Last year Karl Dalal walked more than 1.5 million steps around Houston, each step tracked by the Fitbit Zip that was clipped to his clothes. 'I wear it religiously,' he says. 'And so does my wife.' A big reason he cared enough to keep it on was that someone else was tracking those steps, too: his employer, BP .
All that walking helped Dalal, 51, opt for a lower health care premium from the self-insured oil giant. The corporate wellness program that he also oversees just brought BP America's health care costs below the U.S. average growth rate of 6%. Around 14,000 other employees, 6,000 spouses and 4,000 retirees got free Fitbits like Dalal in 2013, and this year a few thousand more have signed up for his program.
Smart, connected devices have been pitched to consumers as agents of life improvement. Every company that makes a gadget for our shoes, wrists, cars or walls produces a torrent of data that can be directed at helping us lose weight, run faster, drive more carefully and use less energy. There's a tinge of narcissism to the quantified-self movement, but the industry is realizing there may be more value in the quantified other.
Your data combined with those of thousands of other people can tackle bigger problems such as cutting your company's health care budget or sparing the nearby utility from building another power plant.
Smart-thermostat maker Nest Labs ( which is being acquired by Google for $3.2 billion) has quietly built a side business managing the energy consumption of a slice of its customers on behalf of electric companies. In wearables, health tracker Fitbit is selling companies the tracking bracelets and analytics services to better manage their health care budgets, and its rival Jawbone may be preparing to do the same.
These companies are capitalizing on the terabytes of data they collect from consumers and, to an extent, on the largesse of taxpayers. State governments have increased the money-from $1.3 billion in 2003 to $6 billion in 2012-allocated to helping utilities manage energy demand, according to the U.S. Energy Information Administration.
In health, new rules under Obamacare broaden the incentives employers can give their staff, boosting cash rewards on premiums or deductibles from 20% to 30%. Small businesses can apply to a pot of $200 million in grants to set up such programs.
Nest founder Tony Fadell says revenue from his utility services will eventually outweigh what he makes from selling thermostats, and fatten his margins: 'We'll get more and more services revenue because the hardware sits on the wall for a decade,' he said during an interview in December in Nest's Palo Alto office.
Nest launched its energy-services programs in April 2013 and has 12 partners in the program, including Chicago's ComEd and Southern California Edison . Honeywell, considered the biggest U.S. thermostat maker by sales, has demand-response programs with 25 utilities.
For Nest, winning contracts with utilities is a slog. Nest needs to catch some utilities between three-year planning cycles and sell more thermostats. It's in less than 1% of U.S. households.
Nest's deals with utilities also vary. In some cases the utility reimburses customers $30-to-$50 a year per thermostat for the right to turn the air conditioner down on hot days to ease the load on the grid. In other deals Nest splits cost savings with the utility. Demand response programs are worth an estimated $80 per thermostat, so 1% of U.S. households potentially spells a $100 million pie that Nest, utilities and customers can split each year.
Crucial to Nest's pitch to utilities: its thermostat learns a household's activity over time through multiple sensors that detect things like temperature and movement, and automatically changes the temperature accordingly. Honeywell's thermostats don't detect movement, relying more on customer programming. Also, while Honeywell funnels all user data to utilities, Nest takes over the difficult job of parsing it and managing consumption.
'We don't let utilities control the thermostat. We don't share the data with the utility. We won't work with them if they don't agree,' says Nest cofounder Matt Rogers. Utilities define a successful demand-response program as one that lowers energy usage by 30%. Nest's servers and algorithms can reduce it by 50% to 60% at peak times, Fadell claims.
Nest's director of energy services, Ben Bixby, says 'many' utilities are in the pipeline, but it'll likely be years before the real revenue kicks in.
Till then Fadell and Rogers are trying to avoid the fate of other smart utility projects that ended up on the scrap heap. An earlier generation popped up in 2008 after federal stimulus money helped utilities upgrade their power grids to produce real-time energy data they could share with third parties.
Google and Microsoft responded with software-called PowerMeter and Hohm-that let consumers better understand their energy usage. The software was free, but both programs were shut down in 2011 due to a lack of user interest. Cisco also tried and failed to maintain an energy management system for utilities.
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