Why Google’s $3.2bn investment may be about to fail

When Google bought Nest in 2014 for $3.2 billon, no-one could have predicted quite how much of a disaster the acquisition would turn into. Whilst sales revenues of $340 million last year may sound impressive, it’s way below the expectations both Google and Wall Street had for the tech start-up – said to be between $400 million and $670 million. And the only reason it cashed in $340 million last year was because it acquired security camera maker and start-up, Dropcam.

A big part of the issue seems to be with CEO Tony Fadell, a former Apple exec, who was initially bought on for his expertise and experience with hardware sensibility. It’s been said that when Fadell negotiated the sale with Google in late 2013, the search giant inserted a sizeable retention clause that meant that Nest’s key executives and engineers would stay with the company for three years. In return, Fadell was promised an operating budget claimed to be around $500 million annually and that’s due to run out at the end of this year.

With the employee retention cause also up, the golden handcuffs keeping Nest’s many talented engineers tethered to the company’s radiator are about to be unlocked. This’ll leave them free to dump their stock in the company and up sticks to greener, more prosperous pastures.

A further part of this deal was an agreed upon $300 million annual sales target for Nest, a figure it has failed to reach alone; Dropcam revenue seeing the ball just over the line. In conjunction, seriously slow product portfolio growth is a point of further backlash, which, true to theme, has also fallen below expectations. Nest currently only sells three products: their thermostat, their smoke alarm and their version of Dropcam.

And to add to the nightmare, Fadell has been essentially outed by his employees as taking on many traits of his former boss, the notoriously impossible to work with Steve Jobs. Greg Duffy, a former employee and Dropcam founder, has suggested that Fadell has fetishised some of Steve Jobs worst traits, stating last week:

“The current leadership of Nest… seems to be fetishising only the most superfluous and negative traits of their mentors. For the sake of the customers and for the talented employees that remain there, I hope they find a way through these struggles.”

So, for a year that’s only four months young, we have to wonder what’s going to happen to Nest when their deal with Google runs out at the end of the year. Watch this space…