Nest Labs and Opower -- once very different companies focused on completely separate consumer engagement solutions for energy efficiency -- are now starting to look like direct competitors.

The emerging area of competition is in residential demand response, where both companies are focusing a lot of attention. (And as Katie Tweed reported today, there are plenty of other companies jostling for position in this market.)

At one point, Opower was simply crunching utility data and sending out paper alerts to customers about their energy use. And Nest had simply built a cool-looking smart thermostat that can glean the basics about homeowners' behavior. But with Opower now deploying a smart thermostat with demand response capabilities and Nest building relationships with utilities to leverage demand response for its thermostat as well, the two companies' domains are starting to overlap. 

Speaking at the National Town Meeting on Demand Response today in Washington, executives from Nest and Opower outlined their philosophies on residential demand response.

While there are many similarities between the companies, there's one very stark difference between the two: Nest believes strongly in the power of automation, while Opower believes strongly in consumer engagement and behavioral science.

Matt Rogers, founder and VP of engineering for Nest, talked about how simplicity and automation have resulted in strong customer participation in residential demand response so far.

This spring, Nest Labs made its first big push into the residential demand response market by partnering with three utilities to offer customers incentives for automatically turning down their smart thermostats during times of peak demand.

Rogers said that Nest’s residential program in Austin Energy territory had reduced load by 56 percent among thousands of enrolled customers during demand response events -- with only 11 percent of thermostat owners opting out of the program.

“This is incredible engagement, and this is only our first project,” said Rogers. “I’m incredibly surprised with how fast this is moving -- I expected it to go a lot slower.”

Rogers outlined his philosophy about how to make residential demand response programs effective.

His first rule was to stop calling the offering "demand response," a confusing term that could potentially take away from the cool factor of a product like Nest’s thermostat. Nest calls its program “rush hour rewards,” providing customers with an analogy about traffic congestion that is easier to understand.

“It goes back to how you message it. We built an analogy like 'rush hour' and we’re seeing thousands of people sign up,” said Rogers.

The second rule was to think about the customer first and then build out the program from there.

“We didn’t build a demand response product. We marketed a consumer product and then we built in a demand response product afterward. We flipped it on its head by first growing the desire and then providing the benefits,” said Rogers.

Rogers’ third rule was to make demand response automated. Nest's rush-hour program will usually adjust a customer's thermostat by only a few degrees during peak times -- a change that a consumer often doesn't even realize is happening.

"You need to take it out of the customer's hands and put it in the computer's hands. There's no reason a customer should have to worry about this," he said. "There's another way of doing it, and that's part of the challenge that we brought to the table."

That's the exact challenge that Opower has set on the table as well. But rather than attempt to take the consumer out of the equation, the company believes strongly in providing the signals for consumers to change their own behavior. (Opower founder and President Alex Laskey outlined that philosophy in a recent TED Talk.)

Laskey also spoke this morning about Opower's emerging strategy for residential demand response.  

"Most demand response programs are based on a one-way relationship. Opower is bringing a new dimension to demand response through engaging customer-facing software and tailored insights that help each customer manage their energy use as they participate in utility-led demand response programs," he said.

This week, the company released a new feature on its mobile app called "Peak Use Events." The feature is designed to encourage consumer participation as part of Opower's demand response offering, not take them out of the picture. Opower's new feature allows customers to make live comparisons with other thermostat owners and provides tips on different actions they might take to reduce demand.

The behavioral science of competition is the key to Opower's strategy, so it makes sense that the company is taking a different approach to customer engagement. Opower announced the release of its new product in a blog post this week, outlining the importance of behavioral design in the features.

"Our software is filled with behavioral-design features to give customers personalized nudges that empower them with the context and advice they need to use their thermostat efficiently," read the post.

Although Opower hasn't released figures on its demand response program, the company's approach to behavior change has resulted in 2 terawatt-hours of saved energy since 2007. It accomplished much of those reductions through sending basic home energy reports to consumers showing them what their neighbors were saving or spending on energy. 

Nest also allows customers to override their thermostat and take manual control, but the company is mainly focused on how to make the process as automated as possible.

Although both companies differ on this core philosophy, they agree on another: the consumer experience comes first.

"There is no technology barrier," said Nest's Rogers. "The difference [between new and old thermostats] is that no one had put a good consumer shell on it in the home and gave consumers something they could understand. Being a consumer-first company, we went back to first principles."

In the video below, Opower product designers talk about the company's new demand response offerings.

Opower's Demand Response Solution from Opower on Vimeo