How Opower’s Dan Yates Persuades People to Use Less Energy

How do you get people to use less energy? Dan Yates says it’s all about sparking neighborly competition.

By: Kevin Charles Redmon

As CEO of Opower, Yates helms one of the region’s hottest tech start-ups. Photograph by Stephen Voss.

In the Gospel According to Dan Yates, as in the Book of Genesis, building a better world doesn’t happen overnight. Such things take time.

“When we first started Opower,” Yates says, referring to the Arlington firm of which he’s cofounder and CEO, “everybody was doing these really non-incremental, boil-the-oceans, change-the-way-the-world-works companies,” he says. “And you need some of them. But more often than not, they fail.”

Opower is decidedly not a boil-the-oceans—Silicon Valley-speak for “too ambitious to succeed”—type of venture. It’s a software company that does one really boring thing exceptionally well: persuade Americans to use less energy—to turn the thermostat down to 68 in winter, skip the AC in summer, and kill the kitchen lights before bed. But Opower reaches a lot of households—more than 10 million—and it knows a thing or two about persuasion.

Humans, it turns out, are deeply social creatures, carefully attenuated to societal norms. We care about nothing so much as what our friends and neighbors are up to. (Hence Facebook, hence the Kardashians, hence the whole modern shebang, really.)

Tell people they’re energy hogs compared with the folks next door, as Opower does in a colorful mailing each month, and they’ll use less. Once you find out that your Neighbor Rank is a dismal 43 out of 100, 68 degrees doesn’t seem so bad.

No single household is likely to reduce its energy use by more than a few kilowatt-hours per month. But a few kilowatt-hours across 10 million homes add up. Opower is five years old, and it recently announced it has saved Americans more than 1 billion kilowatt-hours of electricity. That’s more than $120 million worth of energy, enough to take Arlington County off the grid for a year.

Yates and his cofounder, Alex Laskey, may have invented Neighbor Rank, but they didn’t invent normative messaging. They borrowed the idea from Robert Cialdini, professor emeritus of psychology and marketing at Arizona State University. In a series of experiments in the early 2000s, Cialdini and a professor from California State University, San Marcos bombarded hundreds of San Diego homes with doorknob hangers, asking residents to use a fan at night instead of air conditioning and to make other small changes. Each hanger made a slightly different appeal: Protect the environment! Save money! Conserve resources for our kids!

Cialdini wanted to know what messages would motivate people to pay more attention to their energy consumption—a tall order because kilowatt-hours are cheap, invisible, and a lot less interesting to track than, say, your fantasy-baseball team.

“Six minutes is the average amount of time that an American spends thinking about energy use in a year,” Yates told a crowd of Google employees during an Earth Day keynote address in April. “Most of us here probably think about Justin Bieber more than we think about our energy use.”

When Cialdini’s research assistants checked the meters each week, they found that most of the hangers made no difference; in some cases, residents started using more electricity. Only one message induced Californians to turn off the AC: Did you know that most of your neighbors choose to use a fan at night? Thus chastened, homeowners dropped their usage by 6 percent.

On a soggy Tuesday morning this spring, Yates and I go for a run in Rock Creek Park. Yates, 34, lives in DC’s Mount Pleasant, in a four-bedroom house that he and his wife, Tobie Whitman, bought two years after moving to Washington in 2007. He appears on the porch like a vision of the late Steve Jobs—gaunt, with thinning gray hair cropped close, a sharp, stubbled jaw, rimless glasses. We set off at a healthy clip.

Yates grew up an only child in San Diego. Dad was a career Air Force man and inveterate garage tinkerer; he retired from the service and went into defense contracting, working on spy satellites. Mom was Israeli with a doctorate in education from Rutgers. She taught Hebrew in the shul where Yates had his bar mitzvah, and she got him into the gifted-and-talented program in the neighboring La Jolla school district.

Sounds pretty dweeby, I tell him.

“I was definitely not the kid at the cool table,” he says. “But I played sports, I had girlfriends, I stayed up late, and I didn’t actually program [computers].”

We hop the guardrail on Klingle Road and drop down into Rock Creek Park. It’s cool along the creek, and the cathedral of trees overhead coaxes out Yates’s inner naturalist. He gives me a mini-lecture about the geology of the Hawaiian Islands, the water wheel that’s been rebuilt at the park’s Peirce Mill, and great blue herons: “They stand in shallow water and basically don’t move for 11 hours till a fish swims underneath them.” He sounds envious, as if he wouldn’t mind having such patience—or predatory instinct.

When Yates arrived at Harvard in 1995, computers were hot. Amazon had sold its first book in July of that year. Windows 95 had appeared in August, just weeks after Netscape’s $2.9-billion IPO sent Silicon Valley into a tizzy.

Yates majored in computer science, joined the Entrepreneurs Club, and in 1996 told a Harvard Crimson reporter he intended to start his own software business. Just after graduation, Yates convinced his roommate, Jay Kimmelman, to move with him to the Bay Area. Within months, a friend of Yates’s older cousin asked them to join his online music start-up, Echo. “We were like, ‘Well, he knows what he’s doing—he’s 25,’ ” Yates says.

They agreed to sign on for a year. That spring, even as the bubble began to burst, Echo raised millions and scaled furiously. It was Yates’s first rodeo in Silicon Valley, and it was a hell of a ride.

Soon he was scheming start-up ideas of his own. “I needed to do something that, even if it failed, I felt good about,” he says. “I wanted to do something that mattered.” Both Yates and Kimmelman had mothers who were educators, so, Yates says, “in spite of everyone saying, ‘You cannot build this business in educational software,’ we looked there.”

Edusoft, which offered educational-testing software to public-school districts, had an inauspicious start. “The bubble had completely burst,” Yates says, and the founders’ combined age was 45. “The fundraising was a total bitch.” Many of their early employees were headed to grad school in the fall. If the operation went bust—oh, well.

Joe Greenstein, employee number nine and now CEO of the social-networking movie site Flixster, says that when he arrived at Edusoft headquarters, in San Francisco’s Mission District, “it was just disturbingly cute. They were in this tiny one-room office that had previously been a teahouse. There were no desks left, so I had to sit in the server closet.” When potential partners came by, Yates and Kimmelman got friends to sit at empty workspaces and look busy.

In four years, Edusoft grew to 140 employees and $20 million in annual revenue. Yates and Kimmelman decided to sell, Yates says, “right as we were about to hit the growing-pains era.” Houghton Mifflin paid about $40 million for the firm, and overnight Yates, who till then had a few hundred bucks in his checking account, became a millionaire. He was barely old enough to rent a car.

Dan Yates. Photograph by Stephen Voss.

Yates and I finish our run by racing to the top of a hill. It’s the first time in an hour he has quit talking and started sucking air. We stretch, layer up, and walk to a cafe where, over a decaf cappuccino, he spins the story of Opower for me.

The start-up has its roots not in a Silicon Valley garage but on the Pan-American Highway, which runs from Deadhorse, Alaska, to Argentina’s Tierra del Fuego. It was there, on a yearlong road trip, that Yates first saw the ravages of widespread environmental degradation.

He had started dreaming of driving across the Americas soon after cashing in at Edusoft. He stayed on there for a year but grew restless. “It was painful watching my twenties slip away,” he says.

Whitman finished her PhD in international relations at Cambridge—she’d been a year behind Yates at Harvard, and the pair had struck up a long-distance romance after reconnecting at a wedding in Alabama—and joined Yates in San Francisco.

The couple bought a used Toyota 4Runner, shipped it to Anchorage, and picked it up on the docks in August 2005. With gas cans strapped to the roof, they drove south, sleeping in motels and by the side of the road. They studied Spanish in Mexico, sailed off Belize, and trekked through Panama’s cloud forests. Yates was struck by denuded hillsides, charred cropland, and the Galápagos Islands’ stunning megafauna.

The adventure ended where Ruta Nacional 3 does, in Ushuaia, Argentina. They put the 4Runner on a boat to the US and moved back to San Francisco, where Yates kicked around the idea of starting a green nonprofit, trading “socially positive” diamonds, or funding habitat protection in Bolivia.

The issue of impact nagged at him—whatever he was going to pour time into, it needed to punch above its weight. “I basically asked myself a simple question,” he said in his Google keynote address. “What do we suck at here? And the answer was pretty clear: At the end of the day, we use a lot of dirty energy.”

Working with Alex Laskey, a Harvard classmate, he began casting about for business ideas. Clean tech was hot, especially solar. One scientist “had designed this crazy system to use, effectively, birthday balloons—big Mylar shiny balloons—to concentrate solar power onto small cells.” Yates built economic models, trying to figure out which moon-shot ideas might be profitable.

“I’d had this unformed idea that the utility bill was really crap,” he says. “That it was a huge missed space and there was something to be done to better it.” Then he got turned on to the work of Cialdini, the ASU psychology professor. “He had just done a study that showed, effectively, that this neighbor-comparison stuff gets people to save energy. And that’s how it started.”

Positive Energy, later renamed Opower, was born in San Francisco in 2007. It wouldn’t boil the oceans or revolutionize solar or liquefy carbon dioxide. It would train people to worry about whether they had left the porch light on.

What inspires venture capitalists to give a couple of young guys millions of dollars and tell them to go save the planet?

“When they first came up with this, I was like, ‘Wow, can you make a great business out of conservation?’ ” says Eric Paley, a managing partner at the venture-capital firm Founder Collective and one of Positive Energy’s seed investors. “The idea was really unsexy.”

Opower’s actual customers aren’t homeowners but utility companies, which are under pressure from states to meet conservation goals. A utility company writes Opower a big check and hands over all its customer data—millions of homes’ worth. Opower crunches the data and sends “home-energy reports” to homeowners. The owners use less electricity, and the company stays in the good graces of state regulators.

Harry Weller, a general partner with Chevy Chase-based New Enterprise Associates, recalls meeting Laskey and Yates: “They started telling me about their strategy. Dan said, ‘So I get the utility data and I analyze it, and they pay me X dollars per household to provide a report of the consumer’s consumption.’ I stopped him right there and I said, ‘Hold on—the utilities are giving you their data and they’re paying you? How do we invest?’ ”

Investors were also eager to bet on the Laskey/Yates duo. The two—who’d met at an ice-cream social on their first day at Harvard—were good foils for each other, with Laskey the gregarious networker, Yates the idea-driven CEO.

“I don’t think I’ve ever seen him have a temper, but Dan is one of the most anxious, neurotic, stressed-out people,” says Joe Greenstein, Yates’s former Edusoft colleague. That’s not necessarily a bad thing in a CEO, he points out. “He’s one of the five most inspiring people I’ve ever met. He’s brilliant. I would invest in anything he ever does.”

Laskey, Yates says, “has an encyclopedic memory of the first names of everybody he’s ever met, their kids’ names, and their birthdays.” He’s the storyteller, the salesman with the winning smile. Yates is the logistician and strategist who keeps a pen and paper on his nightstand for making 3 am to-do lists.

Walking into Opower’s Arlington office is like diving into a fish tank at feeding time—a hungry energy fills the open floor plan. Designers stand at their desks or balance on yoga balls. Engineers sketch algorithms on whiteboards, and VPs hurry by in jeans and company T-shirts. (One reads I’M NOT LAZY, I’M ENERGY EFFICIENT.)

Opower established its headquarters in Virginia because of an agreement Yates and Whitman had made years before: After the Great Road Trip, they would give priority to her career in international relations. Whitman is now a senior adviser at the Institute for Inclusive Security, specializing in women’s empowerment in post-conflict countries. “Being an entrepreneur in software and energy, the obvious, obvious epicenter of that is Silicon Valley,” she says. “I know it was a hard thing for Dan to have to do.”

But Yates and others dismiss the idea that Washington has been anything less than fertile ground. “You’re a little bit outside the echo chamber,” Paley says. “You don’t get swayed that you’ve got to be doing exactly what everyone else is doing, which can be dangerous.” He points to Seattle—people said Microsoft was crazy to build there. Geography isn’t everything.

Not for Opower, anyway. Two years ago, the firm did about $30 million in revenue. It expects to more than triple that next year. The company has gone from being an anchor of the local tech scene to being a gravitational force; at 250 employees and growing, it can’t hire engineers fast enough. Yates says his servers store utility data for about a third of the homes in the country. He’s luring world-class programmers away from Silicon Valley. And then there’s the emerging European market, the Facebook app, the thermostat deal with Honeywell, the new San Francisco office, the prospect of an IPO . . . .

So Yates is living the dream, right?

“The problem is that being a CEO is a very lonely job,” NEA’s Weller says. “You start off companies with people you know well. Some of those people scale, some of them don’t. You have to let people go. You have to make a lot of very decisive, painful, human-oriented decisions.”

“It’s lonely at the top,” Whitman agrees. “But I can’t really imagine Dan working for anybody.” She chuckles at the thought. “It’s a tradeoff. It’s either lonely or very frustrating. And I think Dan will always pick a little lonely.”

A few weeks after our run, Yates calls me from the Akron airport—he spends a day or two on the road each week, visiting clients and investors, and we chat while his flight boards. I tell him what Weller said.

“Yeah, he said that to me two years ago, and I was like, ‘This guy’s nuts—I don’t know what he’s talking about.’ I thought at the time it didn’t apply.” Yates laughs, a little sadly. “But I felt what he was talking about the first time I had to make a controversial, unpopular decision.”

Gone are the days of desks in the server closet. Here are the days of 300 unread e-mails and unfamiliar faces in the office.

In any case, Opower’s “double bottom line”—turning a profit and protecting the environment—is holding up. The company has more cash on hand than it knows what to do with. And while it took Opower five years to save its first billion kilowatt-hours of electricity, the second billion will come much sooner. Yates’s gospel of tiny, incremental action is winning converts, including Pepco, which inked a deal with Opower this spring.

“I’m somewhat of a contrarian,” Yates told the Google crowd, “so it gave me a lot of pleasure to think that nobody was thinking about this problem.”

This article appears in the July 2012 issue of The Washingtonian.