Alphabet is breaking up Nest, its standalone smart-home gadgets company, and moving Nest’s software group back into Google.
Nest Labs will continue to exist as a subsidiary of Google parent company Alphabet, but it will be limited to selling Nest-branded hardware, like its internet-connected thermostat.
Nest’s programmers, meanwhile, will go after the real prize: Google’s efforts to conquer the living room and beyond, including the forthcoming Google Home, the search giant’s answer to the Amazon Echo voice-controlled speaker-slash-assistant.
Those re-assigned Nest programmers will be working under Google’s Senior VP of Android Hiroshi Lockheimer, who’s also in charge of devices like the smash-hit Chromecast TV streaming device.
The fact that Nest programmers will report to Lockheimer tells you all you need to know about why Google is shaking up Nest: It’s yet another sign that at Google, Android is becoming the center of the universe.
Hardware is hard
Really, and generally speaking, Google has very limited interest in making hardware in the first place. The cost of building things is high, the margins are low, and Google’s real specialty is in web services like Gmail and search anyway.
So while Google has been involved in the manufacturing of devices like the Nexus line of phones and tablets, or the Pixel line of laptops, they have always been less about building a huge business and more about showing off what’s possible with Google’s operating systems, including Android and ChromeOS.
So when Google snapped up Nest for $3.2 billion in 2014, it raised some eyebrows. Nest is very much a hardware company, manufacturing the Nest Learning Thermostat, and, later, the Nest Cam home security system. Furthermore, Nest has its own operating system, pushing its own “Works with Nest” standard for connectivity with other devices.
The general consensus at the time of the acquisition was that Google was just getting its feet wet with the so-called “Internet of Things,” spending billions to establish a foothold in what’s projected to be a huge market. And for a while, Google seemed perfectly content to let Nest do its own thing.
But just this year, two big things happened: First, reports started to come out that under founder and former CEO Tony Fadell, Nest was struggling to get new products out the door even as product sales disappointed. Fadell then left Nest.
Second, Google started signalling that Android, the most popular operating system in the world, and Chrome OS, its more niche operating system for laptops, were going to get smashed together. The result, ideally, will be a version of Android that can extend its smartphone dominance to tablets and laptops…which is why Android 7.0, the most recent release, makes split-screen multitasking such a tentpole feature.
Putting the Nest programmers into the Android fold is another signal that the era of multiple operating systems is over for Google, and Android is going to be the common platform for everything — smartphones, tablets, thermostats, laptops, everything.
And just like Google provides Android as the operating system for smartphone manufacturers, I’d wager you’ll start to see home appliance manufacturers start to release smart-home stuff proudly branded with the Android logo.
After all, the real business opportunity for Google is to compel a broad range of companies to create gadgets and home appliances using its software. The hardware is secondary. In fact, building its own hardware can even work against Google: The more successful Google is at selling its own hardware, the less likely other hardware makers want to use its software, since they view Google as a competitor.
What does this mean for the future of Nest?
Consider that by taking the software programmers only, Google is leaving behind the hardware designers and engineers who actually build the thermostats and cameras. It seems likely that the Nest products of the future, like the Nexus and Pixel before them, will largely exist to show off the power of Android rather than to serve as a full-fledged business venture.
Google might even use the forthcoming Home product as the foundation for a family of Nexus-like home appliances. In that case, the standalone Nest Labs hardware unit becomes even less necessary to Google or Alphabet, and it could be just a matter of time until the Nest hardware group is put on the auction block. It’s worth noting that the new Nest CEO, Marwan Fawaz, is the same guy who Google tapped to sell Motorola’s TV set top box business a few years ago.
Putting all its efforts behind expanding and extending Android has helped Google become a top player in the smartphone market, even after a late start versus Apple and the iPhone. Given the vast size and opportunity of the nascent smart home appliance market, Google is doubling down on a strategy that works.