Nest CEO and co-founder Tony Fadell (r), with Google CEO Larry Page and Matt Rogers, Nest co-founder and VP of engineering

Nest

Nest CEO and co-founder Tony Fadell (r), with Google CEO Larry Page and Matt Rogers, Nest co-founder and VP of engineering

General


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.



17 comments
stefnagel
stefnagel

Here's Tony too: At the DLD Conference in Munich, Fadell stated that any alterations to Nest's privacy policy in the future would be opt-in, and the company would be "transparent" about those changes to its users.


Kinda fudges what's said above. TOSs can change anytime, anyplace. Does anybody really believe that Google bought Nest for any other reason than to get sensors into and data out of our houses, for Google's purposes, which are primarily advertising.

KoeniginTherese
KoeniginTherese

So, why didn't Apple buy Nest? As shown in the interview http://23tv.de/?p=327 , one of Tony Fadell's competencies is to build great designed products. Apple has this capability and Google definitely need to improve this skill. Thus, I believe Google acquired nest for Tony Fadell's skills and not for nest's data.

JakeZ
JakeZ

Google just bought Apple's old iPod development team, who also worked on the iPhone and iPad.  What is that worth?

EdatMqn
EdatMqn

I think everyone, journalists and the public, are missing the obvious here. Google is buying code patents on intellectual property with very high future value for doing much more important things than turning off the lights. The heart of Nest is its software's ability to learn and adapt to ongoing streams of information and connect to Internet sites that can use the information. That's what google spends billions of dollars writing algorithms to do for it in search so it can earn tens of billions of dollars selling ads around. Clearly, the google gang thinks Nest's code is worth $3B+ to control for future applications development. 'nuff said. 

MikeInMI
MikeInMI

For $3.2B, I can pretty much guarantee that Google isn't just going to sit on the sidelines and watch Nest continue with just making thermostats and smoke detectors, etc.  That is way too much money for such an investment.  There has to be bigger synergistic plans in the offings.  At some point, if you keep your house very cool in the winter, you are probably going to get ads for sweaters, sweatshirts, etc. or something.

lamppost32
lamppost32

I'm glad Google jumped in.  I actually don't care if big companies collect data if it means I have a better (read: personalized) web / mobile / life experience.  If Nest continues relatively independently, and creates more and more networked home devices, but has the data-mining power of Google behind it, think of how personalized your home automation could be...  Nest Light Switches detect that the light bulb just blew, and orders you a new bulb automatically through Google shopping powers?  I'll take that.

DRH
DRH

Seems my comment about not buying nest now its google owned didn't meet Recodes requirements as it's been deleted despite the consensus seeming to be agreeing.

What's the point of having a comment section if you only want favorable comments to your the companies your focusing on!?

Censorship at its worst, let's see how long this comment survives!

Mario Marceau
Mario Marceau

Sorry if this post appears twice. There was a bug with the browser. Here is what I want to say.


Fadell said: 'Our SLA will not change, our Terms of Service will not change'. But with a very clear Google oversight of Nest, I reserve the right to doubt that even if I believe now that Fadell is genuine in his statement.

davebarnes
davebarnes

I will have to tell the wife that we won't be buying a Google device that would spy on us.


But, good for the Nest team and their new found wealth.

BayportBob
BayportBob

well that is all good that they made a few bucks from their efforts.  today i heard that Suntory is buying out Beam for about five times what Google paid for Nest.  i know that the Beam shareholders are happy for the 25% premium on their stock price.  just don't know what to make of the premium that Google paid for Nest.  Nest has good stuff, buy shit man, they ain't making that big a profit to justify the price paid for it!  dunno....... i am puzzled on this one, must be more than meets the eye going on here.

BayportBob
BayportBob

@MikeInMI or ads for a plumber if it feels the temp setting was too low for the outdoor temperature and it concludes that pipes may burst from freezing or thawing temperatures?  what you suggest is looking at something on amazon and then seeing that item for what seems like forever in ads on pages you surf to.  gets annoying after awhile, i feel.

tmgotech
tmgotech

@lamppost32 Google just jumped from spying on your email/surfing/phone habits & activities to spying on your physical/IRL habits & activities.  I don't know about you, but I am becoming even more leery of Big Larry and Big Sergei than I am about Big Brother.  



hello
hello

It probably never posted. No one here is deleting comments.

DRH
DRH

Thanks for agreeing with my post Bob, it appears recode want to appeal to the companies they are focusing on by censoring negative comments as mine was deleted.

BayportBob
BayportBob

@hello hello hello, it did post, it was moderated out of the comment section.