15 January 2014

Google acquires Nest labs for $3.2 billion

Thanks to its Android operating system, Google is the leader in smartphone software worldwide. Google reigns supreme in the search engine kingdom. However, it’s a bit of a Johnny-come-lately to the consumer hardware game. But it’s looking to change that, as evidenced by its recent acquisition of Nest Labs for $3.2 billion in cash.

Nest Labs Inc. is the creator of the Nest Learning Thermostat, which learns your temperature preferences and heating and cooling patterns over time. It then builds a personal schedule, automatically adjusting the temperature based on what it has learned, ostensibly reducing your energy bill for heating and cooling. As a device, it’s sleek, simple and aesthetically pleasing; rather than a complicated control panel, it boasts a simple dial and readout display.

Google’s acquisition of Nest is viewed as a major move designed to give Google a foothold in the connected device market, which holds tremendous potential, as more and more people want every aspect of their lives connected to high-tech gadgets.


The Nest Thermostat obviously borrows from Apple’s influences on design and user interface, and for good reason. Nest has an esteemed leadership pedigree. Founded in May 2010 by Tony Fadell and Matt Rogers, two former Apple executives, both of whom worked on gadgets that revolutionized the user experience, Nest knows how design and simplicity can impact a product.

Fadell now serves as Nest’s CEO, but during his time at Apple, he was Senior Vice President of the iPod Division and worked closely with the legendary Steve Jobs, helping to create the iPod and iPhone. Matt Rogers, Nest’s Vice President of Engineering, was also part of the original iPhone team, developing software and firmware for both iPod and iPhone.


The partnership with Google goes back to 2011, when Fadell showed Sergey Brin a video of a prototype of the Nest Learning Thermostat. In May 2011, Google Ventures invested in Nest, providing financing and later renewed their investment in 2012. Google’s support and like-minded enthusiasm for Nest made the path from partnership to acquisition a natural progression. According to Fadell, “joining Google will be an easy transition because we’re partnering with a company that gets what we do and who we are at Nest – and wants us to stay that way.”

“Google has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services for the home globally. And our company visions are well aligned we both believe in letting technology do the hard work behind the scenes so people can get on with the things that matter in life. Google is committed to helping Nest make a difference and together, we can help save more energy and keep people safe in their homes,” Fadell wrote on the Nest blog on January 13.

The chatter about an acquisition heated up in late 2013, when Nest had to consider whether to raise more money from outside investors or be acquired by Google. Nest engineers had already reached out to Google regarding working together more closely in terms of technology. Those discussions soon evolved into acquisition talks between Google CEO, Larry Page, and Nest’s leadership. Fadell was eventually convinced it was the way to go, enabling Nest to leverage Google’s help in hiring, promotion and distribution.

“This wasn’t like over a weekend and here’s a number,” said Fadell. “We felt very good that this was a hand in glove kind of marriage.”


The Nest acquisition is the third largest in Google’s history, behind Motorola Mobility and display-ad company DoubleClick. So what is Google getting for the hefty price tag of $3.2 billion? For starters, they’re getting a considerable leg-up in the connected-device arena, which is going to prove essential and highly profitable. In addition to Google Glass, they are already developing technology for driverless cars. As more and more connected-devices debut, Nest will give them a nice entrĂ©e into the home energy and safety monitoring niches.

The Internet of Things market features wireless, connected consumer gadgets to help manage and control numerous aspects of daily life. According to the McKinsey Global Institute, this emerging market could create trillions of dollars in economic value annually by 2025.

Nest has product offerings that fit perfectly into this market, addressing universal concerns such as comfort and safety, both with its energy-saving thermostat, as well as the Nest Protect – an innovative smoke and carbon monoxide alarm.


Though it dominates smartphone software, Google hasn’t exactly been winning awards in the design category. The Motorola unit has seen sales drops in the double-digit percentages, as smartphone designs by Samsung, HTC and Apple prove more popular with consumers. Google’s Nexus tablet failed to make a dent in the iPad’s market share.

The Nest acquisition will give Google a boost in the consumer hardware market, with Nest’s sleek, intuitive, and simple-yet-futuristic designs and technology. The devices monitor your home and communicate with each other. You can access and control your devices via an app on your tablet or smartphone so you’ll always know what’s going on in your home.

Although relatively small in size as a company, Nest presents huge opportunity and Google is betting on it paying off. In the official press release, Larry Page wrote, “Nest’s founders, Tony Fadell and Matt Rogers, have built a tremendous team that we are excited to welcome into the Google family. They’re already delivering amazing products you can buy right now – thermostats that save energy and smoke/CO alarms that can help keep your family safe. We are excited to bring great experiences to more homes in more countries and fulfill their dreams!”


As Nest forges ahead into 2014, it does so with the full weight and power of Google behind it. Don’t expect things to change drastically, though. Rest assured, it’s not going to be swallowed up by Google.

Fadell addressed such concerns in his blog post, stating, “Nest will continue to be Nest, with its own distinct brand identity. We will continue to reimagine and reinvent the unloved products that proliferate in our homes, just as we have since we started. We are simply going to get our products into the hands of people around the world faster.”

With a $3.2 billion nest egg, one could imagine they’re well positioned to do exactly that.

Now read: Yahoo acquires Aviate, focuses on context and content on mobiles


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