Google acquires Nest Labs for £2bn

Web giant Google announced Monday that it will acquire Nest Labs, the cloud-enabled thermostat and smoke detector startup founded by iPod creator Tony Fadell, for £2bn ($3.2bn).

Fadell said the company would continue to operate as a stand-alone entity, and the acquisition will likely accelerate both companies’ bid to dominate the connected home.

Nest Labs, which was founded in 2011 by former Apple executives Tony Fadell and Matt Rogers, developed a thermostat that uses a combination of light and air sensors to learn and adapt to its surroundings, saving users energy by learning and optimising usage patterns (for instance, by knowing when residents aren’t home). It can also be controlled through a conventional web browser and on mobile devices.

Nest Labs’ value has risen dramatically in the past year, having garnered a lot of success inking deals with large energy companies in the US and Canada to popularise its flagship product.

In January 2013 a GigaOM report valued the thermostat maker at around $800m based on annual shipments of about 40,000-50,000 units. Just two weeks ago All Things D said the company was reportedly worth over $2bn, and was seeking about $150m in extra funding.

According to Fadell the company has since its founding been fairly close to Google, in mind and purse.

“Google has been in the mix in some way or another for about three years of our almost four-year history,” Fadell, the company’s chief executive officer wrote in a post explaining the rationale for the acquisition. “In fact, my first meeting with Google as a Nester was before we’d launched. At the 2011 TED Conference, Erik Charlton and I huddled in a corner with Sergey Brin to show him a video and an early model of the Nest Learning Thermostat – he instantly got what we were doing and so did the rest of the Google team when we showed them. In May 2011, Google Ventures led our Series B round of financing, and in 2012, Series C.”

“Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone. We’ve had great momentum, but this is a rocket ship,” he added.

According to both companies Nest will continue to operate under Fadell’s leadership with its own distinct brand and identity.

“Nest’s founders, Tony Fadell and Matt Rogers, have built a tremendous team that we are excited to welcome into the Google family,” Google chief executive officer Larry Page said. “We are excited to bring great experiences to more homes in more countries and fulfill their dreams!”

The acquisition marks a renewed push into consumer electronics for the internet search giant, and raises more questions as to how Google will not only integrate the platform with its services (i.e. Google Now) but carve out more space for itself in the connected home.

Beyond the range of consumer applications the company already touts it has been experimenting with delivering high-speed internet connectivity (Google Fiber) to support high-bandwidth applications and has hinted (particularly with the recently released Chromecast) at entering the content delivery business, potentially following Sony into the cloud-based TV and gaming service.