Why Apple didn’t buy Tony Fadell’s Nest Labs [Editorial]

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On Monday, it was announced by Google that it had acquired smart-thermostat and smoke alarm maker Nest Labs for a gargantuan $3.2 billion. The tech press were taken completely by surprise and the reaction online was seemingly rather negative.

Three billion dollars is a huge sum of money for any company, so it is understandable that there were questions asked. It’s also big news for the obvious reason that Nest was founded by ex-Apple employees Tony Fadell and Matt Rodgers. Fadell, Nest’s CEO, known as the father of the iPod, led the development team for the original iPod, the product that saw Apple take its first steps towards becoming the consumer electronics giant that it is today.  When Google, Apple’s biggest rival, hires that man, there’s bound to be some chatter.

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But that is not what a lot of the buzz surrounding the Nest acquisition has been about. Instead, many have spoken about how, if any company should have bought Nest, it should have been Apple. That the number of ex-Apple employees now working at Nest meant that it was a forgone conclusion that Apple would be interested in buying out the startup. That Google had beaten Apple to the punch.

In reality, Apple was never really interested in Nest. At least, that’s what Re/code reported. And frankly Apple didn’t have to buy Nest at all.

Alumni

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Here’s the obvious: Just because iPod man Tony Fadell started Nest, that does not mean Apple has to purchase the company. It’s not the first, nor is it the last, ex-Apple startup that has not been purchased. In fact, the list of Apple spinoffs contains some pretty big names, yet no one expects Apple to purchase Palm, TiVo, LinkedIn, Flipboard, Pandora or Path any time soon.

Besides, the ex-Apple employees at Nest obviously left for a reason. Who is to say if they would want to move back to Apple or if Apple would want them back?

Data

Many people have voiced concerns about Google having access to the kind of data Nest’s devices are capable of gathering. The knee-jerk reaction on the Twitterverse was one of people immediately yanking their Nest thermostats from their walls and pledging to never buy another Nest product. That may be an overreaction, at least for now.

No doubt the data Nest’s thermostat gathers about your energy usage is valuable, particularly to energy companies’ marketing departments, but I think Nest is part of a bigger data project for Google. If the connected home comes to fruition over the next few years, that opens up a huge market for advertisers and, let’s not forget, Google is in the ad business and Apple is not.

Focus

Apple does not do ventures and projects like Google does. Instead, Apple sticks to clear product categories, refining their offerings, focussing on what they know and pushing that technology forwards. That doesn’t mean Apple will not have an eye on the connected home and the “Internet of Things,” a real buzzword from CES just last week. But taking on Nest, particularly if it was kept as a separate entity like Google is planning on doing, would be a tiny side project for Apple and we know Apple does not really do side projects. The nearest thing to a hobby Apple has at this point is Apple TV and, compared to the millions of Apple TV sales, Nest would be a way too small to even be considered a hobby by Apple’s standards.

If you look at the companies Apple has acquired over the last year, you can see a clear focus on improving the state of its current product lineup. Compare that to the variety of industries Google has purchased companies from recently and it is obvious that the more likely of the two to purchase Nest was always Google.

Google also has a constant stream of AdSense revenue affording it the opportunity to splash money on experimental tech without feeling heat from Wall Street, regardless of whether the projects are successful. Conversely, Apple’s every move is scrutinised by the Street and cannot afford to fail in their eyes.

iOS

ff_nest_g-660x660There’s no doubting Nest’s design sensibilities, something that has certainly been influenced by the ex-Apple employees there. But a well designed product isn’t all Apple is after and, besides, Apple has got a pretty healthy design department.

The real question is, would buying Nest have lead to more iOS device sales? Short answer, no. Apple, ultimately, wants to sell more iOS devices and getting into the thermostat or smoke alarm business is not going to shift any more iPhone units.

Instead, Apple wants iOS to be so popular that peripheral manufacturers have to support the platform to be a success. That applies to Nest – it is extremely unlikely that future Nest products will not support iOS, therefore, Apple does not lose anything by Google owning them in that respect. Further, Google has clearly shown that it wants to be present on the iOS platform with its apps and services, why would that change with Nest? Fadell even told The Verge that we have nothing to worry about:

Well look, at the end of the day, customer choice is essential. And we don’t make products that compete with Apple, nor make products that compete with Google. Our customers come in both iOS and Android flavors, and I hope our customers can still buy the products they want to purchase wherever they want to purchase them.

Buying companies like Authentec and creating technology like Touch ID for the flagship iPhone 5s, that sells devices. That is what Apple wants to do and where Apple makes its money. Then, once iOS devices are in the hands of customers, all the peripherals will have to support the platform if they want to be successful themselves.

The price

$3.2 billion. Whether or not you think Nest is worth that amount, that is not a figure Apple would spend on a single acquisition judging by its history (although we know Apple definitely have the cash to afford it). Apple’s most expensive acquisition to date was $404 million for NeXT, bringing Steve Jobs back to the company with it. In fact, if you add together the ten most expensive Apple acquisitions, you still wouldn’t get to the three billion dollar mark.

Simply put, the price paid for Nest isn’t the kind of money Apple throws around.

Personally, I think it is a shame that Nest has been bought, period. They’ve produced two innovative solutions to home appliance problems in their first few years and clearly have some talent. I would have liked to have seen how far they could push the envelope on their own.

Sure, with the might of the big G behind them, they are more likely to realise whatever their vision was sooner than they could have. But, as some have already pondered, if Apple had sold to IBM, Google to Yahoo, Facebook to Google or Twitter to Facebook in the first few years, where would technology be?

In the end, it wasn’t necessary for Apple to buy Nest, or even probable that they would. Let’s see where Google takes them over the next few years.

Your opinions?

What do you think about the Nest/Google situation? Surprised by the fee? Did you honestly expect an Apple acquisition? And what do you think the future holds for Nest? Let us know in the comments.

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  • Therese92

    So, why didn’t Apple buy Nest? As shown in the interview http://23tv.de/?p=327 , one of Tony Fadell’s competencies is to build great designed products. Apple has this capability and Google definitely need to improve this skill. Thus, I believe Google acquired nest for Tony Fadell’s skills and not for nest’s data.

  • nkathrein

    Can you image Google now linked into Nest.  You on your way home and an unscheduled time and Google now sees that and turns on the air in preperation for your arrival.  This could be great because people who use Google products like Google Now could have a smarter Nest product soon.

  • Kavok

    So it’s not the thermostat that turns on the air conditioner, it’s Google? What about people that don’t like Google? The Nest is smart enough as it is, it doesn’t need the bloat that Google is going to bring to it. I know I don’t want to see ads on my thermostat. “Oh look, he just went past the thermostat on the way to the kitchen. Let’s show him an ad about buying eggs online because we just got a notification from his egg tray that he will be out of eggs soon.” “Ah, his smoke detector just told us he’s in his bedroom. Let’s display an ad for some adult dating service because we know he never brings anyone home and he could use the help.” Tell me I’m wrong.

  • nkathrein

    Kavok.  ” I don’t want to see ads on my thermostat.” 
    I hate to call names but this statement is just DUMB. I would elaborate but it would be a waste of my time. If you really believe that the NEST will have ads then you are to far gone to bring  you back to reality.

    “”Oh look, he just went past the thermostat on the way to the kitchen. Let’s show him an ad about buying eggs online because we just got a notification from his egg tray that he will be out of eggs soon.” “Ah, his smoke detector just told us he’s in his bedroom. Let’s display an ad for some adult dating service because we know he never brings anyone home and he could use the help.” Tell me I’m wrong.”

    YOUR WRONG and not that smart. Sorry just the truth.  

    Google now would remind you that you low on eggs.  Not that that is possible yet.

  • Kavok

    Your ignorance will be forgiven. http://postscapes.com/smart-egg-tray-eggminder