07 June 2016

Ars Technica: “Nest’s time at Alphabet: A ‘virtually unlimited budget’ with no results”

It’s hard to argue with the decision to “transition” Fadell away from Nest. When Google bought Nest in January 2014, the expectation was that a big infusion of Google’s resources and money would supercharge Nest. Nest grew from 280 employees around the time of the Google acquisition to 1200 employees today. In Nest’s first year as “a Google company”, it used Google’s resources to acquire webcam maker Dropcam for $555 million, and it paid an unknown amount for the smart home hub company Revolv. Duffy said Nest was given a “virtually unlimited budget” inside Alphabet. Nest eventually transitioned to an Alphabet company, just like Google.

In return for all this investment, Nest delivered very little. The Nest Learning Thermostat and Nest Protect smoke detector both existed before the Google acquisition, and both received minor upgrades under Google’s (and later Alphabet’s) wing. A year after buying Dropcam, Nest released the Nest Cam, which was basically a rebranded Dropcam. Two-and-a-half years under Google/Alphabet, a quadrupling of the employee headcount, and half-a-billion dollars in acquisitions yielded minor yearly updates and a rebranded device. That’s all.

Ron Amadeo

I would say the virtually unlimited budget was exactly the problem here: the leadership and the company never stopped to focus on a clear vision and instead worked sloppily on too many things without shipping any of them. The same trap of ‘cheap financing’ hurting the startup market. Expect more Alpha-bets to suffer similar problems.

Nest inside Alphabet

Unsurprisingly, former CEO Tony Fadell disagrees: everything at Nest would be fine if he would just get more time and money!

Fadell has said he made the decision to leave Nest last year, and sources tell me he wrestled with the idea of leaving Nest for weeks before telling Alphabet CEO Larry Page of his plans in December. The impetus, according to several sources close to Nest, was the increased pressure on Nest to deliver profitable results as a standalone unit inside the new Alphabet operating structure, instead of being safely ensconced inside Google and given room to grow. Fadell had been turned into a manager tasked with steadily growing his businesses instead of serving as a visionary CEO, and ultimately he walked away.

Nilay Patel

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