Google Broke Nest. Now It's Trying To Fix It
Google's home automation hardware is now Nest. But before the smart-thermostat startup – acquired in 2014 – could become one of Google's biggest brands, it had to be broken down and devoured by the tech giant.
Last year, Google merged Nest, previously a semi-independent Alphabet Other Bet, into its internal hardware development division. That has culminated in the May 7 reveal of the Nest Hub Max and the unification of the Nest and Google smart-home brands at this year's Google I/O developer conference.
The £219 Nest Hub Max, due out on July 15, is to be the centrepiece of Google's smart-home range. As well as providing a control interface for all your other Nest devices, the 10in Nest Hub Max will be a home to your Google Assistant, a smart facial identification and gesture control system, a security camera and a Google Duo video chat terminal.
Over the course of 2019, the rest of Google's smart-home range will be rebranded under Nest's name. Nest is clearly going to be a very big deal for the company.
But it wasn't always so. It's five years since Nest Labs was bought by Alphabet for $3.2 billion (£2.5 billion), but the connected home firm hasn't always been comfortable fit, with Alphabet reportedly attempting to sell Nest to Amazon as early as 2016, dropped support for acquired hardware and numerous reports of staff becoming disillusioned with management.
The home-automation firm was founded in 2010 by former Apple engineers Tony Fadell and Matt Rogers, in part as a solution to iPod lead engineer Fadell's own need for a smart, network-controlled thermostat for his home. It made its mark, expanding outside the US and releasing new devices including smoke and carbon monoxide detectors.
By the time it was bought by Google, Nest Labs had grown to around 280 employees. It was to operate independently, and by 2015 had over 1,100 staff at its new offices, as one of newly-formed Google parent company Alphabet's Other Bets – the subdivision of Alphabet that covers more experimental projects such as its internet-enabling balloon Loon and self-driving car unit Waymo.
But from early on there were controversies and clouds over Nest's future. In June 2014, Nest acquired IP security camera maker Dropcam to transform into its Nest Cam range. But discontent was simmering and, in 2016, Dropcam founder Greg Duffy wrote that he regretted his decision to sell to Nest after Fadell criticised the security camera firm's staff.
Indeed, 2016 was a low point for the company. In April, The Information reported there had been 70 resignations within the past year. Staff complained that they felt innovation at the firm had come to a standstill.
In May, Nest risked ill will among consumers when it shut down the Revolv Hub service – acquired and taken off sale two years previously – leaving customers of the niche $300 home automation control device with a useless item after giving them less than two months' notice.
Nest was reportedly underperforming, with 2015 sales of $340 million that only met Google's $300 million sales target by including sales figures from Dropcam, acquired for $555 million.
Later in the year, Reuters reports, Alphabet embarked on Project Amalfi, a failed attempt to sell Nest to Amazon according to anonymous internal sources cited by CNET. Fadell later claimed that it was this – precipitated by a change of management style on Alphabet's part – that prompted his departure from Alphabet and Nest in June 2016.
Speaking to French tech show On Refait Le Mac in 2018, he described a situation in which everything was – by and large – going well for the first year and a half. But then, he said, "one day they came in and decided to change all the rules, and it was one-sided. And there was no negotiation, no discussion, there was nothing."
Fadell was unhappy with the changes Alphabet proposed, saying that it was "not what I signed up for, that's not what I was intending and what we agreed on doing." Eventually, he says, Alphabet became frustrated by his refusal to run Nest as it dictated and said it would sell the company.
His response was to tell his superiors at Alphabet that "You can do whatever you want, but I'm not going with it." Project Amalfi failed: a buyer for Nest was not found.
Fadell told ORLM: "And so subsequently, you know, Nest is still there. But I'm not, because of legal reasons." Nest would remain an Alphabet subsidiary until it was merged with Google two years later.
When Tony Fadell left, he was replaced by Marwan Fawaz – formerly of Google acquisition Motorola's Home division.
Fawaz would remain in that role for just two years. In July 2018 CNET reported that Nest staff had been pushing for new management, complaining that Fawaz was "more of an operations manager than a leader", with an emphasis on delivering "on-time mediocre products", and that "he was planted in the role by Google to keep us under his thumb".
What they got was, finally, full integration with Google under Rishi Chandra, Google's vice president of product management for its home and living room ranges, concluding a February 2018 plan to fully merge Nest and its engineers into Google.
Nest becoming part of Google made it possible to calculate its revenue for 2017: $726 million, with an operating loss of $621 million. It's growth, but it's still a long way from making back Google's $3.2 billion investment.
Now, less than a year after that integration, Google's flagship home assistance hardware is set to take on Nest's brand. The question that remains is whether that will be enough to break the company's home-automation business out of its niche and pull the Nest team out of the doldrums.
If it succeeds, it'll be a sorely needed counter to recent bad press resulting from the discovery of unannounced microphones built into the 2017 Nest Guard home security system, only disclosed to customers when the company enabled them to turn the Guard into a Google Assistant terminal.
And from delayed video streams and smart doorbell alerts: a potential consequence of data being sent to Google's cloud servers and then relayed on to the user, rather than having the option of being managed over the local network, combined with an app that no longer warns users in case of network connection problems.
In February, Nest emailed all its users to warn them to enable two-factor authentication and against reusing passwords after a spate of credential-stuffing attacks saw hackers get into Nest temperature controls, home security and baby-monitoring camera systems.
Poor user security practices are the kind of problem that resists technical solutions, but this is just one of many issues that come along with home automation, as detailed in Trend Micro's Cybersecurity Risks in Complex IoT Environments report, published in March.
Ian Heritage, cyber security architect at Trend Micro, says that a key vulnerability is the control systems and automation platforms used to coordinate all our smart devices: "But the increasing complexity with each additional device and automation rule also means an expanding attack surface."
Nest is among the most security-conscious of home-automation firms, but Heritage emphasises the importance of two-factor authentication and says that it should be enforced to prevent issues such as the use of stolen passwords.
Even with the full might of Google behind it, Nest faces a world of challenges, from keeping up with the promises and obligations it has made to existing customers to cracking out of a narrow audience of home-automation enthusiasts to become something you might find in an average family home.
The Nest Hub Max will be going head-to-head against the Facebook Portal and Amazon Echo Show, and Google will have to hope that its home security and automation features are a popular selling point.
Facebook's effort appears to be struggling, with a drop in company-wide hardware sales. But the social media giant still doesn't have its own digital voice assistant, instead integrating with Amazon's Alexa.
Smart speakers in general are a growth market, but smart displays such as the Google Home Hub and Amazon Echo Show account for just 10 per cent of the smart-device market, according to Strategy Analytics.
The big question is whether the Nest Hub Max, with its slick colour screen to check on your devices and chat with your friends, will be compelling enough to become more than a tool for technophiles and finally help Google make good on its $3.2 billion bet.