Google's bombshell $3.2B acquisition of connected-home company Nest Labs makes simple sense on paper: Nest CEO Tony Fadell says he'll gain the ability to scale his business without worrying about cash or infrastructure, while Google gets a company at the leading edge of the difficult smart-home market and a team skilled in building well-designed products that combine hardware, software, and services. (And how: before Nest, Fadell and co-founder Matt Rogers led the iPod and iPhone teams at Apple.) It's a win-win, and Nest's investors sound ecstatic. "It's a fantastic return," Lightspeed Venture Partners' Peter Nieh told The Wall Street Journal.
But outside of the players directly involved in the deal, there was a second, more visceral reaction: disappointment. Nest was the first in a new wave of hardware startups built by engineers and executives eager to apply their experience building smartphones to new markets — a mission captured perfectly by Fadell's irrepressible upstart spirit in interviews and appearances. But by selling Nest seems to have undercut the optimism those companies represented, and perhaps not coincidentally, underlined a growing distrust of Google itself — a distrust shared by regular consumers, tech investors, and privacy advocates alike.
I *really* don’t get why Google acquiring Nest makes sense for either Google, Nest, or any of either customers or investors in any way.— Thijs van der Vossen (@thijs) January 14, 2014
Although Fadell says Nest will remain mostly independent, with its own identity, team, and even offices intact, it will most certainly become a part of Google. "It's somewhere between YouTube and Motorola," Fadell said yesterday, describing two of the search giant's more famous acquisitions. Motorola has remained almost completely independent, "firewalled" away from Google's Android team, while YouTube has become more and more integrated over time — with a recent outpouring of anger when its comment system was tied to the niche Google+ social network.
Now Nest can just raise the temperature of people's homes until they join Google+.— David Strauss (@DavidStrauss) January 14, 2014
So what will happen to Nest? Fadell called any speculation "totally premature" yesterday, but that hasn't stopped customers from worrying — and most seem to think Google will "ruin" Nest in a variety of ways, with Google+ integration standing in for a host of potential sins. Others worry that Nest will fall victim to the ongoing platform war against Apple, although Fadell says the company will continue to support iOS.
@davidhfe Spite is not illegal.— John Gruber (@gruber) January 14, 2014
Still others wondered, perhaps a bit facetiously, if Nest would become yet another in a long line of companies acquired by Google in a flurry of hype only to disappear years later.
If Google's honest about not peeking at Nest user data, that means it's gonna shut it down and stripmine the tech for new google gadgets.— Rob Beschizza (@Beschizza) January 14, 2014
Bummed to hear about Nest. I liked their products and assume they will eventually be shuttered like everything else Google buys.— justin severson (@_js) January 13, 2014
Viewed at a distance, the reaction is similar to Avis buying Zipcar: the fear that a slower, less innovative giant will kill the spirit and pace of a beloved startup. The difference, of course, is that Google is itself one of the richest and most innovative companies in the world. That it carries even the whiff of a lumbering giant is odd — especially since for tech investors, the Nest deal smacks of coldly efficient dominance.
Consumers aren't the only ones feeling some angst over Google's purchase of Nest. Yesterday's news caused a big question to boil up among Silicon Valley venture capitalists. How do you play the game when Google is one of the biggest investors in tech and also one of the biggest buyers of tech startups? "The purchase of Nest was a big win for us, of course," said one of the company's investors, who asked to remain anonymous. "But at the same time you have to wonder, could this company have been 10 times bigger had it continued to go things on its own?"
can Google Ventures be trusted to keep its founder interests separate from its backers?
Entrepreneurs face a similar pickle. Google has said that its venture arm is completely independent from core business, but that always seemed like wishful thinking, and yesterday's purchase will only strengthen the perception that taking an investment from Google Ventures ties a startup closely to Google itself. "It sends some really mixed signals," said another Nest investor. An entrepreneur might look at this and see the upside: an investment from Google Ventures means an acquisition by Google is more likely down the road. But for the truly ambitious entrepreneurs who want to take on tech titans like Google and Facebook the question now is, can Google Ventures be trusted to keep its founder interests separate from its backers?
There is no way Google is going to be able to resist doing something with the data collected from Nest thermostats/smoke+CO detectors— Brian Klug (@nerdtalker) January 13, 2014
The question of trust is perhaps most important of all. Fadell once described the Nest thermostat to me as nothing more than an on / off switch with a lot of nuance — nuance gained by collecting huge amounts of data about your living patterns and energy needs. Adding that data to Google's formidable collection of information about nearly everyone who uses the internet struck immediate fears with privacy advocates and a growing base of skeptics who contend Google's ad-supported business model creates an anti-privacy culture.
Watch what happens when Google aggregates your online data tied to a location to what is going on physically in your home via Nest.— Randy Picker (@randypicker) January 13, 2014
And the timing wasn't great for the counterargument: hours before the Nest announcement, Google clarified that a controversial plan to let Google+ users easily email nearly anyone on Gmail would be more private for "high-profile" users. It's another in a long string of confusing messages about privacy from Google, and the Nest team did little to alleviate the concerns.
give Google the chance to acquire more data, and it usually will
It’s a shame Apple didn’t buy Nest. I feel much more comfortable when the business model is built around selling hardware. Not the data.— Moshen (@paranoidroid) January 13, 2014
It's a strange set of affairs: an innovative young company led by some of the best engineers and executives in the business being acquired and validated by one of the great American businesses of the past 20 years should be a slam dunk of good PR. Instead, there's a chorus of concern — some sincere, some contrived, but all of it grounded in fear of an unchecked Google.
Additional reporting by Ben Popper