Google buys thermostat maker Nest Labs for $3.2 billion

Tuesday 14 January 2014 16.45
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Nest Labs deal is the second largest in Google's history
Nest Labs deal is the second largest in Google's history
Nest Labs CEO Tony Fadell is  credited with creating Apple's iPod music player
Nest Labs CEO Tony Fadell is credited with creating Apple's iPod music player

Google took its biggest step to go deeper into consumers’ homes, after announcing a $3.2 billion deal to buy smart thermostat and smoke alarm-maker Nest Labs.

The deal will see Google scooping up a promising line of products and a prized design team led by the "godfather" of the iPod.

Nest will continue to operate as its own distinct brand after the all-cash deal closes, Google said.

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 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 colour 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 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.

With the acquisition, Google gets Tony Fadell, a well-connected and well-respected Silicon Valley entrepreneur credited with creating Apple 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.

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.

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 had nott 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.

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 realise our decade-long vision and that they really truly respected what we did," he said.