The Inside Story of Nest, where problems are brewing at Google’s $3B acqusition

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Nest were billed as the the definition of the new ‘Alphabet’ corporate structure at Google, and when they were acquired by the search giants in 2014, they were also billed as the poster-child for a radical and exciting new genre of consumer technology – the smart home.

In 2014, Nest represented one of the last unorthodox acquisitions by the then Google Inc, the holding company that was synonymous with search engines and email, rather than hardware for the home. Over the intervening years, Google has become a subsidiary of ‘Alphabet’, as the original search engine founders Sergey Brin and Larry Page fulfil their grand vision of a technology company which touches many additional areas of technology. Google is just one of the companies within Alphabet, and Nest is another.

Yet Nest’s problems go right the way back to 2014. As reminisced in this Business Insider article entitled ‘what is going on at Nest?, the problems began almost as soon as the company became part of the then Google family. In an early all hands meeting at Googleplex, a number of Googlers enquired about exactly why Nest employees were being asked to work 7 days a week. Apparently it was endemic of the culture within Nest, a company who have apparently always had a ‘crunch time culture’ driven by poor planning and unrealistic deadlines. In that all hands it was brushed off, and it was suggested that such behaviour was typical at hardware companies. The point was made in no uncertain terms that a software company like Google would not understand such matters. It didn’t bode well, and employee frustrations were bubbling up.

This could of course be said of any young company, many of which go through untold numbers of growing pains, pivots and last minute scrums to ship product. Yet nearly two years under the stewardship of the Google/Alphabet family has done little to hasten the end to these issues, as we have reported on recently.

Nest problems are mounting up

Nest have two products that really stand out, and one which is peripheral.

The first is their Nest Thermostat, which is now into its third generation as we reviewed here. The product has been consistently questioned, with many asking if its worth it. As we covered in that piece, we believe it is. However it is not without its faults and it is coming under sustained attack from the British Gas owned Hive, with many people comparing Hive vs Nest for the first time. Nest now has meaningful competition, and its thermostat has not been without its challenges. Recently it fell over again, right in the middle of an especially cold snap on the east coast of the US (many early adopters are millennials based out of cities like New York). It has a battery fault which caused folks to wake up looking rather blue, and that came on the back of other issues.

The other standout Nest product is their Protect, a smart smoke alarm which leaves a lot to be admired. Like the Thermostat and their third product, their security camera, all are rated at above 3.9 stars on Amazon and generally liked. We covered the Nest protect here in this review, and rated it favourably without being blown away. We were in reality more sold on the need for a smart smoke alarm other the need for the protect itself, as we said here in this piece looking at the upsides that smarter smoke and carbon monoxide monitors bring. The Nest featured in our top three, but was beaten by the product offering air quality detection, and we recommend you read that piece before buying a Protect. This is largely due to embarrassing issues and problems that have hit the Protect Рnot least this highly embarrassing video posted by a Google employee that showed his Nest Protect going crazy and not being able to silence it. The original Protect was recalled too, so despite being in the clear for a year, question marks do remain.

Nest have employee problems, which hardly help fix the product problems

Back in 2014, the popular press were seeking their next rockstar CEO after Steve Jobs, and post the Nest acqusition they thought they had found him.

Forbes screamed as much in this piece, waxing lyrical over how detail orientated the companies leader was. Tony Fadel was meant to do to the home what Steve Jobs did to computers and what his new boss, Larry Page did for search engines. Yet fast forward and the companies reviews on the anonymous company culture sharing site Glassdoor are far from exemplary. Only 70% approve of their CEO out of 70+ votes cast. Only 62% would recommend the company to a friend.

It isn’t helped that Nest’s reported revenue, coming in at a portion of $448mm generated across a number of ‘other bets’ divisions within Alphabet fell below Goldman Sachs estimate of $650mm for Nest alone. This is endemic of greater competition in the smart home space, as illustrated by the number of exciting products that we were able to highlight on this list of 2016’s best smart home products alone.

However, putting Nest’s problems aside, and the company would seem well placed.

The concept of the smart home has really kicked off in the past twelve months, and arguably in earnest in 2016 caused by the attention that the Consumer Electronics Show in Las Vegas put on the sector. This stuff is hot, and the value of a device like a smart thermostat is that you will certainly not be changing it too frequently.

However, clearly Nest have some problems to work through and they need to stop having high profile issues. With heightened competition from the likes of Hive, this space is no longer a razzmatazz of unheralded, unheard of start-ups with one poster-boy – its a grown up space with serious technology brands in it. Can Nest overcome their problems and step up?

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