|January 15, 2014|
Why Google Paid Three Billion Dollars for a Thermostat Company
|On Monday, Google announced that it will acquire a three-year-old company that makes thermostats and smoke alarms. The company, Nest, was raising money that would have valued it at two billion dollars; Google's C.E.O., Larry Page, wanted Nest so badly that he offered three billion dollars. |
Nest's thermostats and smoke alarms aren't run-of-the-mill devices. They look like items you would buy in an Apple store---one of the places they are sold---not a Home Depot. The thermostat looks like a round iPhone and costs two hundred and fifty dollars; standard thermostats cost half that much. It's about as easy to use as an iPhone, too: Pretty much anyone can figure out how to use it in minutes; it learns its users' habits and preferences automatically; and it can be controlled with a smartphone from anywhere. A year ago, Gigaom reported that Nest was selling forty thousand to fifty thousand of the thermostats a month.
But Nest's product line and sales numbers alone don't explain such a rich purchase price. Immediately after the deal was announced, some suggested that Google paid so much for deeply nefarious reasons: it was going to use these devices not only to track us online but to snoop on our offline habits as well. Google and Nest denied this. Page and Google are likely after something else entirely: Nest instantly gives the company an enormous infusion of Apple-esque magic in making great products and marketing them well. Google desperately needs this, as devices---not just the software and Web sites that run on them---have become increasingly important to its business. Page and his executives have tried to do this on their own, but have mostly failed.
For all of Google's success as a search engine and in search advertising, its efforts to sell consumer electronics have been disastrous. Remember Google TV? The Nexus 1? The Nexus Q? The Chromebook? If you do, it's probably not because you bought one. Google's culture is rooted in building software, giving it away for free, and improving it over time---and all that without much marketing. Google's Play store for Android has taken five years to start competing effectively with Apple's app store, because Apple knows how to create an online store that's interesting and engaging to navigate, while Google does not.
Nest makes Apple-esque products for good reason: It may be the largest purchasable repository of ex-Appleites in Silicon Valley. Nest's C.E.O. and co-founder, Tony Fadell, is a former top executive at Apple who, during a decade in Cupertino, played a critical role in the company's rebirth. He helped build and design the iPod before turning it into Apple's biggest business by 2006. Then he helped conceive and build the iPhone before the project was taken over by Scott Forstall, a former Apple executive.
At Nest, Fadell and his co-founder, Matt Rogers---who also was one of the early iPhone employees---appear to have hired roughly a hundred of Apple's best engineers and marketers, judging from LinkedIn profiles. Nest's chief counsel, Chip Lutton, was, until 2011, Apple's top patent lawyer, during a period that included Apple fights with Google, Samsung, Motorola, and HTC.
Buying Nest may be Page's most important deal as C.E.O. of Google, a job he took on in 2011; it takes the company a long way toward realizing a vision of a Google that goes well beyond its roots as a simple search engine. Buying Motorola Mobility, in 2012, for more than twelve billion dollars, was a first step. Buying Nest not only thrusts Google into the business of selling general consumer electronics but it finally supplies the search company with the expertise to keep doing it. Over at Apple, C.E.O. Tim Cook is no doubt paying close attention.