Google Buys Nest Labs for $3.2B

Google has purchased Nest Labs, the maker of smart thermostats and smoke alarms, for $3.2 billion.

Nest Labs, founded by Apple alums, first came on the scene in 2011 with its digital learning thermostat that has since shaken up the staid world of residential temperature control.

The move by Google pushes it further into the burgeoning world of connected homes, and raises privacy questions for those who have installed Nest thermostats in their homes.

“Google likes to know everything they can about us, so I suppose devices that are monitoring what’s going on in our homes is another excellent way for them to gather that information,” Danny Sullivan, a Google analyst, told The New York Times. Nest’s CEO, Tony Fadell, has said that Google will honor Nest’s privacy policy, which says the company will use customer information only for its product and services.

So far, Nest has tackled only thermostats and smoke detectors, but it has far larger plans that aren’t entirely clear at this time. Last fall, the company opened up its closed system with a developer program that will launch this year. The first partner is Control4, a home automation company, but many other companies will likely want to integrate with the darling of the thermostat market.

The reality is that the thermostat is just the beginning. Nest would ideally like to be the platform for the entire connected home. Some have speculated that the Nest Protect smoke detector, which would be in more rooms than the thermostats, could act as networking hubs.

“Google has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services for the home globally,” Fadell said in a statement on Monday. “And our company visions are well aligned—we both believe in letting technology do the hard work behind the scenes so people can get on with the things that matter in life.”

Nest is already a direct threat to legacy thermostat companies, such as Honeywell, which sued Nest for patent infringement. Other companies that build digital smart thermostats that can be controlled from a smart phone might view Nest’s high profile and Google backing as a benefit because they will likely raise the awareness of the entire market. If Nest's prices stay high, consumers could take a closer look at other products with similar features at lower price points. 

But Google did not give up more than $3 billion just to dominate the thermostat market. Google previously had a home energy efficiency platform, PowerMeter, which it closed down in 2011. Home energy, however, is just one small piece of the puzzle. Google wants a stake in the coming Internet of Things, which is mostly about comfort, convenience and control throughout the home—even if the two companies wouldn’t speculate what that may look like when the deal was announced.

Nest will now pit itself against home networking providers. Security companies like ADT and Alarm.com have offerings that include smart thermostats, lighting and security features that can all be controlled from a smartphone, as do cable providers such as Comcast and Time Warner Cable.

Even with Nest's big brains and Google's deep pockets, building a seamless home network that allows disparate devices to talk to each other is still off on the horizon. Various groups, such as the AllSeen Alliance and the Internet of Things (IoT) Consortium are working on open-source standards to move the market forward.

“This is really early days,” Nest co-founder Matt Rogers said last week at a panel discussion about the connected home at CES 2014. “It reminds me of the days when we use to have these Internet portals. Now, there’s all these other services, like Google Now, where it just sends you an alert that you need to go to the airport now. That experience hasn’t transferred to the home yet, but it will in the next few years.”

The acquisition of Nest is Google’s second largest to date. The largest was the 2011 purchase of Motorola Mobility for $12.5 billion.

Photo: Nest Labs

 

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