November 2013

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The Next Disruptive Innovation in Buildings 

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Vladi Shunturov, co-founder of Lucid Design Group

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The next disruptive innovation in buildings

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Vladi Shunturov, co-founder of Lucid Design Group, discusses software's potential to be the first disruptive innovation in buildings since the Otis elevator. Buildings, especially those built more than 20 years ago, consume 2/3 of world's electricity and are one of the biggest factors in climate change.

The extracted English subtitles are listed below. Here's the transcript:

I would like to thank Iva for her presentation.

I just arrived from California this week, so I’m still feeling a little jet-lagged.

I’ve lived in San Francisco for the last five years and as many of you know, we all work in start-up companies and look at every problem the world has as a software problem.

It is that start-up culture that inspires me to dream that a small and committed group of people can actually change the world.

I am here to tell you a couple of stories about different types of innovation, and why software-based innovation is the most effective way for us to change and improve the world, something, which many of us are probably aware of.

What you don’t know, however, and what I hope to show you today, is how we can use software to completely change the built environment around us and reduce global electricity use by as much as 30%.

I suppose that many of you have heard about AirBnB:an online platform for renting out rooms, houses, castles camping homes, and even tree houses.

AirBnB was founded in 2008 in San Francisco by three friends who, at the time, could not afford to pay the rent for their three bedroom apartment.

They decided to begin renting out one of their bedrooms to business visitors who were unable to book a hotel room during conferences and other events, when all hotel rooms are fully booked.

Within 3-4 months the income from this one room became sufficient to cover the entire cost of their apartment.

And the idea of AirBnB was born, a company which was recently valued at over one billion dollars.

AirBnB solves the accommodations problem that tourists and travelers have far more efficiently than the hotel industry:rather than building and operating hotels, AirBnB uses the excess capacity of rooms and apartments which exists in every city around the world.

Suddenly, your spare bedroom turns into a profitable mini hotel.

A year and a half ago my wife and I started renting out our spare bedroom on AirBnB. And just a week ago we greeted our 100th guest. The income from this one room has been sufficient to cover the cost of rent for our entire apartment.
We have had the pleasure to meet a lot of interesting people along the way and still keep in touch with a few of our guests.

You may be surprised, but I actually don’t work for AirBnB.

I am telling you this story because it is a perfect example of disruptive innovation.

Clayton Christensen, a Harvard Business School professor, coined the term “Disruptive Innovation” in 1995 in an article in which he describes that all innovation falls in one of two categories: sustaining innovation and disruptive innovation.

Sustaining innovation makes an existing process or product better: cheaper, easier to manufacture, more powerful, more efficient.

The electric light bulb is an excellent example of sustaining innovation:
the incandescent bulb which we all know well has been mostly displaced by CFLs, which are on their way to being displaced by LED bulbs.

The function of the bulb remains the same:it uses electricity to produce light.

Sustaining innovation has created a more efficient bulb, but the market for electric bulbs remains unchanged and no new markets have been created as a result of this innovation.

Disruptive innovation, by definition, creates new markets and disrupts existing markets and industries.

A disruptive innovation in lighting technology would eliminate the need for light bulbs altogether.

To give you a few examples, the Model T from Ford disrupted the transportation industry by virtue of being the first mass-produced automobile, accessible to the general consumer.

Nokia and other mobile handset makers disrupted the telecommunications market twenty or so years ago, and today all of us have a phone in our pocket.

And just five years ago the iPhone disrupted the mobile telecommunications industry again.

Many of us have forgotten about our little, dependable, and bulletproof Nokia phone, and instead have a high-tech communications device which gives us access to the information of the entire connected world.

At the same time Nokia is struggling for survival.

Wikipedia eliminated the need for heavy volumes of Encyclopedia Britannica, and Netflix, iTunes, and The Pirate Bay brought Blockbuster, Alexandra Video, and many more video rental shops to bankruptcy.

Sites for reservation of plane tickets and hotels made travel agencies largely obsolete.

And AirBnB is well on its way to disrupting the hotel industry.

In fact, almost every industry has experienced disruptive innovation during the past ten years which has been software-based.

Here is where my personal story begins.

I studied at Oberlin College, a small liberal arts school in Ohio.

As a true nerd, I double-majored in Computer Science and Environmental Studies.

During my second year I became close with one of my professors, John Petersen, who is a systems ecologist.

He is the guy with the big smile and a blue shirt.

Through my work with him, I learned that, on average, people in the developed world spend 90% of their lives in buildings, which are responsible for the consumption of two-thirds of all generated electricity.

These are very large numbers.

The emissions associated with the operation of buildings is the cause for roughly 30% of global CO2 emissions.

A very large fraction of this consumption comes from commercial buildings:
offices, hospitals, schools, shopping malls.

Some of us have a rough sense of how much energy we use at home, but I’d like for you to get a sense of the scale of consumption for a building like this, a shopping mall, for example.

This is Sofia Ring Mall, the shopping mall currently being built next to IKEA, on the ring road around Sofia.

Clearly, we still have a strong need to continue building more shopping malls.
Both of my parents are electrical engineers and I asked them for help in figuring out how much electricity would be required to run this shopping mall once it's ready for business.

The average electrical demand for this building is going to be around 6 megawatts. This means that for one day, if we multiply times 24 hours, the total consumption will be 144 megawatt-hours.

For one full year, the math is easy, we get 52,560 megawatt-hours.
Or, 52 gigawatt-hours. Few of us here today have any sense just how much energy 52 gigawatt-hours is.

To help us get a grasp of these numbers, let's look at what this electrical energy is equivalent to.

The annual electrical bill for this building will be about and the CO2 emissions, which would be released into the atmosphere, should we generate this electricity using coal, would be 52,000 metric tons of CO2.

If we empty out this entire hall from all other gases and fill it just with CO2, we may be able to squeeze in 30 or so tons in here.

The amount of coal which we would need to burn to generate this electricity would fit in 350 train cars.

And that's just for one year.

Even though the scale of consumption of these types of buildings is enormous, the building technology industry has not seen a single disruptive innovation for more than a century!

The first disruptive innovation in building technology happened in 1851, when Otis invented the first safe elevator.

Elevators existed before then, but a failure of one of the elevator ropes would send the platform hurtling down the elevator shaft.

As a result, most buildings were less than six stories tall.
Apparently, falling from the 6th floor was considered acceptable at the time.

After Otis comes up with a mechanism to safely lock the elevator should the ropes snap, the entire building industry undergoes a radical change:we begin building vertically and the landscape of our cities was forever changed.

Entire new industries were created to provide tools for an entirely new type of construction.

This is an example of true, disruptive innovation.

A single technological innovation completely changes the way we build and occupy our cities.

The second, and last, disruptive innovation in building technology happens 30 years later.

Today all of us know what a thermostat is.

But in 1883 it was a real breakthrough.

At the time, Warren Johnson, a teacher at Wisconsin State, got frustrated with the frequent interruptions during his lectures, because the boiler operator had to walk into each room every 60 minutes, check the temperature, and then either crank up or lower down the boiler in order to maintain comfort for the occupants.

Warren Johnson, one day, simply had enough of the interruptions.

He is teaching his lecture, and as always, the door opens at the top of the hour.
In goes the boiler operator and asks:“Excuse me, I’m... I’m sorry to interrupt, are you guys warm? You are warm? OK, sorry, we will turn the boiler down a bit right away.Carry on, have a good one.”

Mr. Johnson had enough of this, and invented the thermostat, a device which automatically turns a heating or a cooling system on or off depending on the temperature in a room.

This invention marks the birth of the building automation industry.
Warren Johnson goes on to launch Johnson Controls, one of the four building automation giants in the industry today.

They even have an office here in Sofia today, right on Tzarigradsko Blvd.
This is the last meaningful disruptive innovation in the building industry.
It’s true: we have taken advantage of countless sustaining innovations in the space since then: better lighting systems, more efficient cooling and heating systems, better insulation, more intelligent building automation.

The buildings we build today are in fact better than the buildings which we were building even ten years ago.

But the truth is that I don't really care that much about the buildings we build today:sooner or later we will have to figure out how to build sustainably, we have no choice.

What worries me are the buildings which we have built during the last 200 years.
You may think that I’m some sort of weirdo, who wakes up in the morning and stresses out about the buildings around us, but to be perfectly honest my motivation is entirely selfish: these tens of millions of buildings are
responsible for our climate problems and are going to affect the lives of my children.

Yet until now, our attempts to improve the efficiency of these buildings have largely failed.

On average, about 30% of the consumption of most commercial buildings can be eliminated with an investment which would pay itself back in 2-5 years.
If we think rationally, investing in energy efficiency would deliver a 30-50% annual dividend, which is guaranteed.

That’s a much better and safer investment than the stock market.

Yet, energy efficiency is not happening at the pace at which it needs to.

The majority of the building technology industry is controlled by the Big 4 Johnson Controls, which we already mentioned, Siemens from Germany, Schneider Electric from France, and Honeywell from the U.S.

Their technology, while advanced, is very expensive, very complex, and primarily designed for the largest of buildings, like the shopping mall here in Sofia, which we looked at.

This renders building automation largely inaccessible to smaller and medium size buildings, which make up about 90% of the market.

What Henry Ford accomplished for the automobile industry over a century ago in bringing cars to the masses, has not happened to this day for the buildings industry.

building technology, such as a building automation system.

This is the problem of the energy efficiency industry.

Energy prices continue to increase, Arctic ice continues to melt.

Even here in Bulgaria, the weather has become strange, unstable, and unpredictable.

And buildings are one of the major contributors to the changes in the world’s climate.

As a result the United States and the EU are both setting ambitious carbon and energy reduction goals and hoping to improve the efficiency of their buildings.

I will tell you a story, which I would like for you to remember.

Seattle announced plans a couple of years ago for becoming climate neutral by the year 2030, a rather ambitious goal.

But what's important here is not the goal itself, but rather the focal point which this initiative helps create for the local energy efficiency industry, for building owners, facility managers, the city government, and the public.

Everyone can begin collaborating towards reaching the 2030 goal.

To date the program, called the Seattle "2030 District," has been extremely successful: for just two years the consumption of participating buildings has been reduced by an average of 10%.

The effort started with just a few participating buildings and now has over one hundred of Seattle's largest facilities as active participants who have agreed to voluntarily improve their efficiency and reduce consumption by 50% by the year 2030.

The program is now being replicated in Cleveland, Pittsburgh, and LA.

but in order to reduce usage by another 40%, if we really want Seattle and other cities around the world to get closer to climate neutrality, we would need real disruptive innovation. We would need to bring advanced building technology to the 94% of buildings which cannot afford it today.

Living in the San Francisco Bay Area, where every problem is a software problem, and having spent the last ten years working with building technology, I am now convinced that buildings are a software problem, and that we can use pure software to disrupt an industry which is not innovating at a pace at which our climate problems require us to.

Energy efficiency is widely considered to be a hardware problem.

Most of the work in the space is focused on producing hardware solutions which, as we already know, are expensive, complex, and, most importantly, not interoperable.

The industry needs an operating system for buildings, which can make the hardware universal, compatible, and, most importantly, affordable and accessible.
We are building a cloud-based platform with hundreds of drivers which can communicate with any metering device or building system in an effort to make hardware technology in buildings affordable, compatible, accessible, and easy to integrate, operate, and manage.

The cost of this platform has to be low.

As low as $50 per month for a whole building, because our goal is to make it accessible to all buildings and interconnect the built environment.

I would like to give you a few examples of the types of things we can accomplish if we approach building energy use as a software problem.

The way we typically measure the performance of a building today is by looking at its energy use based on utility bills that we receive monthly.

For one year, we get 12 such bills.

As you can see, having just 12 pixels to look at only leaves us guessing what the real picture looks like.

If we use software to collect data from the building's electric meter, for example, and do so every 15 minutes, instead of monthly, we would end up with 35,000 pixels and a clear view of how energy is used inside of your building and when.
What you see here is 35,000 pixels.

A year’s worth of 15 minute readings of the main electric meter for an office building.

The vertical axis of this heat map represents individual days of the year: January 1st at the top and December 31st at the very bottom.

The horizontal axis represents time during each day:
from 12am in the morning to 11:59pm at night.

Each day of the year is represented by a line.

As you can see, the weekends are quite visible, showing up as two lines of lower consumption seperated by five lines of higher usage.

We can also easily tell that consumption in April is a lot higher than in earlier months, but only during occupied hours.

Once you have building performance data in such high resolution we can begin asking some interesting questions: "Why is our weekend usage higher than what we use during the night?" Our building is not occupied on weekends, so something must remain turned on during the day.

Finding out what that is could save us energy and money.
At the same time, if we look at a specific day's worth of usage, we can see that about 20% of the electricity use comes from devices and appliances which are never turned off, also known as "baseload." This, also, is something we may be able to optimize or schedule better without having to replace technology, without the need to purchase new heating or cooling equipment and wait for a payback on our investment.

This is part of the intrinsic beauty of software-based solutions:they reach scale very rapidly.

The reason why I shared the story about AirBnB is because I wanted to show you just how quickly pure software solutions can reach massive scale.

AirBnB booked their first customer just five years ago.

Today their platform is being used in 192 countries and across 19,000 cities.

The other reason why software-based solutions are an attractive way to approach market problems is that they have low capital requirements for development and deployment, in comparison to hardware-based solutions.

But perhaps the most important attribute of software-based solutions is that they make the hardware compatible, universal, and eventually turn it into a commodity.

At this moment building technology hardware is often sold for many multiples of what the hardware actually costs to make.

This is unheard of in any other industry today!
What Microsoft DOS and Windows did for the computer industry has yet to happen to the building technology industry.

And we need it to happen.

Once we begin looking at energy and buildings as software problems and begin using software solutions, we can begin to do some pretty exciting things.
In most buildings as much as 50% of the total consumption is discretionary use:
which means that even if we deploy the best building automation technology we can only automate half of the loads.

The rest is driven by personal choices we make every day.

Ten years ago my mentor in college suggested that we attempt to connect building occupants with the energy they consume in an effort to find a way to affect the uncontrollable half of a building's energy use.

His hypothesis was that if we build a system which can measure electricity use in the residence halls where students live and we then show students their consumption in real time, we would create a feedback mechanism, which would cause them to change their behavior.

We assembled a team with two other students and built a system which could measure electricity use in real time and do so for every floor in two residence halls at Oberlin.

We added an interactive touchscreen display in the lobby of each dorm and in just two weeks we started seeing some results that were hard to believe.
The first residence hall reduced consumption by 55%, and the second by 56%.
In just two weeks the dorms saved over 50,000 kilowatt-hours, or over $5,000.
And the most popular of unit equivalents for the savings was number of cheeseburgers worth of caloric energy.

After we published the findings of our research we quickly got contacted by a number of schools who wanted us to implement a similar system for their residence halls and this is how we founded Lucid and began building software for buildings.

At first we worked primarily with colleges, universities, and K-12 schools:
we work with Stanford, Harvard, and over 150 of the leading educational institutions in the U.S.

We then started working with companies like Google, who own and manage their own buildings.

And today we are starting to work with entire cities: leading U.S. cities such as Seattle,Cleveland, Pittsburgh, and LA which have bold climate reduction goals ahead, and for which occupant engagement will have to play a critical role.

In recent years we organized the first nationwide energy reduction competition and had 100 colleges and universities participate with over 3,000 buildings.
Tens of thousands of students collectively saved over 2 gigawatt-hours during just a three-week period.

Control Solutions, Inc This is the equivalent of two hours of generation capacity of a nuclear reactor.
What we managed to accomplish really well was to close the feedback loop between us, the occupants, our decisions and habits, and the resources which we depend on.

These resources have been rendered invisible in our everyday life.

For any transformative technology to be effective it has to first be accessible.
Imagine, just for a second, a world in which all buildings are integrated through a common platform.

What can we accomplish if that were possible, and what would it take for us to get there?

We would need building systems which are Internet-connected and allow software-based control.

Every light bulb, every lighting fixture, every air conditioner, every plugged-in device, would need to be accessible over a network through an IP address.

What is astonishing is that just in the last few months we have seen a number of devices hit the market which offer just that.

Consumer-focused companies, like Philips, are launching IP-addressable light bulbs which can be scheduled and controlled through pure software.

The Hue light bulb, for example, can display any colors you wish and take your command through an app on your smartphone.

The bulbs use WiFi for communication and can be purchased at the Apple Store.

A group I know well in San Francisco has developed a smart power strip, which also has wireless communications and is IP-addressable and allows scheduling, control, and monitoring of any plugged-in devices.

My parents and I are renovating my grandmother's apartment here in Sofia and when we went to buy an air conditioner the store consultant asked us if we wanted the WiFi control module for it.

Off-the-shelf air conditioners can now be controlled remotely, over the Internet, as I just learned this week!

The conditions are ripe for a revolution in how we operate our buildings.
Buildings are one of the last great frontiers for implementing new ideas that can help solve our climate crisis and completely change the world.

Here in Bulgaria we have the required software and start-up talent to take part in this effort.

I would like to see Bulgaria follow Seattle's example and also become climate neutral one day.

I propose that we start with Sofia. By 2030.

If there is a small and committed group of people here in the audience today which would welcome undertaking such an ambitious challenge, I would like to help you.

Thank you.


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