Forbes 1/13/2014 @ 4:18PM
Three years after redefining what thermostats are capable of, Palo Alto-based Nest is being bought by Google GOOG -1.95% for $3.2 billion.
“Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone. We’ve had great momentum, but this is a rocket ship,” said CEO and cofounder Tony Fadell in a blog post.
Fadell said Nest will remain its own distinct unit within Google in the cash deal.
Nest is best known for creating the Nest Learning Thermostat, which learns the temperature preferences of its users.
Google has attempted several times in the past to gain access to “connected home” type systems–including its own energy monitoring service–but this is a huge move for the Internet giant in this field. Smart thermostats are expected to be a big market in the next few years–$1.4 billion by 2020, according to Navigant Research, which hardly justifies the $3.2 billion purchase. More likely, Google shares similar ideas as Cisco CEO John Chambers, who recently said the “Internet of Things” market could be worth $19 trillion.
Apple AAPL -2.81% , reportedly working on new wearable technology to counter Google Glass, was rumored to be interested in buying Nest. Two of Nest’s cofounders–Fadell and Matt Rogers–are former Apple employees. Fadell is considered the father of the Apple’s iPod media player.
But a source close to this deal said Google was the only partner that Fadell seriously considered. If this deal hadn’t come through, Nest would have gone it alone, according to the source.
This announcement follows the release of Nest’s second product, a smart smoke detector called the Nest Protect, last November.
“Nest’s founders, Tony Fadell and Matt Rogers, have built a tremendous team that we are excited to welcome into the Google family,” said Google CEO Larry Page in a statement. “They’re already delivering amazing products you can buy right now–thermostats that save energy and smoke/CO alarms that can help keep your family safe. We are excited to bring great experiences to more homes in more countries and fulfill their dreams!”
Recode reported earlier this month that Nest was close to raising $150 million in a Series D round, evaluating it at $2 billion. This deal never went through. So far, Nest has raised $80 million from Kleiner Perkins, Shasta Ventures, Google Ventures, Lightspeed Venture Partners, Intertrust and Generation Investment Management. Kleiner Perkins owns a majority equity stake in Nest.
This acquisition is also another serious move for Google into the hardware space. Two years ago, Google bought Motorola Mobility for $12.5 billion.
“With the acquisition of Motorola and Nest, it’s showing that Google believes in the Apple vision: Create hardware, software solutions, not just an online platform,” said Forrester analyst Frank Gillett.
“Google acquired the best hardware team on the planet,” said Rob Coneybeer, managing director of Shasta Ventures, a Nest investor. “That opens up a world of opportunity for Google.”
With concerns about the way Google handles its users’ privacy, the acquisition could pose a challenge for Nest. Nest’s two products collect all sorts of information on people’s living habits–including whether they’re home or not.
“Consumers will continue to look to trusted brands like Whirlpool, First Alert and Chamberlain/LiftMaster for simple [Internet of Things] integrations in the home,” said Shane Dyer, CEO of Arrayent, a cloud platform provider for connected devices. ”It will be interesting to see if loyal consumers of these brands are ready and willing to trust Google with their home automation.”
Law firm Goodwin Procter served as an advisor to venture investors in the sale.
Here’s Nest cofounder Matt Rogers discussing home automation: