Links to Basic Information
Series of blog entries written by the Nest team: 
How & Why
The company began from Tony Fadell's frustrations with ugly and impossible-to-program thermostats. The company began with one product: a thermostat programmed through learning. From there, Fadell, the man who led the team that gave us the first 18 generations of the iPhone, considered the implications and detriments that come along with heating and cooling our homes. 10,000,000 thermostats are sold each year in the U.S. alone, and heating and cooling accounts for half of our energy bills. He began to think that with the right software, this product could have a real and positive impact on the world. It would be a learning thing and one that never stops learning; it would be connected to the internet and other devices; it would look good; it would give you tips and feedback on your energy use; and it would be sold directly to the consumer. With data collected on the users and their behavior, Nest could shave off 20 to 30 percent of the user's monthly heating and cooling. The Learning Thermometer turned into Nest Labs where unloved home products become simple, beautiful, thoughtful, and connected things. This product was possible significantly because the man who dreamt it up was familiar with the technology, the software, the hardware, and the IoT market. He had incredible resources and partnerships from working with one of the largest information technology companies in the world, Apple. It wasn't difficult for Nest to attract initial investors and fundings (Fadell doesn't like to talk about the numbers in interviews). People want to get involved in a company that makes people's lives easier. The team that Fadell surrounded himself with are also leaders in their fields (who happen to be his friends), whether it be technology, marketing, design, finance, engineering, etc. They are brilliant minds, innovative thinkers, passionate people. The learning thermostat is the culmination of what the company cares about: cutting waste, creating technology that makes a difference, and solving daily frustration.
Arguably, Nest's leading competitor is Opower, an energy software and data collecting startup that launched in 2007. Opower found early success with mail energy reports that were sent to consumers in envelopes that looked like bills. Opower now works in partnership with Honeywell, another Nest competitor and thermostat giant, primarily interacting with utility customers and developing new software and applications for connected thermostats. Honeywell clearly saw Nest as a large threat considering having previously sued Nest over patent infringement around the learning thermostat. It is important to recognize however, that Nest is taking strides unlike any other corresponding company. While Opower sells software and depends on other companies for the actual devices, Nest is filled with top notch hardware designers. Now under the ownership of Google, Nest is working on a whole suite of devices in addition to the learning thermostat and a connected smoke and carbon monoxide detector.
I think Nests most successful and important strategy is in selling their product directly to the consumer, unlike companies like Opower that treat utilities as the customer. In this way, Nest is focused on the relationship with the consumer--the people most directly using and benefiting from the product and educating them in the process. Nest even bought a startup called MyEnergy that helps users understand and address their home energy consumption. In this way, they are allowing the consumer--the people, the community--to be involved and aware during the data collection process. This adds transparency to the process and therefore adds to a more generative business structure. This care is on par with Nest's initiatives to save consumers money and even allow consumers to earn money with rewards programs for using the device properly. The consumer market also allows for faster product launching. This is a lesson Fadell received from Steve Jobs whose company ships 99% of everything it starts: "set constraints for your company and ship within a year." Nest is in a very powerful position right now, particularly after being sold to Google in July of this year; they are truly making headway for many new developments in the Internet of Things. They are encouraging entrepreneurs and developers to join the Internet of Things, to combine what we know about working in peoples homes with what other products can do. Nest has developed the 'Nest Developer Program' that will allow Nest products to interact with connected objects from other developers. A number of 'Works with Nest' integrations are already up and running including LIFX lightbulbs, Whirlpool, Jawbone, and Mercedez-Benz. The company is working on a variety of connected home products, representing a vast new market. With the Nest API, they are providing developers, entrepreneurs with good ideas, and interested companies, with the tools to become part of the internet of things and help make the home more aware. In this sense, Nest does a good job avoiding real competitors and, rather, accumulates collaborators.
Tony Fadell's devotion to atoms as well as electrons is also immensely important. The physical product is beautiful and the hardware comes hand in hand with the software. Artists are designing the product and taking another lesson or two from Steve Jobs--the learning thermostat is a beautiful and simple-to-use object. Nest will not stop with the thermostat and the smoke detector, this is just an entrance into the internet of things. The company is working on a variety of connected home products, representing a vast new market. Before its launch in 2011, Nest stayed under the radar; this was part of Fadell's strategy of "keeping the product special", "keeping it in house", and allowing the final launch to be exciting and powerful.
Nest has already faced a number of challenges regarding the products design. There have been unprompted false alarms in the smoke/carbon monoxide detectors, wave shut-off misinterpretation in the detectors which is potentially life-threatening, device self-heating, and improper signaling to subsidiary devices. They must be more than a company developing an old-fashioned piece of home technology with added modern microchip functionality. The products main function as a thermostat must remain of the utmost importance. I also fear that in Nest's growth and expansion and integrations with other large developers, the transparency of data collection with the consumers could be consolidated.
Nest claims its main challenge is making a dent in 50% of home energy.