The Real Reason Google Just Paid 2 Former Apple Employees $3.2B To Get Into Your Home
While many try to look forward in forecasting a cloudy future for Google, after it shelled out $3.2 billion in cash to acquire Nest Labs, the key to understanding the blockbuster deal may be in looking back to study the past.
Rewind just a couple of years to 2011, when Nest CEO Tony Fadell first showed Google cofounder Sergey Brin around the young company. “He instantly got what we were doing,” Fadell wrote in a blog post referring to that day, “and so did the rest of the Google team.”
After three years, two rounds of investment led by Google Ventures and one increasingly strengthened relationship, the search engine giant has gone from just owning a piece of the Nest pie, as an early investor, to wrapping its hands around the company's delicious technology completely via the big money deal.
Nest, which created the automated “learning thermostat” that studies your temperature preferences and adjusts accordingly, was founded in 2010 by Fadell and VP of engineering Matt Rogers, two ex-Apple employees who left the company in 2008 to branch out on their own. Now, the two cofounders have jumped on board to Steve Jobs' greatest competitor, to form what Fadell describes as somewhat of a match made in heaven:
“We had tons and tons of conversations,” Fadell told The Verge's Nilay Patel. “This wasn't based on the number — the number came at the end. This was, ‘Can we get what we need to scale our business and build our vision?' And they presented such a powerful case that it was meant to be.”
Nest is, undoubtedly, a fascinating company that makes cool products with cool features. Its thermostats, for instance, slash the amount of energy used for heating and cooling by shutting down when nobody's home, while its smoke detectors have alarms that can be disabled with the wave of a hand.
Furthermore, both can be controlled with a mobile app, but those features alone hardly merit a $3.2 billion price tag. In addition, the fact that Nest's revenue and profits are unknown to the public means that there's an aspect of mystery to the discussion of why Google paid such a hefty price for the startup, albeit a fun aspect.
Those who have joined in the Internet-wide game of analyzing the acquisition have generally given Google the benefit of the doubt, respecting the purchase as a legitimate buy. Few, however, have been on the same page in trying to decipher the tech giant's precise intentions. And naturally so; it is a guessing game after all, one that this observer, however, can't resist playing.
In trying to put a finger on Google's game plan, it seems as if the company has taken a page out of its competitor's book. In discussing Marissa Meyer's startup shopping spree, Vanity Fair reporter Bethany McLean described Yahoo!'s purchases as “aqui-hires.” As part of these moves, the actual acquisition of a company is the means by which valuable talent is hired.
For Google, Nest CEO Tony Fadell is very much a valuable talent. Fadell made a name for himself as the man Steve Jobs appointed to lead the design of the iPod and iPhone, and while he insists that Nest will stay just as it is (think an independent company that just happens to have access to a larger company's resources), the experience he and Rogers bring from their days at Apple's Cupertino, California headquarters is an asset.
“Both Nest founders repeatedly told me that their new company was run much like their old iPhone team back in Cupertino and featured many of the same engineers,” wrote Tom Simonite.
Along with Fadell and Rogers will come over 100 former Apple employees, which means Google has essentially added a big piece of Apple's DNA to use, or at least bounce ideas off, at their disposal. To have access to the secret sauce that gave Apple an advantage over Google in the first place is no small detail at a time during which Google is aiming to compete against iOS devices with its Android system and against other Apple products with more of their own.
However, Fadell's record at Apple isn't the biggest factor driving his credibility as a great aqui-hire; it's how he's mastered a type of technology that is primed to take off in the next decade.
While we are still in the midst of today's new-age tech boom, which has been defined by highly valued mobile apps and social networks, the craze of the next generation has already gathered hype and momentum.
That craze is the “Internet of things,” a term which more or less describes a world in which everyday appliances, like a thermostat or smoke detector, are connected to the Internet and possess heightened levels of intelligence. It is a phenomenon that has been accepted by many as a formality of the future. It, pretty much, is going to happen as far as tech enthusiasts are concerned. Moreover, there are few companies that have been as vocal, confident and informed as Nest in discussing the Internet of things.
When asked how Nest would take advantage of the Internet of things, Fadell responded with the cadence of a teacher explaining how the world works to his kindergarten students.
“The Internet of things really just means products, interesting products, all around you that may be connected to the Internet. And you may either have machine-to-machine connections or person-to-machine connections around the world,” Fadell said in 2012 at the Le Web Tech Conference in Paris. “…This is the first step. Give it five or eight years and then you'll start to see machines talking and then it'll be commonplace maybe in 10 years or so from now.”
Scour the Internet and you'll notice many companies whose names have been thrown into the ring to compete for domination of the future home. There are many of them — your Intels, your Samsungs, your LGs, etc. — but only one brand has presented tangible evidence that it can produce in the highly anticipated market: Nest Labs.
Simply put, Nest Labs is a company that has as good a grasp as any on what the Internet of things is, what it will look like and what it will take to make it a success. It's a point that was highlighted just this past week as Fadell's partner eerily picked up from where the CEO left off in France.
“What's next for us? We have to find other great products to do,” Rogers said, before emphasizing that Nest will succeed. “[And] we're going to… We're not gonna follow; we're gonna lead.”
But for all the talent, the reputation and the products that Nest has, it might be the CEO's philosophy that is most valuable to Google as it seeks to produce, produce and produce in the next decade as its most potent stream of revenue, advertising, loses pace. As Fadell spoke on that stage in Paris, he provided an inside look into his own ideology in a mini-rant that was likely to have been music to Google's ears:
“Ninety-nine percent of everything that is started ships,” Fadell said as he expressed his preference for Apple's style of product management, as opposed to former employer's, Phillips. “Why? Because it's still important we treat the resources as they're highly constrained. Each person on that team has to be highly valued and they have to feel a pride that what they're working on everyday is going to make it to the market to ship.”
With a track record of having succeeded in producing new age products, an intention of revolutionizing every other home appliance and an ethos that demands each project worked on comes to fruition, Tony Fadell and Matt Rogers look set to lead the charge into every home in America. While they're doing it, they'll be flying the flag of Google all the way.
Photo credit: Nest
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