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Google's Nest Move: The Tech Giant Wants to Run Your Home Before Apple Does


The Internet search giant acquires a start-up that builds smart devices for the home, plus a team of Apple veterans.

Google (NASDAQ:GOOG) has just acquired the start-up company Nest, and along with it a team of engineers dedicated to creating smarter home devices, with an Apple (NASDAQ:AAPL) veteran to lead them.

The acquisition will cost Google $3.2 billion, the company said in an announcement released after the close of the markets on Monday.

Nest is a four-year-old start-up with two products currently for sale on its own site as well as by Amazon (NASDAQ:AMZN) and Apple:
  • The Nest Learning Thermostat, which costs $249, replaces the conventional thermostat with a device that can be controlled using a smartphone app, and can "program itself" over time. It uses statistical analysis and motion sensors to adjust temperature controls to a family's habits and preferences. It knows when no one is home, so it dials down the heat setting to save energy.
  • The Nest Protect is a smart smoke and carbon monoxide detector that can distinguish between a minor problem (the bacon is burning) and a real emergency (the house is burning down), and identifies which room the problem is occurring in. It uses a pleasant recorded voice instead of the dreaded shrill beep, and its owner can make it shut up with a wave of the hand. It costs $129.
Both devices are designed to look sleeker than the standard articles.

That's not surprising, given the background of its co-founders.

Tony Fadell worked on the first generation of the iPod as a senior vice president at Apple Inc., and is credited with its concept and initial design. He will continue as CEO of Nest after the move to Google, according to the announcement, and will report directly to Google CEO Larry Page.

His co-founder in the venture, Matt Rogers, was responsible for software development of the iPod, and later was involved in the development of the iPhone and the iPad. He is expected to continue in his role as head of engineering at Nest.

The Nest team is dominated by Apple veterans as well.

Now the big question is, what's next for Nest?

No specifics yet, but Fadell, in an interview with the New York Times late last year, said: "Right now I can tell you 10 things, minimally, that can get changed in the house. They are all great markets with large incumbents who haven't innovated in years."

Faddell says he wants to build "simple, thoughtful devices" that make life easier and have a positive impact on the world.

The company's stated mission is to reinvent "unloved but important" devices in the home.

The company has a second revenue stream, in energy management. It contracts directly with utility companies to manage and re-route energy usage among customers who have installed a Nest device, in order to increase energy efficiency. (Participation is opt-in for Nest owners.)

Nest has already hastened to say that it does not and will not share data it collects on consumers' habits at home with Google or any other party.

In announcing his company's acquisition by Google, Fadell said that the deal will help Nest move faster: "We've had great momentum, but this is a rocket ship," he said.

Founded in 2010, Nest has been a well-funded start-up from early on. Google Ventures had been a major investor since 2011, with its total investment to date second only to that of Kleiner Perkins Caufield & Byers. Most recently, the company announced in early 2013 that it had raised $80 million in investment capital.

Nest will continue to operate as a separate brand after the acquisition, which is expected to take several months to finalize.

In buying Nest, Google is moving aggressively into the "Internet of things," a buzz phrase that dominated the latest Consumer Electronics Show just last week.

Forrester analyst Frank Gillett told the Wall Street Journal that Google needed Nest to stay ahead of the competition for a coming wave of such "connected home" devices. "This is about whose service-Google, Amazon, Apple, Microsoft (NASDAQ:MSFT) and others-is going to coordinate your smart home for you," Gillett said.

Google shares rose .6% in after-hours trading after the announcement on Monday, closing at $1,130 per share. The deal is Google's second largest, after its acquisition of Motorola Mobility.

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No positions in stocks mentioned.
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