January 13, 2014 10:02 pm

Google bets on ‘internet of things’ with $3.2bn Nest deal

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The Nest smoke and carbon monoxide alarm©AP

The Nest smoke and carbon monoxide alarm

Google has made a bold bet on the emerging “internet of things” with the $3.2bn acquisition of Nest Labs, a four-year-old start-up founded by Apple veterans that makes “smart” thermostats and smoke alarms for the home.

The deal is the second largest in Google’s history, behind its $12.5bn Motorola acquisition in 2011 and ahead of DoubleClick, the display advertising network it paid $3.1bn for in 2007.

“Nest’s founders, Tony Fadell and Matt Rogers, have built a tremendous team that we are excited to welcome into the Google family,” Larry Page, Google’s chief executive, said in a statement. “We are excited to bring great experiences to more homes in more countries and fulfil their dreams!”

The move is Mr Page’s latest foray beyond Google’s core business of online advertising into hardware and connected devices, following experiments with self-driving cars, its wearable technology Glass, and acquisitions in robotics.

Nest immediately sought to head off possible concerns about combining data collected from customers’ homes with other information that Google has collected from their online browsing or mobile activity. “Our privacy policy clearly limits the use of customer information to providing and improving Nest’s products and services,” Nest said.

With their sleek design and intuitive interfaces, Nest’s products have made it a poster child for the so-called internet of things, the idea that a large variety of devices, from the domestic to the industrial, can be improved through online connectivity.

Nest’s objective has been to “reinvent the unloved products that proliferate in our homes”, Mr Fadell wrote in a blog post on Monday.

“From the beginning, our vision was to create a conscious home. A home that is more thoughtful, intuitive – and nice to look at,” he said. “Google will help us fully realise 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.”

He said Nest will continue to operate under its own brand and will support mobile devices that compete with Google’s Android, including those made by Apple.

Mr Fadell and Mr Rogers are both former Apple employees and the start-up has poached so many of Apple’s staff since it was founded in 2010 that Steve Jobs once phoned them to complain.

Mr Fadell was a designer on the original iPod and later the iPhone, while Mr Rogers worked as a hardware engineer on the products. There, the pair learnt the value of bundling hardware, software and services, and of the value of using sleek design to command premium prices.

Their first creation at Nest was the $250 Learning Thermostat, which monitors which temperatures homeowners prefer and turns down the heating to conserve energy when they are away. Mr Fadell has described it as a “thermostat for the iPhone generation”.

After receiving rave reviews from early adopters, Nest’s thermostat was followed last year by the new $130 Protect smoke alarm, which warns of possible fires in a soothing maternal voice, sends smartphone notifications when it is running out of batteries and can be silenced with the wave of a hand.

Both products rely on a smartphone app for remote control, even far away from home, as devices such as the iPhone become central to controlling a new wave of connected home and wearable devices.

Though Nest has never revealed exact sales figures, the company has sold hundreds of thousands of thermostats, which went on sale outside the US for the first time in November.

Google’s venture-capital arm was among the investors backing Nest, which was valued at $800m in a fundraising early last year. Other backers who will see a hefty payday include Kleiner Perkins Caufield & Byers, Shasta Ventures, Lightspeed Venture Partners and Venrock.

Google was advised by Lazard while Nest did not use external financial advisors.

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