Inside Ecobee's plans to outsmart Nest

When Rohit Sriram shows me around the audio lab he's bootstrapped in a back corner of Ecobee's headquarters in Toronto, I sense a heavy vibe of basement man cave -- sans the Pearl Jam poster, bar and mini-fridge.

Jumbles of wires snake around the floor. A simple, comfy gray couch is in the corner by a 39-inch flat-screen TV. Dark gray sound-absorbing panels line the middle of the windowless walls. There's also a wooden easel on wheels holding an Ecobee4 smart thermostat and two Ecobee Switch Plus smart light switches.

Ecobee, a smart-thermostat maker, has big dreams beyond controlling the temperature in your house. Sriram is part of the team working to achieve those dreams and beat their biggest rival, Nest -- the device maker helping drive Google's smart-home ambitions.

Based on what I'm seeing, it's going to be a messy fight. There's a huge opportunity for the winners in this market, with Google, Amazon and Samsung investing billions to own parts of the new smart home. Analysts predict we'll spend a staggering quarter-trillion dollars on smart home gear -- including TVs, thermostats, lightbulbs and speakers -- by 2022.

Sriram, a lanky and enthusiastic 34-year-old product management director, taps a few commands on a keyboard and fires up an audio test. Suddenly, one of the five speakers mounted on stands around the room starts blaring out Happy by Pharrell Williams. Another speaker chimes in with a rotating cast of voices saying, one at a time, "Alexa, add buy Panasonic earbud headphones to my to-do list" and "Alexa, what time is it in Hong Kong?" He's blasting the Ecobee devices with noise -- lots of noise -- to make sure the gadgets can pick up voice commands.

Sriram stress-tested the thermostat's built-in speaker last year by playing a snippet of Adele's Hello over and over again for a full day. "Our previous audio lab wasn't soundproof, so engineers and others sitting outside would just go insane," he says with a big laugh.

An audio lab, even a bare-bones one, at a thermostat company might've seemed out of place a few years ago. But the thermostat -- a device you probably never even thought about unless it broke -- has gotten a major makeover. Smart thermostats from Ecobee, Nest and others now adjust temperatures using artificial intelligence and real-time weather reports. You can also use apps on your smartphones and even your smartwatch to dial up the heat or air conditioning while you're on your way home.

And, yes, Ecobee's thermostats now have built-in smart speakers that will play music whenever you like.

It all ties into the plan by Ecobee co-founder and CEO Stuart Lombard to build the "helpful home," a house that will do more for you by predicting what you might want and help you save on heating and cooling bills.

"Our vision is of this helpful home that listens, learns and responds to your every need," Lombard tells me during my visit to Ecobee in late May.

Imagine your house almost becoming like a honey bee colony. But instead of bees buzzing around in unison to keep things running, the home's hive mind is made up of a smart thermostat, temperature sensors, light switches and reams of data.

"These technologies will become a part of home living," Sotirios Kotsopoulos, a research associate at MIT Design Lab, tells me. "It's an inevitability."

While that technological shift may be inevitable, Ecobee's place in that transformation isn't a sure thing. For the 370-person company to compete against tech behemoths like Amazon, Apple and Google's parent, Alphabet -- which bought Nest in 2014 -- it has to know more about our likes, dislikes and habits than its rivals do.

To do that, Ecobee has figured out more ways for its gadgets to track how we heat, cool and move inside our homes, which it says can make us more comfortable, help the environment and save us money. But company execs know it may be a hard sell to privacy-minded consumers not keen on the idea of sensors, speakers and cameras keeping tabs on us throughout the day to make that "helpful home" happen.

"The key for us is not to try and out-Google Google," Lombard tells me during my two-day visit to hear Ecobee's pitch. "Our strategy is really built around focus and innovation. And I think if you look at the thermostat specifically, we're delivering more innovations to the market faster."

Check out the extended YouTube cut of CNET's Ecobee video here.

The Hive

When I arrive at Ecobee's headquarters, Lombard gives me a quick tour of the place, which is on the sixth floor of an office building overlooking Lake Ontario. The 11-year-old privately held company, which has raised about $150 million in funding to date from Amazon and other investors, just moved into the new space in September.

We walk past clusters of desks sitting on green or blue carpets spread out on the bare concrete floors. Most of the walls are covered with floor-to-ceiling whiteboards, scrawled with fragments of ideas and bits of code. There's also a ping-pong table, a casual dress code, cleverly named conference rooms and plenty of telltale signs of a Silicon Valley office even though we're in Toronto.

Ecobee's name is an homage to honey bees' ability to regulate their hives' temperature, so wherever I look, I see references to the insects, like the company's logo at the front desk and honeycomb-shaped designs on the walls. The headquarters is even nicknamed "The Hive."

Lombard comes across as an easy-going, approachable 53-year-old who would have fit comfortably in a supportive dad role in a 1990s sitcom. He has short brown hair that's graying at the temples, wears brown glasses and speaks softly, like we're in a library.

We chat in a corner of the office's main lobby and meeting space. It's when I ask about his family history that I get a sense of what drives him. He tells me about the harrowing early life of his German-born mother during World War II.

After their house was bombed at the end of the war, his then 13-year-old mother and his grandmother tried to flee Germany. To avoid capture by the quickly approaching Russians, who were known to mistreat Germans, his grandmother pulled out a gun and threatened to shoot herself and her daughter if a British colonel didn't agree to rescue them. The colonel agreed. His mother eventually managed to get to a refugee camp, then the UK and on to New York, where she met Lombard's American father.

That story instilled in him -- perhaps counterintuitively -- a sense of optimism, to not be bowed by challenges. "She had a childhood where she lost everything," Lombard says about his mother. "It stuck with me, from the perspective of how lucky we are to live in the world that we live in, the society that we live in, and have the opportunities we have."

Lombard, a Virginia native whose family later settled in Canada, in 1994 co-founded his first startup, the internet service provider InfoRamp, which he took public. In 1996, he became co-CEO of the encryption company Isolation Systems, which he later sold.

He then spent eight years as a venture capitalist  But he quit the VC world because he longed to work on his own projects. In between jobs, he'd gotten interested in the environment and set out to reduce his own carbon footprint, spending thousands to buy a Prius and to install solar panels on his roof. He thought consumers needed more ways to help the planet that didn't cost as much as a new car. So in 2007, Lombard co-founded Ecobee with the goal of inventing a Wi-Fi-connected thermostat that could help people reduce their energy consumption.

A connected thermostat might not seem an obvious place to start, but it made sense to Lombard since practically every house, apartment and office in the world has a thermostat. But despite their names, programmable thermostats can be infuriating to program, so plenty of people don't do it. Without realizing it, many of us are allowing our thermostats to excessively heat or cool our homes, even when we're away.

"Heating and cooling represents 40 to 50 percent of your home's [energy consumption]," said Fatima Crerar, Ecobee's director of social impact and sustainability. "It's a significant part of the impact that each one of us is having as a homeowner every single day."

Though none of Ecobee's founders had any experience with heating and cooling systems, they figured they could do better. Ecobee started selling what it claims was the first ever Wi-Fi-connected thermostat in 2009. It had a touchscreen and could be controlled using a smartphone, but it also cost $385 and its beige, rectangular housings didn't look much different than far cheaper programmable thermostats.

In 2010, Apple executive Tony Fadell, considered the father of the iPod, started Nest. Though Ecobee got a head start, Fadell and his team jumped way ahead of Ecobee when they introduced the Nest Learning Thermostat in 2011. The Nest featured a sleek, round design and the ability to learn users' preferences -- like automatically lowering the heat at night. And, at $250, it cost a lot less, too. Ecobee responded in 2014 with the Ecobee3. The device matched Nest's price and caught up in design, thanks to larger display and rounded edges that made it look more like a smartphone than thermostat.

That same year, Google bought Nest for $3.2 billion.

Insect

For now, Nest remains the leader in smart thermostats in the US, taking 73 percent of dollars spent on the gadgets versus Ecobee's 17 percent, according to market research firm NPD. Honeywell is in third with less than 10 percent.

The interest in these devices is growing thanks to their promise of saving on energy costs, a potentially significant impact since heating and cooling in some states can account for a third or more of a home's monthly expenses. Ecobee says its thermostats can save customers up to 23 percent on those energy costs. Nest says its device saves 10 percent to 12 percent on heating and 15 percent on cooling, representing an average of $131 to $145 a year. Studies from the Energy Trust of Oregon and some utility companies agree that smart thermostats can cut energy usage.

While Nest has expanded its product line to include smart locks, doorbells, alarm systems and cameras, Ecobee has largely stayed focused on its thermostat, hoping its innovations will help it stand out.

The Ecobee4, which came out last year, doubles as an Amazon Alexa smart speaker, something Nest devices don't do. In March, Ecobee added a $99 smart light switch that also works as an Alexa speaker, which Nest doesn't offer either (at least, not yet). Plus, since 2014, Ecobee has sold wireless motion and temperature sensors to adjust temperatures in each room in the house. Nest this year started selling similar sensors.

"It looks like that is a core piece of how people manage a smart home of the future," Stephen Baker, a tech business analyst for NPD, says about voice controls. "If you don't have that piece you're going to be left behind."

But Baker says emphatically that voice controls alone -- or even thermostats and sensors -- won't save Ecobee. The company will have to bulk up its product portfolio if it hopes to survive.

"Competing against Google -- not an easy lifestyle, that's for sure," he adds.

Still, Ecobee's focus has helped it so far. Its revenue doubled last year, and CNET reviewer Megan Wollerton wrote that the Ecobee4 is "the smartest thermostat we've ever reviewed." Nest, meanwhile, is facing leadership struggles and restructuring that may be slowing it down.

As another innovation, Lombard tells me Ecobee is piloting an opt-in program called Peak Relief that will automatically turn up the heat or air conditioning when electricity rates are lower, and use less energy when rates are high. The program, which essentially lets you use your home as a "thermal battery," officially launched Monday to selected Ecobee users in California, Arizona and Ontario, Canada. Using the new feature, people can save up to an additional 10 percent on their energy costs, he says.

Ecobee also has a powerful ally in its battle to win more customers. It's one of the over 1,200 brands using Amazon's Alexa, which dominates the market for voice assistants. Amazon has also invested an undisclosed amount in Ecobee over three rounds since 2016. But working with the e-commerce giant can be a double-edged sword: Amazon has a reputation for turning on its friends. CEO Jeff Bezos and his team invested in startup Nucleus, which created an Alexa-powered home intercom, then hobbled the company's prospects by coming out with a competing device called the Echo Show .

Despite the challenges, Lombard emphasizes his plans to build a major, lasting and independent company that could someday rival the biggest names in tech.

"I don't think we're under any illusions that anyone's going to do us any favors," Lombard says when asked about Nucleus, adding that Ecobee thermostats work with many smart-home platforms like Apple's HomeKit and IFTTT, not just Alexa. "We have to chart our own course."

Google and Amazon declined to comment for this story.

Suffice it to say, it ain't easy being a little guy.

Ecobee's future of the connected home

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Buzz

I'm inside Ecobee's hardware lab with Casey McKinnon, vice president of product, and Sahaj Cheema, a product management director. The space has been designed to look like a garage -- with pegboards on the walls, workbenches, a soldering station, tool shelves and a garage door entrance -- to encourage experimentation.

Employees stroll in and out to tinker, solder or fix things. Toward the back, past the whirring 3D printers, a cramped closet houses a boxy temperature chamber, which operates as either a fridge or oven. There's also a lifesize cutout of Leonardo DiCaprio that's being used in an image-recognition experiment.

The lab is where Ecobee cooks up its next big ideas, set to arrive in the next 18 months to five years. It's here where workers pulled together the Ecobee5 -- still under development -- and are already working on the Ecobee6, McKinnon says. He won't tell me any details about what those devices will offer.

Outside the lab, I see a "museum" of Ecobee products and prototypes staged along one wall. Cheema fans out in her hands several early versions of the new light switch, which includes a front-facing speaker and sensor. It took a lot of tries to get the device to pass the "guest test," she says. That's when homeowners and visitors know intuitively where they need to press.

"We did pretty much hundreds of these tests to see where people were gravitating towards," she says.

Such small steps from Ecobee and others may eventually add up to big changes for our homes.

I later meet with Sina Shahandeh, director of data science and analytics. He shows me a picture on his laptop of characters from Beauty and the Beast, including Lumière the candlestick and Cogsworth the clock.

He likens these talking, anthropomorphic objects to a potential, though far-off, future of the smart home, when the stuff surrounding us will come with cognition, decision-making and emotional awareness. Your home would know to lower the temperature when you return from the gym, for instance, or even avoid playing loud music when you're sad.

Shahandeh, who talks in quick bursts and waves his hands when discussing such a future, admits it will be incredibly difficult to pull off some of these ideas. After all, people don't always know what they want. "Smart home is much more complicated, because there's no goal for it," he says, comparing smart homes to self-driving cars. "Like, there's no point A to B. The idea here is that you have this symbiotic relationship between the people living in a house and the house."

To get a little closer to these ideas, Ecobee is working on devices and sensors that are more aware of their surroundings, taking in data from inside and outside homes to operate more effectively. Ecobee thermostats already use real-time weather data to adjust their temperature, but that's just an early first step.

The challenges are considerable for Lombard to fulfill his vision of a "helpful home" -- as well as ensuring a company like Ecobee will achieve it. Lombard, ever the optimist, sounds more enthusiastic than worried.

"I'm more excited about our product roadmap and where we're going and the opportunities that lie ahead than I've ever been," he says.

For Ecobee's sake, let's hope he's right.

First published at 5 a.m. PT. on July 30, 2018.
Updated at 12 p.m. PT on July 30 and 8 a.m. PT on July 31: Adds more details from Ecobee's CEO and sustainability director.

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