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Google snaps up smart home startup Nest for $3.2 billion

Posting in Finance

Just last week, smart home startup company Nest was reportedly on the verge of raising $150 million in a new round financing that would value it at more than $2 billion. That is, until Google swooped in. 

Google, an early backer of Nest, announced Monday it has acquired Nest Labs for $3.2 billion in cash. Nest will continue to operate under the leadership of CEO Tony Fadell and head of engineering Matt Rogers, according to Google and Nest Labs.

Fadell, former senior vice president of Apple's iPhone and iPod division and Rogers, a former Apple engineer, founded Nest Labs in May 2010 with an aim to reinvent unloved, but important home products like the thermostat and smoke alarm. Their first product, a smart thermostat that uses six sensors to learn a user's preferred temperatures and schedule and then adjust the setting accordingly, was met by consumers and the media with enthusiasm for its Apple-inspired design and functionality. 

Its competitors weren't quite as happy. Home automation and control systems giant Honeywell filed a lawsuit in February 2012 alleging infringement of several patents related to its thermostat tech. In November 2013, BRK, which sells the First Alert brand of smoke detectors filed a patent lawsuit against Nest Labs over the startup company's talking smoke and carbon monoxide alarm just as the new product hit the U.S., UK and Canada market.

Still, compared to the management shakeups, financing woes and pivots experienced by other startups, Nest has enjoyed a smooth, albeit fast, ride from concept to commercially viable company. 

In less than four years, the company became a major brand in the smart home market, released two major software updates to improve its thermostats, began selling Nests in Canada and in the U.S. at Lowe's, Amazon and the online Apple store, partnered with Texas utility Reliant Energy, purchased MyEnergy and launched a new product. 

In short, things were going well for Nest. But as Fadell noted in a blog post Monday, Google will help the company realize its goals faster than Nest ever could if it continued to go it alone. 

"We've had great momentum, but this is a rocket ship," Fadell wrote on the company's blog. 

— By on January 13, 2014, 2:25 PM PST

Kirsten Korosec

Contributing Editor

Kirsten Korosec has written for Technology Review, Marketing News, The Hill, BNET and Bloomberg News. She holds a degree from Northwestern University's Medill School of Journalism. She is based in Tucson, Arizona. Follow her on Twitter. Disclosure