Google's Nest acquisition: Strategically important with caveats

Google's Nest acquisition: Strategically important with caveats

Summary: Google's $3.2 billion acquisition of Nest may look like a steal if Tony Fadell sticks around, the company learns better hardware design, and it nails the Internet of Things.


Google bought Nest, a smart home device maker, for $3.2 billion in a deal that's strategically important because it fills a gap in the company's Internet of things strategy and adds hardware design knowhow. However, Google's Nest acquisition will only look strategically sound if certain conditions line up.

Here's a look at what needs to happen to make the Nest acquisition (roundup around the Web) look brilliant.

Also: Leaving the Nest: What's Microsoft doing in home automation?

Tony Fadell has to stick around. Fadell is a founder of Nest, loves designing products and unique experiences and obviously hit a home run with making thermostats and fire alarms smart. Fadell was behind Apple's iPod as sell as the early iPhone. To Google, which hasn't quite figured out how to make hardware well, Fadell may be worth half the price paid for Nest. If Fadell splits---or fails to spread his knowledge beyond Nest at Google---the search giant really just bought a fancy thermostat maker.

nest pic
Google's Nest acquisition goes well beyond mere smart home devices.

Nest's hardware design skills need to spread around Google---notably Motorola. Google CEO Larry Page likes to talk of beautiful design in software, cloud and hardware. The latter part has been lacking. Motorola does phones ok, but no one drools over those devices. Google Glass is interesting, but the design could be improved. The idea that Nest will be this walled off part of Google is laughable. Page would be a fool not to loop Fadell in on the hardware roadmap and get his thoughts. Pacific Crest analyst Evan Wilson said:

Google gets high-quality design talent. Google has been taken to task for not having the best consumer-facing design across many of its products, especially hardware. Nest will not design Google hardware right away, but the overlap cannot hurt.

Special Feature: M2M and The Internet of Things

Tapping M2M: The Internet of Things

Tapping M2M: The Internet of Things

Google has to connect these things to its cloud and ecosystem. Google is now connected to more cars, robots, smart devices and wearables than ever before. Toss in Nest and Google has an entry into the smart home. Appliances may not be too far behind. The challenge for Google will be integrating these Internet of things outposts and creating an experience that will actually matter. Google operates in silos in many respects so creating an integrated experience will be a challenge.

A halo effect should happen. Nest is likely to work a lot better on Android going forward and as Google connects the dots it should see some kind of halo effect for Android, its devices and of course advertising revenue streams. Google and its services can be deadly to Apple assuming the company can get its hardware approach down.

Topics: Cloud, Emerging Tech, Google

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  • They overpaid

    Nest is an interesting company, but 3.2b for a company with one notable niche product seems insane
    • And how long before...

      ...Google shuts down the operation...just as they have done with numerous other "acquisitions"?
      • I doubt they'll do that to Nest...

        After all, they have access to how often your HVAC turns on and off, if you're home or not, where you're located in your home (thanks Nest smoke alarms!), and that's on top of all of the data from your Android phone.
    • "the company learns better hardware design"

      Yea right. Like a thermostat that refuses to wake up.
      • Only for fools that don't know how to connect wires.

        That, more than likely, accounts for 95% of those issues.
        • The biggest problem with Nest

          and other common-wire powered thermostats is that people think the common wire isn't really needed. :\
    • Rly?

      If you think of nest as just a thermostat company yeah I guess your right. The problem with that thinking is it's not just a thermostat company. They do design of products really well they think of mostly everything when right out the box. A lot of the small details are hard to explain unless you've had to install a NEST. But even beyond just the product they know so much about UX and you have to admit even though Google has been working on their user experience it's still not the level of apple. Nest already has that with their products so if Google can help Nest to continue to expand while having a trickle effect on the rest of Google devices like the Moto devices and Google glass, than this is a win and money well spent
      Christopher Bailey
    • The Holy Grail of the IoT

      Yeah, I had the same immediate thought. $3.2B is a LOT of $$$ (it exceeds the GDP of countries like Somalia and Cayman Islands). On the other hand if this gives Google a foot in the door of home automation, how much is that worth?

      Have you seen the crazy number of smarthome/IoT devices on Kickstarter, all getting over-funded? So clearly there is some demand for a truly easy to use, ubiquitous IoT/homeautomation device.
  • Buying the talent cheap

    Very smart article on a smart acquisition of a smart company that makes smart things. Google seems to be able to avoid the normal acquiring company syndrome of arrogantly forcing systems and procedures down the throats of the new addition, while giving the bigger company's execs even more "direct reports".

    The present products are astounding expansions into sclerotic "old line" firms "meat and potatoes", same old-same old marketplace, but the best is the next step. That step is obvious to Fadell, to me and to some techies, but it will make the Google purchase one of their finest.
    • How do you know they aren't forcing things?

      At some point I think they will have to integrate these business units in order to provide some uniformity to their products.

      I'd say their track record so far is not encouraging. They seem to always overpay and then the new unit under performs making it hard to recoup their investment.

      We will see if Google can turn things around and deliver beautiful hardware.
  • curious

    curious to see where google can take it. Since they only have two products in the market right now.
    • Home automation of the entire house

      Comcast does it, so I guess Google decided they wanted to do that too. Once in the home it'll be easier to get people to connect to Google services (thus creating G+, gmail, Google app accounts, ect) to control it all.

      Maybe even "force" people to buy Android desktops or Chromebooks as the only means to control it all?
      • I could see forcing end users to adopt at least one Android device.

        However, Google doesn't really make the money off of the device if it's only used to control stuff and not to surf.
        • They do make money from the device

          in the sense that search is through them, information relayed between smart phone and Google is through them, and now information between your house and phone will be through them.

          All internet connected, funneling through their servers, with all that tasty data for them to work with.

          They didn't get 3.2 billion to buy Nest with from internet search alone.
    • More than 2 products

      Google has more than 2 products on the market at this time:

      Nexus 5 phone
      Nexus 7 tablet
      Nexus 10 tablet
      Arguably, the Moto-X

      Dignan is spot-on about Tony Fadell's potential to harmonize Google's hardware offerings, and the need for Google to become more consumer driven, rather than engineering driven.
      • Nest only has two products on the market

        a thermostat, and smoke detector
      • Only the Moto-X is Google's.

        The rest are made and designed to spec by another company. The Pixel was a Google design that turned out pretty good.
        • The Pixel is great

          until you lose your internet connection. The demo machine (and the other demo Chromebooks) at my local Best Buy lost their internet connection and became worthless.
  • What did they buy?

    Did they simply buy talent or were they after the technology or both? I thought that was a lot of money for what products they have developed so far. Plus, those products were not exactly marketed to a large group of population. Not many need a expensive thermostat or smoke detector.
    For the consumer is their a reasonable time frame to pay back on such a item? But then again this is Google a company who made a Chromebook that costs $1300 and basically has a browser running on Linux. Like I said, I see the possibilities with the technology of Nest. But I still think the pay back is a pipe dream at this point.
    • Reason

      Google has already tried getting a foot into the home automation business and failed. Nest has already made a small dent with a promising future. I just hope Google doesn't flub it up.