Nest Co-founder Matt Rogers: My Friends Told Me I Was Crazy To Leave Apple To Start Nest; Here’s The ‘Twice-A-Day’ Reason Google Paid $3.2 Billion For Nest; Tony Fadell Q&A: Why I sold Nest to Google; Why Google, not Apple, bought Tony Fadell’s Nest Labs

Nest Co-founder Matt Rogers: My Friends Told Me I Was Crazy To Leave Apple To Start Nest

JULIE BORT

JAN. 13, 2014, 6:28 PM 5,635 10

Matt Rogers just became a very wealthy man with the news that Google bought his company, Nest Labs, for $3.2 billion. Rogers is the co-founder of Nest along with Tony Fadell. Fadell is known for being the guy who designed the iPod. Rogers was also working on the iPod before founding Nest. He designed the software that ran it. Rogers was also one of the first engineers on the original iPhone, and worked on the first iPad, too.Rogers said it was really hard to leave Apple back in 2010 to strike out on his own with a startup. In an interview from May (posted in full below) he said:

“It was honestly probably the hardest decision of my life. Apple was my dream job. I was making tons of money. The stock was on the craziest ride of all time … my family told me not to do it. My friends told me not to do it, said ‘you’re crazy.'”

Fadell and Rogers bootstrapped the company to build a prototype, he says, and used the prototype to raise money. Google Ventures, the VC arm funded by Google, was an early investor, among others.

In three years, the company grew to over 200 employees. As of a year ago, it was reportedly shipping 40,000 – 50,000 thermostats a month. At that time, it raised $80 million at an $800,000 million valuation, GigaOM reported at the time.

Nest was thought to be in the process of raising another mega round of investment, $150 million at a valuation of over $2 billion, Kara Swisher at Re/Code reported two weeks ago. 

So the $3.2 billion that Google paid represents a premium price to pay for Nest.

And it sure validates that Rogers made the right decision in leaving Apple.
Here’s The ‘Twice-A-Day’ Reason Google Paid $3.2 Billion For Nest

NICHOLAS CARLSON

JAN. 13, 2014, 6:02 PM 35,638 51

Google just bought Nest, a startup that sells Internet-connected thermostats and smoke detectors, for $3.2 billion.

It’s easy to imagine there is some secret reasoning behind this acquisition. Something to do with Google knowing which room you’re in so it can show you better ads. (That will probably not happen, by the way.)

But the truth is, there is a very simple reason why this deal happened.

What Nest does is fit into CEO Larry Page’s vision for what Google does.

That is to say: Nest uses complex technology to solve a problem that lots of people have on an everyday basis.

That’s what Page wants to do with Google.

He wants to use complex technologies to come up with simple solutions for complex problems that huge masses of people have — like controlling their climate of their homes in an energy-efficient way.

Page explained this vision back in the fall of 2011, just months after he became CEO again.

At a conference for Google clients and stakeholders, Page said the company’s mission is “to create beautiful, intuitive services and technologies that are so incredibly useful for people that people use them twice a day, like you might use a toothbrush. There aren’t many things people use twice a day.

He said: “It’s actually pretty hard to come up with something like that.”

Nest did — in thermostats, smoke detectors, and whatever other Internet-connected home appliances it was working on.

In Larry Page’s vision, Google is not a search engine company. It is not an advertising company. It is a company trying to leverage its massive horde of cash and deep technological expertise to create products that billions of people will use some day. Smartphones. Self-driving cars. Robots that keep your house running.

Tony Fadell Q&A: Why I sold Nest to Google

By Dan Primack January 13, 2014: 5:52 PM ET

FORTUNE — Nest Labs is on of the hottest companies in Silicon Valley, combining the Internet Of Things with Apple-style design and an ability to reduce carbon consumption. It was widely believed to be an IPO candidate for either 2014 or 2015, with reports that it was in talks to raise another $150 million in venture capital at around a $2 billion valuation.

Until today, when the company agreed to be acquired by Google (GOOG) — an existing shareholder in the company — for $3.2 billion in cash.

So why sell? And what does it mean for Nest’s future? What follows is an edited transcript of an interview with Nest co-founder and CEO Tony Fadell, conducted shortly after the announcement:

Fortune: Why did you choose to sell the company?

Fadell: Most companies have two paths: They either can stay independent, or they can join forces with another company and get absorbed into it. Google made a very strong pitch for how we could have all the resources of a large company while retaining the independence of a next-generation Nest.

That’s what sold the management team at the end of the day. Most of us have been inside of a large company before and understand what large company scale applied directly can do to help create a world-class business. For us to spend more time building non-differentiated infrastructure rather than focus on products and services — which is what we do best — doesn’t make sense. This allows us to accelerate and stay in front of the coming wave of products for what we like to call the conscious home.

When did you first start talking to Google?

Well, we started in February 2011 when we met Sergey on an off-chance, and the company since then has been very keen about learning more and working together. The first formal relationship was when Google Ventures made its first investment in our Series B round, and then made its second investment — which we were very, and pleasantly, surprised by.

Then last summer when we were planning more tech partnership-type relationships, Google asked how it could do more. We put them on hold for a while because we had to ship our next product, the Nest Protect, but when we began entertaining our next round of funding Google started presenting its case for an acquisition. All of our options were on the table and, at the end of the day, it wasn’t about the money. Investors were basically offering us blank checks. It was about the scale and being able to realize the second generation quicker.

Once Google made its pitch, did you reach out to other potential acquirers?

Our goal was about accelerating our vision, and how many companies are really in position to do that? I’m going to a new home, not selling a used car.

Okay, more specifically: Did you discuss a possible deal with Apple?

I’m not at liberty to discuss that.

Do you believe Apple will continue to sell Nest products in its stores?

We have incredibly passionate iOS users and incredibly passionate Android users. We don’t compete with what Apple (AAPL) or Google does, so while to reduce choice to users by removing us from Apple retail stores would be their prerogative, it doesn’t make sense to me. We very much value our Apple relationship, and today I’ve gotten a lot of nice notes from people in Cupertino.

How important to you was it that Google now has hardware expertise, from Motorola to Glass?

It’s important, but it’s not just hardware. It’s hardware, software, and services … Nest isn’t just bringing one of those three things, we’re bringing all three of those.

Why Google, not Apple, bought Tony Fadell’s Nest Labs

By Philip Elmer-DeWitt January 14, 2014: 2:29 PM ET

What the $3.2B Google paid says about Larry Page’s ambitions — and Tim Cook’s focus.

FORTUNE — The tech press went nuts Monday after Google (GOOG) announced that it had offered $3.2 billion to buy Nest Labs, purveyor of well-designed, wi-fi enabled thermostats and smoke alarms.

No surprise there. Three billion is a lot of money, and Nest has genuine Silicon Valley star power: It was co-founded by Tony Fadell, a top Apple engineer who had a hand  in two of Steve Jobs’ breakthrough products, the iPod and the iPhone.

Also not surprisingly, it didn’t take long for commentators to start asking whether Apple (AAPL) had dropped the ball by not buying, or even bidding on Nest. One went so far as to ask whether in losing Fadell to Google, Cupertino had let a potential future Apple CEO slip through its fingers.

I see several problems with these questions.

The alumni issue: Just because Fadell started Nest, doesn’t mean Apple has to buy it. The list of Apple spinoffs and startups that Apple chose not to purchase is long and distinguished. It includes, I’m told, Palm, TiVo, LinkedIn, Flipboard, Pandora, Inkling,Tapulous, UpThere, CopperPix, Meeteor, Path, Posterous, Agnilux, Apperian, Caustic Graphics, Fotonauts, FreePath, Strobe, Tumult, Push Pop Press, NoiseToys and StockTwits.

The data gathering issue: Data about what customers are doing at home is what Nest brings to the party. Today its thermostats are gathering information about energy use — something energy providers are ready to pay good money for. But if the “Internet of Things” (see last week’s CES coverage) comes to pass and Nest has a part of it, bigger data markets could open up, starting with advertisers looking to make ever-more targeted pitches. Apple isn’t in that business. It’s where Google lives and breathes.

The sticking-to-your-knitting issue: Between them Apple and Google have acquired 33 companies in the past 12 months — Apple 13, Google 20 — according to the lists Wikipedia maintains (and which I’ve excerpted below). But the kinds of companies each bought says a lot about where the two company’s CEOs choose to focus their attention. Larry Page wears Google glasses and talk about “moon shots.” He picked up seven robotics companies in December alone. Tim Cook talks about sticking to one’s knitting, and his purchases — heavily weighed toward semiconductor and mapping technologies — reflect that.

Maybe it comes down to this: Google, beloved by Wall Street for its steady flow of AdWords cash, can afford to take moon shots that miss their targets. Apple, perceived by the Street to be in perpetual free-fall, cannot afford to fail.

UPDATE: TUAW’s Yoni Heisler points out that the cost of Apple’s 10 most expensive acquisitionscombined comes out to less than the $3.2 billion Google spent for Nest. Apple has has never spent more than $404 million on any one company — that one being NeXT. See Why Apple didn’t buy Nest. 

Nest, Google’s New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue

JAY YAROW

JAN. 14, 2014, 9:27 AM 924 6

Google’s $3.2 billion acquisition of Nest has very little to do with the state of Nest’s business this year. It is a bet on the next ten years for Nest.

But, if you’re interested in how Nest is doing this year, Morgan Stanley analyst Scott Devitt has an estimate. A year ago, Gigaom said Nest was selling 40,000-50,000 thermostats per month. Devitt estimates Nest is selling 100,000 thermostats per month now. At $250 per unit, Devitt pegs annual revenue at $300 million, which means Google paid 10X revenue.

Again, this isn’t about buying a company this year, it’s about the next ten years. So this number, accurate, inaccurate, or whatever, is mostly just a little footnote. Bottom line, Nest was a fairly substantial startup as far as revenues go. We expect Nest to ramp those revenues significantly over time.

And while we’re here, let’s just note that this was a great acquisition for both companies.

Nest could have continued as an independent company, but it would need to keep raising bigger and bigger piles of cash. It needs money to hire a world class legal team because incumbent thermostat companies are suing it. It needs money to (maybe) build out a network of technicians to install and take care of Nest products in the home. It needs money to pay manufacturers. It needs money to build out its distribution.

With Google, it gets a nice spigot of cash to do all of that.

From Google’s perspective, it’s getting the leading company in home automation. The Nest thermostat and smoke/CO detector are just the beginning for the company. The goal is to connect everything over time. Feeding all those connected devices into Google’s suite of software and services is going to make it a pretty imposing company for the next decade if not longer.

Google is moving into every part of our lives, and Nest is going to be a key piece of that.

While Nest and Google are popping champagne, plenty of others should be concerned

BY CARMEL DEAMICIS AND MICHAEL CARNEY 
ON JANUARY 13, 2014

In case you were hiding under a rock today, Google acquired smart home thermostat and smoke detector company Nest for $3.2 billion. It’s an unexpected move that has shocked plenty in Silicon Valley, igniting debate about the range of implications — for the hardware sector, user privacy, competitors including Apple, and Nest investors.

When Google enters an industry it goes big, but it rarely asks permission, and in the process regularly tramples competitors and users’ privacy. The Internet of Things category is squarely in the path of where technology is headed and Google is wise to pay up to assume leadership.

Although Google hasn’t always managed to stay ahead of the trends (see: Google+ and social), in recent years it’s been owning the curve. It took over mobile, making Android the most popular phone operating system worldwide, surpassing Apple’s iOS. It has dominated the conversation on wearables with Glass, while Apple, Microsoft, Amazon, and others are nowhere to be seen. And now, it seems set on conquering and defining the Internet of Things (IoT) industry.

Nest is easily one of the most popular and well-liked IoT companies, and investors and consumers alike have been keeping a close eye on its progress. Pundits and experts regularly pointed to Nest as proof of the successful “hardware renaissance.” More than a few wondered whether it was headed to IPO, and if so when. Nest was reportedly trying to raise a $150 million round before the Google acquisition. An early exit was, seemingly, not part of the plan.

But while it’s a win for Google shareholders and to a lesser extent Nest shareholders (it could have gone for much more in a few years), there are several companies that are big losers today. And consumers too have more questions than answers about what Google plans to do with all that new data it’s about to start collecting.

Apple is the biggest loser to come to mind. As a fellow tech giant in the space, the company has been chugging along without much news (Apple iPhone 5S and iOS 7 aside) since the passing of Steve Jobs. Many have posed questions about whether the tech empire is on the decline, unable to produce revolutionary products without Jobs’ guidance.

Meanwhile, Google has remained anything but quiet. It has continued adding updates and marketing Glass, moved into the smartphone hardware space with Motorola, continued working on driverless vehicles, decided to conquer death, invested heavily in robotics, and finally began going after the connected home with Chromecast.

Nest will make an ideal addition to Google’s efforts to own the last sector.

But it’s a company that would also have made a perfect addition to Apple’s product list. After all, the Nest thermostat and smoke detector were designed by Tony Faddell, one of the “fathers of the iPod.” They fit perfectly on Apple’s shelves, which is where they already sit, although perhaps not for long. Apple has been stocking Nest products since May of 2012, in its quiet move to become the seller — but not manufacturer — of connected home products.

With no press releases or other fanfare, Apple’s shelves have gotten more and more full with smart home devices. Go into any American Apple store and you’ll see smart Hue lights alongside Nest thermostats, Dropcam smart surveillance cameras, and countless other “smart” items.

The company is a perfect hub for connected home products, and it’s not entirely clear why Apple has chosen to just stock these products — and ostensibly take a cut — instead of buy these companies and taking a larger share, or to design competing products themselves. Perhaps the hassle of such operations is more financial risk than Apple wants to take on. But by taking a middleman approach, the company runs the risk of less acquisition-wary competitors, like Google, swooping in and buying them up.

With Google’s Nest acquisition, the second biggest loser that comes to mind is the hardware/connected home sector as a whole. Nest had the chance to be that big, defining company that validates other Internet of Things efforts. It could have done for connected devices what Facebook did for social: been the tentpole of an industry.

Perhaps it still will under Google’s reign, but an early exit is far from inspiring. Silicon Valley has had a checkered history when it comes to marquee acquisitions, as it’s proven difficult to maintain the corporate identity and focus of the teams responsible for early product innovation once part of a larger brand. Look no further than HP’s acquisition of Autonomy, eBay buying Skype, or NewsCorp’s big bet on MySpace, for evidence of this fact.

The track record is even worse when the acquirer is looking to enter a new business category, as is the case with Google and Nest. And, while Google’s YouTube acquisition is held up by many as evidence that splashy acquisitions can work, that deal succeeded because YouTube needed Google’s engineering infrastructure and legal resources just to keep the lights on. Nest is in a much stronger position.

Finally, Google has proven itself barely competent when it comes to designing hardware – its biggest wins have been joint ventures or outsourced efforts – and outright terrible at selling physical products to consumers. If it’s Google that’s learning from Nest’s product design and retail sales prowess, rather than the other way around, it could prove to be a major distraction to the company. Under this scenario, it would be the IoT sector that loses out the most.

The final group that loses out with the Google-Nest acquisition is the biggest: the consumer. As many have pointed out the privacy concerns of this development are huge. Nest products track detailed information about their users’ movements, in addition to things like a user’s WiFi IP address, and whether the specific address is a home or a business. At the moment, that information is stored in Nest’s cloud servers.

Google has not been the bastion of user privacy rights. If tweets are any sign, Nest consumers are already concerned about the acquisition. After all, Google access to Nest data essentially puts the web giant’s eyes directly into the homes of the users.

Nest’s CEO Tony Faddell told The Verge that the company has no plans to alter its privacy policy at the moment, which requires getting a user’s permission before sharing any of the collected information. That, he admitted, could change.

In the meanwhile, users can feel comforted that Google’s not spying on them via their thermostats… yet.

Google Buying Nest Is Cozy Deal for Venture Firms

Nest Labs Inc. isn’t just helping homeowners maintain a cozy environment. Google Inc. (GOOG)’s $3.2 billion acquisition of the digital-thermostat maker is also making venture-capital firms very comfortable.

Kleiner Perkins Caufield & Byers, one of the earliest backers of the company co-founded by former Apple executive Tony Fadell, invested $20 million in Nest beginning in 2010 and will see a return of about $400 million, a person with knowledge of the deal said. Shasta Ventures, another early Nest backer, will boost its original investment by more than 15 times, said another person, who asked not to be identified because the gains aren’t public. Google’s venture arm had also invested in Nest.

The deal is contributing to greater confidence among venture-capital firms, which often bet on companies before they have revenue or even a product and count on big deals to make up for money lost on the vast majority of startups that fail. Venture capitalists also reaped big gains in 2013, with at least 10 firms generating more than $1 billion each in returns from initial public offerings and acquisitions, according to filings and data compiled by Bloomberg.

“It’s a very significant return to the fund,” said Rob Coneybeer, a managing director at Shasta Ventures who led the Nest investment. He declined to provide specifics.

Big Gains

The gain on the Nest investment is one of the largest to date for Shasta Ventures, whose other payoffs have included Intuit Inc. (INTU)’s acquisition of Mint in 2009 and Citrix System Inc. (CTXS)’s purchase of Zenprise.

Kleiner Perkins didn’t make any of its partners available for comment. Scott Rubin, a spokesman for Google, declined to comment.

Google slipped 0.6 percent to $1,122.98 in New York yesterday. In German trading today, the shares rose 1.1 percent to the equivalent of $1,135.03 as of 12:05 p.m. in Frankfurt.

The acquisition of Nest, almost double what Google paid for YouTube in 2006, also provides the biggest payback to date for the search provider’s own venture-capital arm. Google Ventures, which invested in Nest and operates as an independent company within Google, will keep the returns, a person with knowledge of the matter said.

Google Ventures referred questions to Nest, which declined to comment on the financing details.

For Kleiner Perkins, the deal comes after the venture firm missed out on early investments in Internet companies such as Facebook Inc. (FB) and Twitter Inc. (TWTR)

Another big winner from the acquisition is Fadell, who declined to say how much of the company he owned.

“I wanted to focus on the differentiation for our customers and realize the vision sooner,” Fadell said. “I didn’t’ want to focus on building out infrastructure — which is not differentiating, allowing competitors to come and start to nip out our heels. I want to focus on what we’re best at.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Google Buying Nest for $3.2 Billion to Expand in Devices

Google Inc. (GOOG) is buying digital thermostat maker Nest Labs for $3.2 billion as the Internet search company moves deeper into web-connected devices.

Nest, led by Apple Inc. (AAPL) alumni Tony Fadell and Matt Rogers, will continue to operate under its own brand, Mountain View, California-based Google said today on its website. The all-cash deal is subject to regulatory review and is expected to close in the next few months, Google said.

To diversify beyond Web ads, Google is buying its way into the gadget market, a spending spree that picked up in 2012 with the $12.5 billion purchase of Motorola Mobility Holdings Inc. By adding Nest, Google gains a popular seller of connected home thermostats and smoke alarms, while getting data on the growing number of customers whose energy usage is tracked online.

“It’s a further push into consumer hardware as a way to control knowledge of the user,” said Carolina Milanesi, a director at market research firm Kantar Worldpanel. “Google is going to use the information to see what other products they can come up with.”

The purchase is the third largest for Google, trailing only smartphone maker Motorola Mobility and display-ad company DoubleClick, which cost slightly more at $3.24 billion in 2008.

In addition to its Motorola unit, Google is designing wearable computing devices, including Google Glass computer eyewear. Google has also invested in software for laptop computers, driverless cars and televisions.

Starting Nest

Fadell started Nest after leaving Apple, where he was a longtime deputy to Steve Jobs and involved in the creation of the iPod and iPhone. Nest’s “learning thermostat” takes cues from Apple by combining a slick, polished hardware design with software that learns consumers’ heating and cooling patterns over time and makes automatic temperature adjustments based on that history.

The devices can be controlled and tracked via smartphones and tablets. The thermostat costs $249 and the smoke detector is priced at $129.

Rogers, who co-founded Nest, also came from Apple and was part of the original iPhone team.

“Google has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services for the home globally,” Palo Alto, California-based Nest said today in a blog post. Nest hasn’t disclosed sales or its user numbers.

Nest’s backers include Google’s venture arm, Kleiner Perkins Caufield & Byers, Shasta Ventures and Lightspeed Venture Partners.

Fadell said in the blog post that conversations with Google date back to 2011, when he showed Google co-founder Sergey Brin an early model of the prototype.

“He instantly got what we were doing and so did the rest of the Google team,” Fadell wrote in the blog post.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

iPod creator Anthony Fadell sells start-up Nest to Google for billions

January 14, 2014 – 3:10PM

Ben Grubb

“I’m not trying to ride off into the sunset”: Nest CEO Anthony Fadell. Photo: AP

When Anthony “Tony” Fadell had a vision to build a music player in the ’90s, he started his own company called Fuse to develop the device, but failed to secure a second round of funding to get it off the ground.After a short stint at internet music streaming company RealNetworks, he joined tech giant Apple in 2006 and went on to become known as one of the “godfathers” of the iPod for his work on the first generations of the music player.

After retiring from Apple at the end of 2008, and later returning from retirement to co-found a start-up working on the next generation of the thermostat in 2010, Fadell, 44, has announced plans to sell his company to Google for $US3.2 billion ($3.5 billion).

While at Apple, Fadell developed a reputation for his forceful personality and occasionally clashed with other executives, including former mobile software head Scott Forstall during the iPhone’s development, Bloomberg Businessweek reported in 2011.

After a brief period away from the industry, Fadell began working with engineers to build the Nest thermostat, which was eventually unveiled in late 2011.

 

The Nest Labs thermostat.

According to a report by GigaOM in January last year, the start-up was shipping 40,000 to 50,000 of its Nest thermostats a month and was valued at $US800 million after a $US80 million funding round.

“I’m not trying to ride off into the sunset,” Fadell told Bloomberg, regarding the sale. “I want to build a vision, build it out.”

Another engineer who left Apple to start Nest with Fadell, Matt Rogers, said in a recent interview the decision to leave Apple was difficult.

“It was honestly probably the hardest decision of my life,” Rogers said.

“Apple was my dream job. I was making tonnes of money. The stock was on the craziest ride of all time … my family told me not to do it. My friends told me not to do it, said ‘you’re crazy.'”

Rogers, 30, helped design the iPod’s software and was behind the first iPhone. He is one of 97 former Apple engineers who work at Nest, according to LinkedIn. A number of former Google employees also work at Nest.

At Apple, Rogers started out as an intern and was quickly promoted through the ranks, according to the Silicon Valley Business Journal. He was also one of its youngest engineering managers at the time he left.

In announcing the acquisition, Fadell said it wasn’t “made on a whim”.

“Google has been in the mix in some way or another for about three years of our almost four-year history,” Fadell wrote in a blog post.

Nest is best known for its smart thermostat, which learns your habits over time and adjusts heat settings accordingly. It was created in a garage in Palo Alto, California.

The start-up recently branched out into selling a smart smoke and carbon monoxide detector, the Nest Protect. Unlike a traditional smoke detector, it speaks with a human voice and gives you the option to turn it off with a wave of your hand if there is no emergency.

When it was announced what Fadell was working on post-Apple, it shocked some commentators who questioned why he’d want to work on something like a thermostat.

Though its plans for future products are shrouded in secrecy, many people expect Nest to connect all kinds of devices in the home to the internet, a vision for a smart home straight out of The Jetsons.

A company called Ninja Blocks, based at the Australian Technology Park in Sydney, recently raised $702,000 through crowd-funding to create its Ninja Sphere, a device that connects devices in the home.

Spending billions on Nest Labs “indicates to me that Nest has a lot more up their sleeves than any of us might imagine at this moment”, Rick Thompson, president of renewable energy market research firm Greentech Media, told the Los Angeles Times.

“Google is putting a stake in the ground that these smart homes and connected homes are going to be very real”.

In addition to its internet search engine, Google is designing wearable computing devices, such as Google Glass smart eyewear. The company has also invested in software for computers, mobile devices, driverless cars, robots and televisions.

“It’s a further push into consumer hardware as a way to control knowledge of the user,” Carolina Milanesi, a director at market research firm Kantar Worldpanel, told Bloomberg.

“Google is going to use the information to see what other products they can come up with.”

The Nest purchase ratchets up competition with Apple in the connected-device market, where web-based software meets hardware. It also deepens Google’s role in the so-called “Internet of Things” market – an industry of wireless, connected gadgets that could create between $US2.7 trillion and $US6.2 trillion of economic value annually by 2025, according to the McKinsey Global Institute.

“This is a very interesting move that creates a lot of questions about where Google will try to go next in the home,” Gartner analyst Chet Geschickter told the Los Angeles Times. “Will they get into home security? Will they try to do over the top entertainment services with cable TV and set-top boxes? Will they get into communications inside the home? Will they branch out into more parts of home energy management and home automatisation?”

The deal is the second-largest in Google’s history, after its $US12.5 billion acquisition of mobile phone maker Motorola in 2011.

It also comes just two weeks after Re/Code reported Nest was looking to raise close to $US150 million in a new round of financing set to value the company at more than $US2 billion.

Google’s other notable acquisitions include its purchases of YouTube in 2006 for $US1.6 billion, advertising network DoubleClick in 2007 for $US3.1 billion, and navigation software Waze in 2013 for $US966 million.

As part of the acquisition, which has again raised fears of a bubble in technology company valuations, Google will gain access to Nest’s staff – about 280 – including its founders.