Nest’s Future Unclear Under Alphabet as It Continues to Underperform

Posted by at 2:46 pm on March 31, 2016


According to a new report from Re/code, Alphabet-owned Nest is under-performing and its future at Google could be in jeopardy. The report, citing three people with knowledge of the matter, says that Nest generated $340 million in sales last year and while that’s solid for a company focused mainly on Internet-connected thermostats, it’s not as strong as what Google hoped initially.

Google, which is now a subset of Alphabet, originally purchased Nest in 2014 for $3.2 billion. The report notes that Google and Nest agreed on hitting a sales target of $300 million annually, which to this day, Nest has not done on its own. The only reason it hit $340 million last year is because it acquired Dropcam for $555 million.

When Nest was originally acquired by Google, Nest CEO Fadell made sure that the company would have an operating budget from Google as well as a retention clause that would ensure select executives and engineers stayed at the company.

That was in 2013, though, and the agreement was for 3 years. That means at the end of 2016, Alphabet could stop funding Nest and potentially shake up the company’s organization. Nest has reportedly been receiving an operating budget of $500 million per year.

The report points out that Nest’s future under Alphabet is increasingly unclear. With the potential for funding to stop by the end of this year and with Nest having continually fallen short of its sales goals, the company is facing deepening scrutiny from Alphabet.

While what exactly will happen to Nest at the end of this year remains to be seen, should the company lose funding, things could get a lot darker than they are right now. Dropcam’s former CEO Greg Duffey said that Tony Fadell ran Nest like a “tyrant bureaucrat,” while more than half of Dropcam employees have left since the acquisition occurred. Fadell then shot back and said that “a lot of the employees were not as good as we hoped,” which prompted Duffey again to fire back and defend the Nest team, noting that everyone that left did so because “they felt their ability to build great products being totally crushed.”

If Nest’s future is indeed as unclear as many have made it out to be in recent weeks, you’ve got to wonder what it means for those who have heavily invested in the company’s platform and ecosystem. No one wants to buy a product from a company that could potentially be losing $500 million of annual funding come the end of the year. Or even a company that could face a dramatic executive shakeup. While certainly things could be running smoother behind-the-scenes than these reports make them out to be, it doesn’t paint a pretty picture for Nest’s brand image.

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