Selling to Google was about getting the benefit of building on a larger company’s infrastructure, said Nest co-founder and CEO Tony Fadell today.
Of course, $3.2 billion in cash was also a pretty good incentive.
“This is not a typical you-can-add-servers-to-it business, then it scales,” Fadell said in an interview, right after the deal to buy the innovative smart-home device maker was announced. Being able to build on top of Google’s infrastructure will allow Nest to continue to run as it is, the longtime entrepreneur and former Apple exec said.
Fadell will report directly to Google CEO Larry Page, and the plan is for Nest to run as a standalone business, pending regulatory approval. However, Fadell noted, “The whole goal is not to be totally independent — not just they funnel us money — this is about something much bigger.”
It wasn’t that Nest lacked money to build out its ambitions, Fadell said: “There was no shortage of funds, but funds are funds and you still have to build the infrastructure.”
Fadell said he anticipated that there will be concerns about Google’s record on privacy, which co-founder and VP of engineering Matt Rogers focused on in a blog post accompanying the acquisition news.
Here’s the interview with Fadell:
Re/code: Why do this deal?
Fadell: It was due in part to a lot of the success we have had just two years in. Google watched us and said to us, “This is really amazing.” Over time, after making the investment [via Google Ventures], they knew what was going on and watched how we had stirred up the marketplace. We got a lot of attention very quickly from the executive management of Google.
At first, we were talking to them about working together as a partnership. We have a lot of customers on [Google's mobile operating system] Android. Naturally, we had a lot of conversations over and over and over on a lot of things. And then they put out many overtures to us.
Why accept that offer now?
The crux of this is that we thought a lot about what is it going to take to realize our vision and change the world. This is not a typical you-can-add-servers-to-it business and then it scales. There is a ton of infrastructure that needs to be built. We want to differentiate with our products and not spend our time rebuilding stuff other people have. If we did not focus on the products, that is where you get into trouble with competitors. But you still have to build the infrastructure — it’s not like you go find it a shelf and buy it.
You had a lot of access to investors and were looking at raising money for even higher valuations.
Yes. There was no shortage of funds, but funds are funds and you still have to build the infrastructure. We had been looking at [raising more money], too, but Google was committed to investing in the business over the long term and they bring much more than just money to the game.
After talking to Larry [Page], he assured me that Nest is going to stay Nest. A startup has two choices: Either to stay independent or join up with somebody. With this, we have the best of both worlds.
What is the arrangement with Google?
I will be reporting to Larry. We will have our own offices. The whole goal is not to be totally independent — not just they funnel us money — this is about something much bigger.
What about the privacy issues related to Google?
There’s perception and there’s reality, and the reality of the situation is that the Nest data will stay with Nest. Our SLA will not change, our Terms of Service will not change. Nest data will be used to improve Nest data, that’s all.
How long had you been talking with Google about an acquisition?
We started in earnest in the summer, but put it all on hold when we were introducing Protect (Nest’s new smoke detector). A small company can come off the rails very quickly if you are spending a lot of time dealing with an inbound interest. We got more serious in November, but it came together very quickly.