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How Did Nest Get So Lucky?

Google buys startup Nest for $3.2 billion even though it barely has two products that really aren’t that special. What gives?


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How Nest got $3.2 million from Google.

Somewhere out there, executives from home automation and energy-management companies like Control4 (CTRL), HAI, RCS, Crestron, Alarm.com, iControl and other pioneers are still puking from the announcement that Google would buy Nest for $3.2 billion.

I don’t blame them. I threw up a little myself.

Here’s a company that launched two years ago with a thermostat that learns your behavior and adjusts settings automatically for energy savings.

The technology wasn’t particularly novel, but the hype and the industrial design certainly were.

This guy Tony Fadell from Apple made a bet that people would spend $250 for a thermostat that looks kind of cool, and here we were for the past two decades thinking folks didn’t care what a thermostat looked like slapped on a wall.

You know it, I know it. These things didn’t fly off the shelves because they were “smart.” Everyone I know that has a Nest thermostat turns off the learning feature.

Then came the marketing machine, which pushed the energy-saving features of the product to an eager press that had never seen a smart thermostat before. It generated the same mystique and appeal as if Apple had launched the product itself.

RELATED: On Google, Nest and Home Automation: ‘This Changes Everything’

Meanwhile, we as an industry started embracing this new concept called the Internet of Things (how I hate that term). Like every other smart thermostat on the market, Nest can communicate over the Internet, so it kind of became the poster child for IoT, garnering even more interest from the press and the pundits.

With its new Apple-like status, Nest had everyone swooning when it announced an IoT smoke and CO detector – it’s second SKU – last year.

At the same time, the home automation stars aligned with a rush of high-profile entries into the category including Lowes (Iris) and Staples (Connect), an IPO for Control4, and greater visibility for mass-market offerings from ADT (Pulse), Comcast/Xfinity, AT&T (Digital Life) and Vivint.

TV commercials, Internet ads and bill stuffers flooded the marketplace and virtually every major tech company from Cisco to Samsung started hawking the stuff.

I think Google was caught unawares. It had nothing to show in the home automation category except Android@Home, which gave us a prototype connected light bulb two years ago, and PowerMeter, which gave us a short-lived energy dashboard.

And, plus, Google has lots and lots of cash.

That’s how Nest got $3.2 billion for a thermostat.

Good on them!
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Article Topics

News · Blogs · Product News · Home Automation and Control · Control Systems · Energy Management · Nest · Google · Internet Of Things · Iot · All topics

About the Author

Julie Jacobson, Co-Founder, EH Publishing / Editor-at-large, CE Pro
Julie Jacobson, recipient of the 2014 CEA TechHome Leadership Award, is co-founder of EH Publishing, producer of CE Pro, Electronic House, Commercial Integrator, Security Sales and other leading technology publications. She currently spends most of her time writing for CE Pro in the areas of home automation, security, networked A/V and the business of home systems integration. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, earned an MBA from the University of Texas at Austin, and has never taken a journalism class in her life. She's a washed-up Ultimate Frisbee player currently residing in Carlsbad, Calif. Follow her on Twitter @juliejacobson. [More by Julie Jacobson]

14 Comments (displayed in order by date/time)

Posted by Joe Whitaker  on  01/15  at  09:59 AM

So I got out my shovel to get to the bottom of this one. Seems Google may just be more interested in Patents of products from Nest than the actual current products. The Therm and Smokes may not be worth that huge number but what is in Nest pipeline may just be.

Posted by Julie Jacobson  on  01/15  at  10:02 AM

Well, clearly they weren’t acquired for a tstat and smoke, but they needed to get that momentum first. In the end, Google wants the data generated by a large volume of Internet-connected devices.

Posted by Joe Whitaker  on  01/15  at  10:03 AM

Thats Google for you.

Posted by Buzz Delano  on  01/15  at  02:13 PM

Successful vision and innovation usually wins and wins big.

Posted by Julie Jacobson  on  01/15  at  02:20 PM

That would be nice if it were the case, Buzz, but I don’t think it is. Luck and timing play a key role.

Posted by dkippy  on  01/15  at  02:39 PM

As they say Julie. Peal the onion on this one. All the credit in the world to the Nest Management team to obtain what they got. BUT this entire purchase IS NOT all about a thermostat or Smoke/Carbon sensor. This goes way beyond that. Exactly what that is might not be visible nat this moment. But rest assured the valuation and purchase doesn’t even make sense based on current product, sales or market share.

I do feel that this is another example of different industry’s going in different directions. I hope manufacturers in this channel don’t take their eye off the ball and misread this acquisition as something it is not. I also hope the dealers in this channel see this as another strong signal to open their eyes/ ears and reflect on their experience to seriously review their partners. Our channel still needs to separate the who, what and how we do things to not get run over by the train coming down the tracks. Numbers do not lie. Our channel and dealers will not survive trying to sell consumer grade products from partners that have the intent of reaching around the dealer and obtain direct contact with your dealers.

But congratulations to NEST and those numbers are amazing.

Posted by Morgan Harman  on  01/15  at  02:40 PM

On the surface I would say that your points have merit. And not to say that just because a huge company with MANY decision makes spent TONS of money means they know what they are doing.

But… this is not just a casual toss of the dice.  We’re talking $3.2billion.  That offer doesn’t get made with out some SICK algorithm and thought behind the “where is this money going to grow?” proof.

I have to side with Google on this one.  And it certainly bodes well for everyone at Nest too.  Can you imagine the vibe at their offices this week?

Posted by Craig  on  01/15  at  05:34 PM

Google sells information. What you do and where you are at any point in time is worth money. Now they’ll know when you are home/away, when you go to bed, and more from pulling data from the home automation. That’s where the money is. You might check the new privacy release on your nest thermostat purchase….

Posted by Bob Farinelli  on  01/15  at  06:22 PM

Apple’s patents are proven cash cows

Google saw that in the Nest patents

It’s all about big data and the Trojan horse to lleverage it (with a profit) in every home in America.

Internet connected smokes with motion sensors?

Wish I thought of that.

Just watch out for the ones with cameras smile

Bob

Posted by Mitchell Klein  on  01/16  at  03:38 AM

They bought Tony Fadell. Smart move.

Posted by shownuff  on  01/16  at  05:23 AM

Supposedly nest has been filing stacks of [probably obvious, but that doesn’t matter today] patent applications behind the scenes.  Which makes sense given that they have lead hardware and software and who knows what else guys from the original Iphone development team.  So look at what happened to the Iphone, how apple has been able to leverage that IP against Samsung and others, the fact that nest is already in over 1 million households, the big data implications, and so its not really about products.  The question is will the nest guys leave and try to ‘rinse and repeat’ this act in another niche?

Posted by Petro  on  01/16  at  08:13 AM

This is all about patents. 

Nest has a very healthy patent portfolio and has over 100 patents granted with 200 in the process of filing, according to Fadell last month.

The most interesting of which is US 8620641 to integrate home automation with social networking.

Nest also did something to shore up their portfolio. Last September Nest purchased some patents from Intellectual Ventures and worked out a licensing agreement which gave them access to a broader portfolio of patents (40,000 to be exact). The thought here was this would come in handy in the event that another company claims infringement (remember Honeywell vs. Nest last year?).

Posted by Audioplus  on  01/16  at  11:42 AM

Abuse of thermal management? NEST, Google, BMG & the NSA can all get on the same band wagon? Maybe forward all of your data via the new NSA proof Blackphone? Or someone in Croatia will be controlling your thermostat smile

Posted by Joe  on  01/17  at  09:35 AM

These reports, plus the Target hack, have to make Google a little nervous about the cash outlay.  Here’s food for thought: there is a bubble building that is priming to burst around data and privacy, and social media and information companies will take the big hit.

...and when we look back in retrospect, we’ll say that it was an appropriate market-like “correction” for how naive (almost whimsical) consumers are about their data today.  Case in point, the millennial generation, who have never really felt the pain for being so forthright with their personal data.

The Target hack and articles like this one below about how appliances are being hacked are just the foreshocks.  This purchase by Google might feel a lot like investing in a major homebuilder in 2007.

http://www.technologytell.com/hometech/103593/proofpoint-reveals-iot-cyberattack/?utm_source=technologytell_top_10&utm_medium=most_popular&utm_campaign=2014-01-17

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