How the iPod creator’s thermostat became one of Google’s top brands
In this weekly series, CNBC takes a look at the companies that made the inaugural Disruptor 50 list 10 years later.
Apple iPod executives Tony Fadell and Matt Rogers recognized more than a decade ago that there was one simple piece of technology that needed an eye-catching high-tech upgrade: the home thermostat.
Generally, consumers viewed thermostats as an eyesore in the home – a requirement yes, but not an opportunity for innovation. In 2011, a year after the creation of smart appliance start-up Nest Labs, the learning thermostat hit the market, with the ability to control a home’s heating from a phone app. . It was such a success that a second generation edition followed a year later.
“A thermostat for the iPhone era” was how Fadell described him to the New York Times in 2011.
The founders of Nest Labs quickly moved on to other products, including Nest Protect, a smoke and carbon monoxide detector that could also be controlled by a phone app.
The Nest smart thermostat marked a milestone in the rise of smart home devices linked to smartphone apps and the concept of mass market adoption of the Internet of Things, in their case, through a redesign of instruments most common household utilities. It also presaged a new era of “remote control” innovation, giving consumers the ability to control their home without even being there – which now extends even to backyard barbecues – and to control parts of their home by pressing simply on a button. while sitting on the sofa.
Routers and security systems, locks and alarm systems, speakers, cameras and doorbells are all part of what the company has become today, as the smart home and the Internet of things have become a major consumer technology market. But what started as an independent startup found itself in the eyes of a major Apple competitor a few years after the founders of Nest launched.
In 2014 — the same year Amazon launched its first Alexa-powered Echo home speaker — Google acquired Nest for $3.2 billion, its second-biggest acquisition at the time behind Motorola.
Nest Labs remains a specialist home automation company in Google’s suite of home electronics now marketed under the Google Nest brand. But it wasn’t exactly a straight line for company successes or company structure.
About 440,000 smoke detectors had to be recalled in 2014 at a time when the company’s early successes were still making headlines.
In 2015, under Google’s umbrella, Nest’s original Thermostat and Protect saw new generations, and the company introduced the Nest Cam Indoor, entering the home security market. A year later, Nest Cam Outdoor, a weatherproof version of the original camera, debuted. But the camera’s efforts also brought negative press, after Nest bought Dropcam for $555 million to help build its Nest Cam line, and that startup CEO Greg Duffy clashed with Fadell. A back-and-forth in the press and in personal blog posts between the two turned nasty, with Fadell’s comments about staff defections being interpreted as a dig at Dropcam, and Duffy writes on Medium in 2016, “If you knew what percentage of all Alphabet’s ‘other betting’ revenue was generated by the relatively small 100-person Dropcam team that Fadell pokes fun at, Nest himself wouldn’t look good in comparison.”
Fadell recently said of himself in an interview with Forbes that “there comes a point in a project, for example, where I can get loud and pushy. But that’s because I’m trying to get my team to do something that matters. To me , that’s very different from someone who’s just a jerk, who’s not trustworthy, who’s a bully just because.”
At the time of the agreement with Google, Fadell told Re/Code“The bottom line is that we’ve thought a lot about what it would take to achieve our vision and change the world. This isn’t your typical business where you can add servers and then it scales. There’s a ton of infrastructure to build. We want to differentiate ourselves with our products and not spend our time rebuilding what others have. If we don’t focus on the products, that’s where you’ll get in trouble with competitors. But you still have to build the infrastructure – it’s not like you’re going to find a shelf for it and buy it.”
Although Fadell described the company after the acquisition as a “stand-alone business”, he also said: “The goal is not to be totally independent – not just to pass money to us – it’s it’s about something much bigger.”
But within two years of the deal, in 2016, Fadell left Nest Labs, with titles referring to the “tumult” to the company and shows an aggressive management style led by Fadell. “I’m a guy who’s at the beginning of things,” Fadell told The New York Times upon leaving. “I don’t like doing maintenance mode. It’s not what gets me out of bed.”
Tony Fadell, co-founder of Nest Labs Inc., speaks during a Bloomberg Television interview in Paris, France, 2017.
Bloomberg | Bloomberg | Getty Images
Nest Labs was always releasing new products and updated versions of their original technologies, but by 2016 the narrative had changed significantly, with the press writes “obituaries” for Nest amid reports of mass staff defections, and the acquisition being described as a case study on transaction errors with Google’s internal hardware team reportedly disagreeing with Nest’s separate operation.
Rogers would leave in 2018 at a time when the company’s “standalone” status ended after a three-year run, and he became fully integrated with Alphabet’s Google hardware team to better compete with growing smart home products from Amazon and Apple and related AIs like Alexa and Siri, respectively. And since then, regardless of the missteps that have occurred along the way, the company started by the founders of Nest has become a major source of income for Alphabet.
In 2018, its financial reports gave Wall Street analysts just enough detail to estimate it had grown to $750 million a year, with Alphabet CEO Sundar Pichai saying that in 2017, Nest generated more sales than in the previous two years combined. In the fourth quarter of 2021, Google’s revenue reporting line under which Nest reports, “Google other,” generated more than $8 billion in quarterly sales. In a more recent quarter, it fell to just under $7 billion.
In 2019, Google rebranded all of its smart home efforts as Google Nest. A report in The Verge at that time, said: “One way to look at the change is to say that Nest has fully become an extension of Google and its smart home ambitions after years of bouncing around in the Alphabet/flowchart nightmare. Google. Another is to say that Nest as we once knew it is well and truly gone. It’s just Google now. The truth probably lies somewhere in the middle…”
Google’s hardware business has grown, in mobile phones (Pixel), through the acquisition of wearables maker Fitbit, augmented reality attempts like Google Glass, even making its own chips, and through all Nest products, but revenue remains relatively low compared to its core services: search, YouTube and Google Cloud. Alphabet’s total revenue hit more than $200 billion for the first time in 2021.
Recent Industry Reports show that in the smart home speaker category, the Amazon lineup continues to have a much larger share than Google Nest, but with an estimate in 2021 of over 50 million US households having at least one Amazon device Echo and around 23 million households with at least one Google Nest/Home, it was clear that smart home technology had become an important part of everyday life. As competition between tech giants continues – Amazon launched its first smart thermostat in 2021 – the need for collaborate through home technologies because the consumer experience has also developed.
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