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UPDATE, June 8: In response to this column, a Nest spokesperson noted that the company’s thermostat line was updated three times during 2015. The latest, its third generation, reached 1 million units sold in half the time as its predecessor. Nest’s revenue has grown at least 50% year over year since it first shipped products four-and-a-half years ago, he said.
Nest revenue has grown in excess of 50% year over year since it began shipping products 4.5 years ago.
When I was a cub reporter on the business desk of a prominent New York wire service, I learned to pay particular attention to corporate disclosures that came Friday afternoon—a surefire sign that the company wanted to downplay or bury the coverage as much as possible. Naturally, my ears perked right up when Google (GOOG) last Friday disclosed that one of its high-level executives, Nest co-founder and CEO Tony Fadell, is moving into an “advisory” role at Google’s parent company, Alphabet.
If you read Fadell’s blog post about the development, his departure sounds amicable, and less sudden than the timing of the announcement warrants—in the works for six months. It may simply have been the time he agreed to stay as part of Google’s takeover in January 2014. He’s certainly got plenty to keep him busy, including the smart go-kart startup, Actev Motors, which he co-founded and introduced to the world at the New York toy fair early this year.
But hints that all was not going according to plan surfaced months ago, and the number of key managers taking flight has to be unsettling for Nest employees.
The crux of the matter: Since Google plunked down $3.2 billion for the smart thermostat company, the team hasn’t done much extraordinarily new while apparently spending a whole lot of money in the process. Consider that Nest has made at least two acquisitions—the $555 million buyout of video specialist Dropcam and smart home “hub” maker Revolv, which it absorbed for an undisclosed sum. Yet, it hasn’t managed a breakout product since its original device. And when Google decided to introduce its next-big-thing device for home automation—the voice-controlled, Amazon Echo-killer Google Home, which will eventually be able to control thermostats along with other household appliances—the product didn’t originate with the Nest division, which seems like the natural parent for such an effort.
It’s doubtful that decision was predicated merely on all the negative chatter about Nest’s workplace issues and concerns about its long-term strategy for expanding beyond the thermostat. Google’s whole motivation for creating the Alphabet holding structure in the first place was to force more financial discipline at its various “moonshots” and other businesses, like Nest, that didn’t fit neatly into Google’s core focus.
It’s likely that Alphabet’s chief enforcer, CFO Ruth Porat, had a say in deciding that such an important product for the company should be fledged elsewhere—so that it could earn its wings free of the division’s drama, financial or otherwise. Technically speaking, Google Home is simply a home automation device, like Amazon Echo. Strategically, however, both gadgets represent the first big consumer-facing expressions of both companies’ ambitions for artificial intelligence and the Internet of things. Google needs to make sure Home’s flight path is a smooth one.
