How a Kindergarten Mentality Can Drive Energy Efficiency

[Editor's Note: This podcast from Marc Gunther was published in tandem with "The Power of Peer Pressure in Combatting Climate Change," a profile of Dan Yates' company, OPower. You can read that post on ClimateBiz.com.]

Marc Gunther: This is Marc Gunther for GreenBiz.com. I'm here today with Dan Yates. Dan is the founder and CEO of OPower. OPower is a company that helps people conserve energy, and we'll talk about that in a moment, but first a little about Dan. He's just 32, but he previously started and sold an educational software company, then spent about a year traveling with his girlfriend, now his wife, from the Arctic Circle in Alaska to the tip of South America. It was that adventure that led Dan to start OPower. Dan, first tell us why you started the company, and then please describe OPower. Tell us what you do.

Dan Yates: Thanks, Marc. Yeah. I started with my good friend and co-founder Alex Lasky, who is president of OPower. We started it very specifically to have a large scaled impact on emissions. I, in light of my background in information services, having started up a previous internet start-up, and Alex, with his background in politics and policy, surveyed the landscape looking at a bunch of different opportunities.

We quickly realized that our ability to contribute to the big science experiment kind of projects, like big new solar panel technology and biofuels, was relatively limited, and so we focused on efforts in a domain that we thought we could apply our skills to really have that kind of scaled impact. That was in the area of information to consumers, to help people really understand their energy use and reduce it. That's what OPower is all about.

MG: What does OPower actually do? How do you help people conserve energy?

DY: What we do is we partner with utilities, and we help them. We bring in all of their energy information. We bring to the table a whole host of other data elements -- housing data, demographic data, localized weather data streams.

We combine all of this together, and run a number of increasingly sophisticated analytics, so that we come out on the other end with a good understanding of the customer situation, both overall and then specifically their energy profile and how they're using energy.

Then what we do is we help utilities to really radically amp up the quality and, in most cases, the quantity of their communications to their customers. What that translates into specifically is a multi-channel approach where we help utilities really increase the quality of the tools and the functionality on their website.

Then, interestingly for us as software folks, most impactfully we have been engaging customers directly through the mail, through our energy reports. Those reports show people how their energy use compares to their neighbors'. We have a background and the core part of our company's DNA is behavioral science expertise. We apply that in these reports very prominently, and also on the website. That's where this focus on the neighbor comparison comes in.

Then we also, once we've caught people's attention, it's how you're ranking, how you stack up to the folks near you who you think of as similar to you. Then we give them very targeted recommendations, using all of those insights and analytics I described before.

What's exciting about it and what's fundamentally why we're in this business, as I described before, is that we have measured conclusively that this multi-channel approach yields between two and three percent reductions across now millions of consumers.

MG: How do you know that your communication with these people is actually what is getting them to save? Are you able to compare them with groups who are not being communicated with?

DY: Yeah. That's exactly it, and it's a great question. The measurement and the methodology is something that we've worried about since day one, because it's not enough, in particular in the utility industry, you can't just say you're doing well and reducing usage. You have to really measure and verify it so that our utility partners can get credit from the regulatory commission, the utility commissions of each state, so that they can act as energy efficient funding, et cetera.

We do that through exactly what you just pointed to -- a test and control methodology. The nice thing about direct-mail marketing is that you can do randomized tests. When we start with a utility partner, we will pick a target population and then we will only deliver our reports to a fraction, 60, 70 percent of that target population selected at random. The remainder, the 30 or 40 percent not receiving the reports, become the control group.

{related_content} Because the reports are so much more impactful than the web, we can use them to measure the impact of both the reports and the web through this well-established test and control methodology.

MG: What's the scale of your company so far? If I'm not mistaken, you're working with about 23 utility companies. About how many people are getting your messaging and information about their energy consumption?

DY: Yeah. I'm happy to say we're actually up to 24 utilities now, and counting. We've got about a million customers receiving our offline messaging. We've got about twice that many on the online platform. Obviously, those actually entirely overlap. We've got half of the customers who are getting the online are also getting the offline.

That's across, I believe, nine different states all over the country, from the northeast to the southeast, to the northwest and the southwest, and then also not forgetting the whole middle of the country. We have a bunch of customers in Minnesota and Chicago and now, soon Ohio.

MG: Dan, what you're saying is the business of delivering this information is extremely complicated. There's a lot of back-end software, servers, analysis, et cetera, which is your and your partner's expertise. But the fundamental tool is a letter that arrives in people's mailbox?

DY: (Laughs) That is the single most impactful channel that we have found. Yeah. Every listener should look at themselves. How often do you go to your utility website? Versus how often, if you are a customer, like most of us, who still gets their bill in the mail, who's opening a letter from their utility.

It's just a basic marketing fact right now that people are much more responsive to a letter from their utilities than to online functionality. But that being said, you know, in the long term what we're always hoping for is that this continues to migrate more and more online, so we can save the mail and save the paper that we're using right now. But today the fact on the ground is that the mail channel is by far the most effective.

MG: Last question. Are you the company that has put smiley faces on some of these reports, basically congratulating people for being more efficient?

DY: We are.

MG: And it works?

DY: We are and it's actually a critical component and a fascinating example of the subtleties involved in commercial application of behavioral science and behavioral psychology.

The studies -- Professor Robert Cialdini is the most cited behavioral psychologist in the country, and one of the most highly regarded behavioral psychologists in the world. He is our chief scientist.

His research specifically in this topic demonstrated that showing people how their energy use compares to their similar peers, to their neighbors and similar-sized towns, was not enough, because those who use less than the average, as Professor Cialdini calls them, energy misers, would regress towards the mean, being pulled there magnetically, in exactly the same way as the energy hogs who are using more than average were drawn downward towards the mean.

It was specifically and simply this smiley face emoticon that reinforced for the energy misers that what they were doing, this reduced use of energy, was a good thing, that just really locked them back where they were and kept them from regressing.

We've now taken it a step further, showing people not only how they compare to the average, but also how they compare to the efficient average, which is the top quintile of their neighbors. That has actually enabled us to not only prevent that slide back, but in fact it continued to drive those folks further. So, yeah, we've got not only smiley faces but even two smiley faces.

MG: (Laughs) I love it, Dan -- we never really do graduate from high school when we're looking at what our peers are doing. Do we?

DY: Kindergarten.

MG: There you have it. Methods to fight global warming. PV, you know, photovoltaics, wind power, and smiley faces. Dan Yates, CEO of OPower. Thank you very much for talking with us on GreenBiz.

DY: Thank you very much, Mark.

GreenBiz.com Senior Writer Marc Gunther is a longtime journalist and speaker whose focus is business and sustainability. Marc maintains a blog at MarcGunther.com. You can follow him on Twitter @MarcGunther.