Google Buys Nest, What does that mean for home automation?

In a move some would say they’ve seen coming, and after a host of other acquisitions, Google has bought Nest, a producer of automated home devices for USD $3.2billion. The move has made a number of early investors rich, including Kleiner Perkins Caufield Byers and Shasta Ventures.

Nest was founded by Tony Fadell and Matt Rogers in 2010. Rogers worked on the iPhone with Apple and the pair has already had 100 patents granted with some 200 more pending. Nest focuses on automating home devices with their top products a thermostat that reduces the amount of energy used by the house and a smoke detector. All devices are connected to smart phones providing the home occupier with rich information about their devices and how they’re operating with the environment.

The acquisition was not as quick as it may sound however. Google was aware of Nest from as early as a 2011 TED Conference where Nest VP Erik Charlton and Google’s Brin were to seen in a corner looking through the early models of Nest products. Both partners are excited to be joining Google because ‘they get what we do and who we are at Nest – and want us to stay that way’, according to Fadell. The transaction is still awaiting regulatory approval.

Nest has undergone three rounds of funding since its founding in 2011, with only the first round of investors made public. Rumours circulate that Kleiner, who invested $20 million received a 20X return at $400 million. Shasta ventures cryptically confirmed that the deal has returned ‘almost all ‘of their second $250M fund. Even Google Ventures itself was a recipient of the buy out as they led Nest’s Series B and C rounds.

Nest’s goal is to realise the ‘conscious home’. They believe that aligning with Google will help them accomplish this because of their access to business resources, global scale and platform reach. Google had previously attempted some automated home devices which will now likely fall under the Nest brand. Of particular note is Google’s PowerMeter project which could have some interesting alignments with Nest’s vision and products. Nest has also been receiving some complaints that the software on its devices are buggy and not up to scratch. Aligning with some of Google’s top software engineers should sort that problem out fairly quickly.

Nest provides Google with top-shelf design expertise in hardware products, an area that Google clearly wants to expand upon but has not had huge success with in the past. Acquiring a brand with traction already in the market puts Google at the forefront of the market. For now, Nest will not be providing Google with all the data that runs through its devices (household energy consumption, times and dates when homes are occupied etc).

While Nest brings a strong brand loved by consumers, it remains to be seen how much autonomy the founders will have to continue the brand. The acquisition however may begin a focus of entrepreneurs on the hardware market – if big companies like Google are paying good money for hardware that is streamlining behaviours and benefiting the planet, that will provide the motivation for entrepreneurs to enter the market.

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