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 Nest will continue to operate as its own distinct brand after the
all-cash deal closes, Google said on Monday.
The deal is the second largest in Google's history after the $12.5
billion acquisition of mobile phone maker Motorola in 2012.
Like the Motorola deal, which marked Google's first major foray into
hardware, the Nest acquisition gives Google a stepping stone into an
important new market at a time when consumer appliances and Internet
services are increasingly merging.
"Nest Labs appears to be focused on thermostats and smoke alarms,
but it's not far-fetched to see Google expanding this technology
into other devices over time," said Shyam Patil, an analyst at
Wedbush.
"Home automation is one of the bigger opportunities when you talk
about the Internet of everything and connecting everything. This
acquisition furthers their strategy around that," he said.
Shares of Google were up 0.5 percent at $1,128.49 in extended
trading on Monday.
Nest gained a large following with its first thermostat — a round,
brushed-metal device with a convex glass screen that displays
temperature and changes hue to match the color of the wall it
attaches to. It also tracks usage and employs that data to
automatically set heating and cooling temperatures.
With the acquisition, Google gets Tony Fadell, a well-connected and
well-respected Silicon Valley entrepreneur credited with creating
Apple Inc's iconic iPod music player, along with co-founder Matt
Rogers and a host of talented engineers and designers.
According to a search on professional network LinkedIn, roughly 100
of Nest's 300 employees have worked at Apple in the past.
Google, the world's largest online search engine, is increasingly
expanding into new markets, with efforts ranging from a high-speed
Internet access business to advanced research on self-driving cars
and robotics.
But while Google's engineering expertise has generated major
advances in technology, the company has at times struggled to create
hardware products that resonate with consumers as much as Apple's
products do.
The consumer experience of Nest's products "is Apple-like and it
gives Google that," said Pat Moorhead, an analyst at Moor Insights
and Strategy.
"What Google wants to do is be the backbone for your home, how you
consume energy, how you consume content like music through your
entire house," said Moorhead.
Some commenters on Twitter expressed concerns about the privacy
implications of the deal for Google, which collects scads of
personal data about its users' online habits.
"Not content with your personal data, Google now wants your home
data by buying Nest," read a Tweet by Irene Ng.
"So basically Google will know when homeowner is away, when they've
had a fire & what the power bill is?" Tweeted Brian Makas, who
appended the hashtag #creepy to his comment.
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In an interview with Reuters, Nest's Fadell said the company spent a
lot of time discussing privacy issues with Google during talks that
led to the deal.
"The reality of the situation is inside of Google they take privacy
so incredibly seriously you have no idea," Fadell said, noting that
Nest's terms of service would not change after the deal.
Google said the deal is expected to close in the next few months
pending regulatory approval.
EARLY BETS
Google has tried to gain a foothold in the smart home market before,
launching the PowerMeter service in 2009. The service let consumers
use the Web to monitor their home electricity consumption, but
Google shut it down in 2011, noting that it hadn't caught on as much
as Google hoped.
It was that same year that Nest's Fadell met with Google co-founder
Sergey Brin at a TED conference, showing him a prototype of the
thermostat. Google's venture capital arm, Google Ventures, made an
investment in Nest not long after that.
Kleiner Perkins Caufield & Byers, the venture-capital firm that
started backing Nest in 2010, made a return of 20 times on the $20
million it has put in over the years, for a return of around $400
million, a person familiar with the situation said. Shasta Ventures,
which invested at the same time as Kleiner, stands to make a similar
rate of return on its investment, a person familiar with the matter
said.
Fadell said the deal with Google was the culmination of "countless"
discussions that began in the summer of 2013.
"It took us months to get comfortable that they are going to bring
to the table the things we need for scale and to realize our
decade-long vision and that they really truly respected what we
did," he said.
While Fadell's expertise in mobile products could be a boon to
Google and its money-losing Motorola smartphone division, he
stressed that his focus was on home automation products.
"That was one thing I was very clear about. I said ‘Larry, I have
already built all kind of mobile products, I have done all those
things. I am not here to build those,'" Fadell said, referring to
Google CEO Larry Page.
"I am here to build out this vision. Not to go and build the other
things I have already built in the past," said Fadell.
(Additional reporting by Noel Randewich
and Sarah McBride; editing by Jonathan Oatis and Ken Wills)
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