out on that one dimension. You literally have to put in cool things that will be somewhat orthogonal so they’ll say, “Oh, look at this new thing.” You have to have some emotional intelligence as well as tech intelligence on the algorithm side. You have to try stuff, start somewhere cautious, and then add more and more features and services.
Q.What else are you driving your contractor nuts about?
A.Right now I can tell you 10 things, minimally, that can get changed in the house. They are all great markets with large incumbents who haven’t innovated in years.