Google ( GOOG 1.52% ) has been trying to get into the energy business for years. In 2007, it set a goal of making renewable energy cheaper than coal, and as part of the campaign it invested venture funds in renewable energy start-ups and bought renewable energy projects.
But Google's efforts to revolutionize energy have been largely unsuccessful. It bet on solar concentrator technology, which used mirrors to angle the sun's rays toward a power tower that ran a turbine to produce electricity. But that technology has proven more expensive than conventional solar panels and is virtually dead in the marketplace. As a result, Google has essentially given up on trying to revolutionize renewables.
That wasn't the end of Google's story in energy, though. The 2014 buyout of home automation specialist Nest Labs, which looked crazy at the time, might bring the company back into the energy business, and this time it's a business Google might do better than anyone else.
Google's new energy play
The Nest thermostat might seem like just another smart device for the home, but that thermostat has the potential to be your home's automation hub. Locks, lights, garage doors, security cameras, and much more can connect to Nest, which will be able to control the household devices and even store data through Google's online products.
Where this gets interesting is with something called demand response in Nest's Rush Hour Rewards program. Put simply, demand response is a network of homes or businesses that will "respond" when a utility's energy costs are high, turning down demand in a predetermined way. Maybe it's turning off the air conditioner, delaying a washer cycle, or deactivating the charger to your electric vehicle. Demand response adds value to the utility because it can avoid paying the high cost of using peaker plants at peak demand times. Meanwhile, customers are compensated for dialing down demand upon request.
Rush Hour Rewards is Google's demand response program. While it doesn't work everywhere, if a utility in your area participates in the program you could save money by simply signing up and allowing Google to automatically turn down your load when your utility wants you to. This could turn into a big business for Google.
Why this will be a big business for Google
Rush Hour Rewards are fairly new, and it's not clear what the financial impact will be for Google, but it could open up multiple revenue streams. I think Google will be able to collect a fee from utilities, similar to the way in which demand response companies make money for providing their services, in addition to saving homeowners money. The bigger impact might be in device sales, which is a new business for Google.
Nest's line of devices is growing, now including a smoke and carbon monoxide alarm, and these device sales could become a significant portion of Google's revenue if they are widely adopted. The "Works With Nest" line of products that are made by third parties and augment Nest could open up a new revenue stream for software and firmware licenses.
On the back end, Google is using its own apps to access data from Nest-compatible products. This is another way to get people using more Google products, much in the same way Android draws consumers closer to Google.
Finally, energy Google does well
Google has proven it isn't an expert in making energy, but it is an expert in collecting and aggregating data. That's the Nest thermostat's likely role in home automation, and Google can leverage its capabilities to grow in home energy management and demand response, potentially saving consumers and utilities millions of dollars in the process.
Home automation is right up Google's alley, and this time it might have found a way to win in energy. Look for Nest to be the product that leads Google into the future of energy.