Google Buys Nest Labs for $3.2 Billion

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Google has just bought Nest Labs for $3.2 billion in a move that pits the man who helped design the iPod squarely in Google’s corner.  Google and Apple have been business rivals virtually since their businesses started, and now that Google has purchased Nest Labs, the technology that Tony Fadell helped integrate into the iPod is now in Apple’s enemy territory.

Fadell is, in fact, considered the father of the iPod, and he and cofounder Matt Rogers are both former Apple employees.  Rogers was on the team that helped develop the iPhone.  Fadell and Rogers established Nest Labs three years ago, and has so far raised $80 million from a variety of investors.  Google Ventures is one of those investment partners, but Kleiner Perkins Caufield Byers, another of the startups invested in the company, has a majority equity stake in the business.  It’s estimated that Google’s purchase of Nest Labs will give KPCB 20 times the return on their initial investment, netting the company a $400 million return.

Nest Labs designs the next generation of common household items, such as smoke detectors and thermostats, and integrates them with smartphones so they can be remotely controlled.  Smart thermostats learn the behaviors of their users and eventually adjust room temperature according to the user’s preferences.  It’s a market that Google has been trying to get into, as smart thermostats are being considered as a growing market likely to explode in 2020.

Fadell said in a statement that Google’s pursuit of the fully automated home is a goal shared by Nest Labs.  Now that Google has bought Nest Labs for $3.2 billion, Fadell acknowledged the opportunities for collaboration with Google, and said that while his startup has made positive inroads into the technology business, a partnership with Google was akin to being on a spacecraft speeding through the cosmos.

Nest Labs bowed its latest creation, a smart smoke detector and carbon monoxide detector, in November to rave reviews.  The partnership between Nest Labs and Google isn’t something that Fadell leapt into hastily, however.  At the 2011 TED conference, he, Nest Vice President of Business Erik Charlton and Google’s founder Sergey Brin met.  During the meeting, Fadell says he and Charlton showed Brin what they had in mind for the smart thermostat that is now a best seller.

The move is a logical one for the technological giant.  Google has been working tirelessly on their efforts to expand their connected device field, but nothing has really caught on to the extent that Nest Lab’s thermostat has.  In purchasing Nest Labs, Google is now working with a company with an edge on the connected device market.

The purchase is anticipated to put a bit of a squeeze on Apple, who has been trying to come up with a wearable device to compete with Google Glass.  Now, with two of Apple’s former employees joining the Google fold with the Nest Labs acquisition, Google may have just gained something of an edge over its closest competitors.

Consumers, however, may be somewhat nervous about the data that will now be collected.  Nest Labs already collects data on the behaviors of the users of its products, so how much more data will be collected by Google?  Consumers already know that Google is aware of just about everything that occurs in every room in their homes, but Fadell has said on Nest Lab’s site that privacy is something the company takes quite seriously.

Though Google has bought Nest Labs for $3.2 billion, the purchase still has a few legal hurdles to clear.  It’s not expected that the purchase will receive regulatory approval until a few months down the road.

By Christina St-Jean

Sources:

MarketWatch

Tech Crunch

Forbes

Business Insider

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