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Nest purchase is bad for everyone, except Google

Gordon Kelly


Nest purchase is bad for everyone, except Google

With leaks galore in the tech space we don’t get many surprises anymore, but news last night that Google had bought Nest for $3.2bn was certainly a bolt from the blue. For Google, a company with limitless resources that has failed to break into the home energy market before, the deal makes perfect sense. But for just about everyone else – including Nest – I don’t think it does. Here’s why:

Nest 2


It isn’t often a company comes along which has the potential to become a true giant in the tech sector, but Nest was poised to be the biggest since Facebook. You only have to look at our smart thermostat comparison to see how far the company stands out in terms of design and market presence. While others are just getting going Nest has been shipping 50,000 units a month in the US alone and will soon go global.

It isn’t just design and being first to market that has given Nest its lead, however, reviews for both the thermostat and its Protect smart smoke alarm have been universally excellent. It is a company which has exploded out of the gate making ordinary items feel special and demonstrating an understanding of the smart home and so-called ‘Internet of Things’ that no other company has yet come close to matching.

As such the future for Nest seemed incredibly bright. Yes, it has sold for over $3bn just three years after founding, but it felt like a company that would be worth $300bn in another five years and a standard-bearer for the next phase of technological evolution. It feels like Google selling out early to Microsoft. It feels like a waste.


Nest users

Early indications on social media are Nest users are far from happy with the acquisition and that is understandable. Key to the ‘smart’ element of a Nest thermostat is that it monitors, records and learns your living habits: when you’re home, where you spend most time in your home, etc. Users bought into this when Nest was the company holding this data, they didn’t buy into it to have it passed to Google.

Of course both Google and Nest have come out and stressed their mutual respect for this information. Nest founder and VP of engineering Matt Rodgers posted a Q&A after the acquisition saying “Our privacy policy clearly limits the use of customer information to providing and improving Nest’s products and services. We’ve always taken privacy seriously and this will not change.” The key here will be the long-term interpretation of “seriously”.

Then there is the long-term future of Nest. For now Google will continue to run it as a standalone company, as is common with most major takeovers, but how will it be integrated long-term into the Google strategy and will – as so many acquired companies find – much of it be stripped away for Google to get at the core elements it wants? The future of Nest seemed clear, now it is shrouded in mystery.

Apple Nest

Big rivals

There is no doubt the purchase of Nest is a major coup for Google and it is a big blow for Google’s rivals as it sees the company go from nowhere in the 'Internet of Things' race to out in front. Samsung, LG and others will be reeling today, but the greatest pain will be felt by Apple.

Nest has Apple DNA running through it – from co-founder Tony Fadell, who masterminded the iPod, to the strict hardware and software design principles Fadell stressed were implemented from what he learnt during his time in Cupertino. In fact, Nest and Apple seemed to have a special relationship. Apple was the first major stockist to sell the Nest thermostat, bringing it into Apple stores from the very first iteration in 2012.

As such it is hard to imagine Apple had no interest in buying Nest, which only makes the deal sweeter for Google. Now Apple – which has been stocking an increasing amount of smart home technology in its stores – will have to step up its plans from selling to building it if it doesn’t want to be left behind. Suddenly there is pressure to make an iTelevision, iWatch and now iSmartHome devices. Can it develop them all simultaneously? Doubtful. So slipping behind in one or more seems inevitable.


Smaller rivals

Our comparison may have shown Nest has a distinct edge over its smart home rivals, but those rivals were still growing fast in number. This is because the potential market for these devices is huge and while Nest had a lead, from their perspective it would not have looked insurmountable. With Google’s money behind it, however, a relatively level playing field has just been torn up.

Suddenly the sector leader has billions behind it and the timeframe many would have felt they had to hone and develop their products has been slashed. It is as if Google had swept in and bought Spotify just as it was beginning to take off… would the likes of Rdio and Bloom.fm have developed as successfully?

No-one can say for sure, but overnight the market has become far more difficult for the smaller players.

Consequently, I wouldn’t be surprised to see many of them throw in the towel over the next 18 months and something great may be lost.



Which leaves Google (and arguably the bank balances of Nest founders) as the only big winner. As far as major acquisitions go this is the kind of scenario buyers dream about, but it also comes with a huge amount of responsibility.

Letting technology monitor your home requires trust and a respect of privacy and while Google is rightly heralded for many things, trust and a respect for privacy are not among them. If it gets the approach wrong Google will not only bury a company that had looked poised to do a great job on its own, it will set the whole sector back years.

Which ultimately leads to a very uncomfortable scenario: if Google succeeds it will seriously damage the competition... and if Google fails it will seriously damage the competition.

Yes, the Nest purchase is bad for everyone, except Google.


January 14, 2014, 5:01 pm

These knee jerk reactions that hinge on the idea Google is going to be invading Nest users privacy via their devices are just ridiculous. Google might be making missteps in its software strategy (yes, G+ is a mess etc.) but their hardware divisions have been coming on leaps and bounds lately. Getting Tony Fadell on board at Google is going to reap huge dividends in the next couple of years - if you're looking to beat Apple at its own game (beautiful hardware at production scales) and take on its champion (Jonny Ive), Fadell is the closest thing to a sure bet in the industry . He has a proven pedigree, and you can bet dollars to donuts that Google won't be squandering his talents.

Is this deal good for everyone? No. Is it bad for Nest users? Almost definitely not. Will it be good for Google, and future Google customers? Almost definitely.


January 14, 2014, 5:14 pm

Perhaps, though I can assure you from experience that Gordon is very much not one of them, as I'm sure he'll be the first to say!


January 14, 2014, 5:38 pm

Good points as usual, Hugo, Fadell could be a huge addition to Google's product team.

On the privacy angle, though, I think you have to look a little beyond the immediate future. Of course Google isn't about to instantly raid Nest user data, that's not how Google does these things. What it will probably do in future, however, is introduce new beneficial 'features' that will in theory improve the experience but will also result in people sacrificing some privacy and so on. Google's approach, a very successful one it seems, is always to inch in changes under the auspices of progress.


January 14, 2014, 6:04 pm

True, the risk is that although I can't imagine what that I'd consider nefarious Google could do with Nest data, that doesn't mean nothing exists. I rest assured that Google doesn't care about me, only about us in aggregate, but of course, as the Snowden leaks have shown/confirmed, I don't just have to trust Google (which I don't in some cases, I host my email separately and happily pay money to do so), I have to trust everyone with current or potential future access to the data Google holds. But that's worst case scenario thinking, and to be blunt I don't believe anyone at Google is trying to invade anyone's privacy, and the engineers I "follow" are all vehemently opposed to Google's network being used in that way.


January 14, 2014, 9:01 pm

I agree entirely with the sentiment and alas this happens far too often and in many cases the company is only bought to be shutdown. While that won't happen in this case I hate the idea of mega companies infecting every aspect of our lives, yet we have people barracking for more.

Alex L

January 14, 2014, 9:12 pm

Surely all the above points would be equally relevant if Apple were the buyers? Personally I'm glad it was Google. Hopefully this will accelerate the adoption of what looks like a great product. As for privacy, don't our smart phone providers already have all the data they need as to our whereabouts?


January 14, 2014, 9:59 pm

It would also be nice to think that a 'tech startup' could be successful and then not immediately be gobbled up by a big player, whether it be Google, Apple or anyone else. It's beginning to feel like the moment anything interesting and innovative comes along, all anyone talks about is which big company is going to buy it.

This is one of the reasons, incidentally, that I really like Dropbox. It has resisted advances and has a lot more value in my eyes for doing so.

Gordon Kelly

January 15, 2014, 7:05 am

I'm with Andy on this. I also attend a number of startup events and the focus of virtually every company is when they will 'exit'. There's no desire to build a truly independent company, everyone wants to bale out as soon as the money looks good.

Gordon Kelly

January 15, 2014, 7:15 am

Hugo, I think it is naive not to believe Google will not look to mine the data Nest provides. Whether that is by subsidising the price of Nest products down to a level everyone is prepared to compromise their data or via 'anonymous' data collection. But by the very nature of how Google operates, it will want to learn about its customers. Given it can apply this data far more widely than Nest it has a vested interest in applying it more widely as well.

"I don't believe anyone at Google is trying to invade anyone's privacy" - is a quote I'll hold onto ;)

As Andy says though, Google is my favourite ecosystem of the big 3 and I say this as a former iPhone addict and long term Windows user. That said it is important to see every company for what it is and there are sacrifices on all sides. With Apple it is price and proprietary lock in, with Microsoft it is do-all software with laborious upgrade times, with Google it is your data.

Tony Fadell may be a good acquisition, but they already have someone equally good in Matias Duarte who build WebOS and has worked miracles with Android in the 3 years he's been at Google. I wrote a feature purely about him last year if you want to Google 'Is Matias Duarte the man to make or break Android?' Man's a genius.

As such Fadell is a bonus, Google wants in on smart home technology and now it has gone from nowhere to runaway leader.

How that is for all the little companies battling to make their mark, we'll just have to see but looks like yet another sector where all the usual faces will dominate. And depressingly early this time.

Prem Desai

January 15, 2014, 8:58 am

I'm not so sure that this is a bad thing.

I believe there are some positives that can come out of this.

Nest has been making thermostats for quite a few years now. All reviewers have been going ga-ga over them. However, they have not been available to us so far.

With Google behind them, this will change.

Also, I believe there is a bigger picture behind this. The home automation market is currently a joke - lots of standards, non-compatible standards, expensive, etc. I hope Google will expand the Nest technology to other devices and allow other manufacturers to join in - like it has with Android. Google still wants to play with other companies.

If Apple had bought Nest, it would become a very exclusive and expensive product with limited functionality - but stylish!!

Privacy issues are justified to a point only. Just about everything we do is captured - this ranges from withdrawing cash from a hole in the wall to shopping at a supermarket. It is amazing what can be derived from such simple information. So let's not pick on Google as they are not alone. This requires its own discussion.

Alex G

January 15, 2014, 10:12 am

Which in this case is hard to argue with as the money is insane - the valuation would put NEST in line with several FTSE100 companies. Whilst the device is nice it's not exactly difficult to replicate, a raspberry pi and a few cheap sensors would give you most of the functionality and could be developed over a weekend (well aware that there is more too it than this just pointing out the barrier to entry is low). The devices are pretty but much cheaper, tiny plastic units in each room would give far more control and better performance especially when combined with window sensors, PIR sensors etc


January 15, 2014, 10:15 am

This Nest hype is insane. Potentially worth $300 billion in a five years? Not a chance. At $2 billion it was already massively overpriced. They have two products which most of the worlds consumers are highly unlikely to buy for a good time to come. If i want a wifi controlled Thermostat in my home i would first have to get a new boiler - which costs over £1500, so even in the UK their key product isn't that viable. Most homes in Asia (where all the consumers are) don't have any central heating or cooling whatsoever. Home automation belongs to companies like Samsung who make most household goods. Don't get me wrong home automation cant come soon enough, but less hype please.

Mark C

January 15, 2014, 1:03 pm

I think you all need to put things into perspective. If you don't like Google's operating policies then don't buy their products. It's not rocket science.

Josh Carrick

January 15, 2014, 1:03 pm

The article would have done well to mention that Google Ventures led the Series-B and Series-C funding rounds. This company probably wouldn't exist in its current form without their support. It's really quite stunning to hear Gordon's financial insights again - would love for Gordon to explain how a home electronics business will become the world's fifth largest enterprise (ahead of GE...).


January 15, 2014, 3:36 pm

Yup, it's an unfortunate function of how all of these companies raise money - VCs want an exit not a sustainable living income for the founders.

Gordon Kelly

January 15, 2014, 3:39 pm

... and they aren't interested in creating potential industry changers. Google would've been sold off to Microsoft within 3 years these days. Spotify would've gone to Apple, etc.


January 15, 2014, 3:45 pm

Yeah, a lot of my favourite tech startups (well, some of them aren't startups anymore, but they were) are built to be sustainable long term businesses, not ostensibly get rich quick schemes for the founders and VCs behind them - see: Pinboard, GitHub, 37 Signals.

Snapchat is a really interesting one, in that it could have taken the big exit and instead is looking to play the same long game than Twitter and Facebook "won."

Gordon Kelly

January 15, 2014, 3:45 pm

Fair points.

To be clear I'm not saying this is purely because it is Google. It would've been bad if it were Apple or Microsoft too as it gives such a huge lead to a mega-corporate. Google does have greater privacy issues though.

Distribution wasn't a problem, Nest is due to launch in Europe this month but it may speed up a faster launch in the rest of the world. Google has not got a great track record there though, for example its Google Edition Android phones remain US only and its Gigabit Fibre initiatives were only ever for US cities.

The best case scenario is the deal puts the Internet of Things into the mainstream spotlight and pushes major competitors to really get on with their products. But it will slam the door shut on smaller innovative companies who usually get a longer period of grace risking new markets to establish themselves before the big boys come stomping in.

I suppose I'm most disappointed with Nest. It didn't need to do this and would've been valued far higher in a few years. It could've been a genuine new giant in the tech sector.


January 15, 2014, 4:15 pm

To be clear, my stance is that no specific person at Google is looking to invade the privacy of you, or other specific individual. And, in fact, when it was shown that other entities have been intercepting Google's data in order to actually invade Google's customers' privacy, the reaction was pretty clear: "Fuck these guys."[0]

I don't contest that Google may be looking to harness the data available to it via Nest devices, but I don't agree that everyone should necessarily be worried about that. The likely result for the average consumer is simply that Google brings to bear its data analysis expertise and Nest's automatic functions simply get better than they already are. Will Google make information about people's heating habits available to energy companies looking to advertise? Probably, sure. Will Google+ be live posting what temperature your thermostat is all hours of the day? Probably not, I'd say.

You're right about Duarte, without him there's a good chance Android would have been an also-ran, but good software is not enough, and Google is notoriously bad at hardware. Even as the devices themselves get better, every launch to date has been botched in the extreme. And that, as I said, is what makes Fadell such a great asset - he knows how to make great, innovative, disruptive hardware *and* produce it at the scales Google now needs to. Fadell is not a bonus, he's the reason Google bought Nest, because he's what made the company worth buying.

Maybe I'm being unreasonably optimistic, but my benchmark for this acquisition is that of Motorola, which brought us the Moto G, which I maintain was *the* phone of last year.

[0] https://plus.google.com/+MikeH...


January 15, 2014, 11:29 pm

From their point of view, you could either keep going to work making thermostats, maybe fascinating I don't know, or you could start a new life doing anything you could ever think of with a huge pile of money. I know what I would choose.

Gordon Kelly

January 16, 2014, 7:17 am

Which, no offence, makes you a capitalist rather than an entrepreneur. Capitalists would rather have limitless money to spend on golf, cars, houses and speedboats. Entrepreneurs want to build something of value and immerse themselves in it.

The world needs both, but I had hoped Nest was helmed by the latter.

Gordon Kelly

January 16, 2014, 7:20 am

I address this in the comment above:

"To be clear I'm not saying this is purely because it is Google. It would've been bad if it were Apple or Microsoft too as it gives such a huge lead to a mega-corporate. Google does have greater privacy issues though.

Distribution wasn't a problem, Nest is due to launch in Europe this month but it may speed up a faster launch in the rest of the world. Google has not got a great track record there though, for example its Google Edition Android phones remain US only and its Gigabit Fibre initiatives were only ever for US cities.

The best case scenario is the deal puts the Internet of Things into the mainstream spotlight and pushes major competitors to really get on with their products. But it will slam the door shut on smaller innovative companies who usually get a longer period of grace risking new markets to establish themselves before the big boys come stomping in.

I suppose I'm most disappointed with Nest. It didn't need to do this and would've been valued far higher in a few years. It could've been a genuine new giant in the tech sector."

Gordon Kelly

January 16, 2014, 7:26 am

It is fair that Google Ventures led previous funding rounds, but it is naive to think they wouldn't exist without them. Nest had investors competing to invest in the company - it picked the one to which it though provided the best terms. It wasn't an all or nothing deal.

Not sure what you're point is about "becoming the world's fifth largest enterprise"? Do you want a detailed business plan?

The point is the smart home market will be as big, if not a bigger, than the smartphone and tablet markets - though they are inextricably linked - and Nest was way out in front. It had far greater resources and market momentum than any of its smaller rivals and the mega-corporates like Apple, Google and Microsoft were 3-5 years behind.

Nest had one of the largest future markets virtually to itself and it cashed in instead. This is a shame, unless you're of the opinion that it is a good thing to see the world dominated by an ever smaller group of companies and that smaller companies should throw away the opportunity to become major players themselves and bring us more diversity.

Gordon Kelly

January 16, 2014, 7:30 am

A wonderfully simplistic viewpoint given it is now set to completely dominate this market and wipe out all the smaller players.

Gordon Kelly

January 16, 2014, 7:41 am

I think you're underestimating this.

Nest is selling circa 50,000 smart thermostats a month in the US alone within two years of launching a premium product that most people haven't heard about. I think you can see the potential.

Quoting poorer countries is not an argument because those homes also don't have tablets, smartphones and flat screen TVs but that doesn't remotely dismiss the scale of those markets.

Furthermore what this line of products does - unlike any other in technology - is pay for itself then make you money. It is far less of an investment up front than a £1500 boiler and (to be quite honest) most houses that consider spending $250 on a thermostat can likely afford to already have a decent boiler... and they're still buying this product in droves.

Nest had a huge opportunity to become an industry giant to challenge Apple, Microsoft, Google and Samsung's 'right' to this sector. It is a great shame that this is gone and it will be to the detriment of other small companies looking to establish themselves in this market.

Make no mistake, this is a brilliant acquisition by Google and the fault isn't there's. It lies with Nest for not wanting to try and realise its potential. It would be a sad world had Facebook sold out to Microsoft, Twitter to Apple, Spotify to Google and so forth. This is an example of that.

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