We're hearing about troubles at Nest, the smart home company Google bought for $US3.2 billion

Tony fadell, larry page, and matt rogers on nest acquisitionNestNest co-founders Matt Rogers and Tony Fadell with Google CEO Larry PAge

Every Thursday afternoon, Google holds a “TGIF” meeting that invites employees to ask questions of cofounders Sergey Brin and Larry Page (or, lately, new CEO Sundar Pichai).

One Thursday in early 2015, one Googler asked why employees at Nest, the connected home startup that Google acquired for $US3.2 billion in 2014, had been asked to work on the weekends for months.

Matt Rogers, the cofounder of Nest, fielded the question.

Rogers essentially answered that this was just the way the process sometimes worked for hardware products.

It may seem like a simple enough answer, but some employees found it insulting.

“He wasn’t acknowledging that this was a bad state to be in and he wasn’t taking responsibility,” one former employee explained to Business Insider. “And ultimately if you’re asking your people to work weekends, it’s not their fault, it’s upper management’s fault.”

Three former Nest employees independently brought up this same anecdote when describing how Nest had an internal culture where it was “always crunch time” because of unrelistic deadlines and a hierarchical management structure.

The smart home company has been touted as the model for the new Alphabet corporate structure, in which subsidiary companies operate autonomously with their own CEOs and processes. But the company’s track record since it was acquired by Google two years ago shows many reasons to wonder about the direction of what it sees as the next moonshot.

Business Insider spoke with various people that have worked at Nest, who describe a unit with huge potential to shake up the nascent home automation market but which is also plagued by a string of product problems, employee departures, and disorganization.

Nest declined to comment.

Nest cam

Nest

Product outages and malfunctions

Nest sells three products: A smart thermostat, a smart fire alarm, and a smart camera, which it launched after its $555 million acquisition of startup Dropcam in summer 2014.

Although each of those products has solid ratings on Amazon (3.9, 4.5, and 4.6 for the camera, thermostat, and smoke alarm, respectively) each has also suffered some sort of high-profile screw-up.

Most recently, some owners of its connect-thermostat faced an unpleasantly icy wake-up. Not too long before that, in September, smart camera owners experienced a service outage, a particularly stressful situation for parents who use the device to keep watch on their kids. That was its third major outage in the past year.

Although we haven’t seen any issues from the smoke alarm recently, even a year’s time isn’t long enough to forget the infamous viral video a Google employee uploaded where his device seemed to be going berserk (or the product’s early recall).

And Nest has been having “relationship issues,” too, according to Fortune’s Stacey Higginbotham, who recently wrote about how the company has been quick to blame service issues on connections with one of the 100 or so other “Works With Nest” connected devices.

Tony Fadell

Kimberly White / Getty

A tough place to work

After Google acquired Nest, a Fortune article questioned whether CEO
Tony Fadell is the next Steve Jobs.

That article described Fadell as immersing himself “in details as granular as company blog posts and algorithms guiding the sensors in thermostats.”

As one former top exec put it less positively, “Nest’s every step is administered to death” by Fadell.

He has a 68% approval rating on anonymous data-sharing site Glassdoor, but the several ex-employees Business Insider spoke to highlighted an atmosphere of “fear” and said that sitting near Fadell’s office meant hearing a constant barrage of shouting. Designs would be sent back to the drawing board late in the process, which caused the unrealistic deadlines.

Interviews and Glassdoor reviews also highlight departures (a LinkedIn search reveals that at least two dozen people have left in the last six months since August, though that’s calculated versus a base of more than 1,000).

Neither of Dropcam’s founders still work at Nest, with Greg Duffy and Aamir Virani leaving in January and August 2015, respectively. The head of product marketing for apps and services that Nest hired after an exec re-org when Duffy and Nest’s founding VP of technology left, appears to no longer work there either, per his LinkedIn.

Although anonymous reviews should always be taken with a grain of salt, it’s worth noting that less than 60% of Glassdoor respondents said they would recommend the company to a friend.

Nest thermostat

Amazon

Missed expectations

In preparing for Alphabet’s first broken-up earnings report, Pacific Crest and Sun Trust both pegged Nest as likely $450 million in net revenue. Goldman Sachs estimated between $400 and $500 million. RBC upped the ante to $672 million in revenue.

Most of the revenue in the “Other Bets” category came from Nest, Google Fibre, and biotech division Verily, but combined those efforts only hit $448 million.

To be fair, analysts built their Nest estimates off of other estimates (like that Nest could already be pulling in $300 million in revenue back in 2014).

RBC’s Mark Mahaney says that if that estimate from 2014 was correct, that Nest is growing slower than he expected, but that ultimately, it’s still too small a part of Google’s business to be worried.

And it is still early for smart home adoption.

The market suffers from limited consumer demand, high prices, and long device replacement cycles (you’re definitely not getting a new smart thermostat every year).

But despite general slow uptick, John Leiland, CEO of research company Argus Insights that studies customer reviews, says that among consumers there’s also the feeling that Nest’s products haven’t lived up to their “poster child” expectations.

He believes that many consumers are still waiting to see how Apple’s smart-home framework develops.

“Part of what we’re seeing from consumers, is that they’re waiting to see what comes out of HomeKit,” Leiland says.

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