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Google to Pay $3.2 Billion for Thermostat Startup

15 January 2014

Google Inc. has agreed to pay $3.2 billion in cash for a thermostat startup called Nest Labs Inc. Some observers reckon that Google has stolen Nest from under the nose of Apple, where the startup's founders previously worked on the iPod. Others find the valuation hard to justify but a sign of overwhelming importance Google thinks the Internet of Things (IoT) will come to have.

Nest Labs (Palo Alto, Calif.) was founded in 2010 and thought to create added-value products by adding Wi-Fi Internet connections and software for remote control to heating, ventilation and air-conditioning products. The company's approach was to bring Apple-like simplicity to interfaces for enhanced domestic appliances. The company was founded by Tony Fadell, CEO, and Matt Rogers, vice president of engineering, and both executives had a pedigree of having worked at Apple on the iPod with its iconic circular touch wheel control interface.

The company's initial product, the Nest Learning Thermostat is a programmable and self-learning thermostat that can be used to control heating and cooling systems in homes and offices. Connection to the Internet is fundamental to the operation of the thermostat and this allows the company to push add features in software and bug fixes to the units.

The company has recently added 'Protect', a combined smoke and carbon monoxide alarm to its product range. However it has also attracted a number of lawsuits claiming that its products infringe on patents held by established vendors of thermostats. The company has denied this but also licensed patents to bolster its position.

Nonetheless, Google will throw $3.2 billion at the company and backers who invested about $100 million of venture capital in the company. Beneficiaries of the Google pay out include: Shasta Ventures, Kleiner Perkins Caufield & Byers, Google Ventures, Lightspeed Venture Partners, Intertrust, Generation Investment Management and Venrock.

“Nest’s founders – Tony Fadell and Matt Rogers – have built a tremendous team that we are excited to welcome into the Google family. They’re already delivering amazing products you can buy right now," said Larry Page, CEO of Google, in a statement.

Google said that Nest will continue to operate as subsidiary company under the leadership of Tony Fadell with its own brand identity. The deal is expected to close within a few months.

Writing on the company website Rogers emphasized that Nest products would continue to work with Apple products such as the iPhone and the iPad as well as supporting Android and other web browsers. He added that Nest would not pass customer information up to Google. "Our privacy policy clearly limits the use of customer information to providing and improving Nest’s products and services. We’ve always taken privacy seriously and this will not change," he said.

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