Why Apple didn't buy Nest

[Rogifan]

H/T John Gruber

http://www.strictlyvc.com/2014/11/12/unrest-nest/

Sources who spoke to StrictlyVC and asked to remain anonymous say Fadell has fashioned a hierarchical structure reminiscent of TV’s “Game of Thrones.”

According to one employee, “Almost every decision, no matter how small,” goes through either Fadell or Matt Rogers, who cofounded Nest with Fadell and was previously a senior manager at Apple. (Through a spokesperson, Fadell and Rogers declined to answer questions for this story.)

“It’s always, ‘Tony and Matt want us to do this. We have to hit this deadline because Tony and Matt want us to.’ You definitely see people taking the path of least resistance because they don’t want to upset Tony.”

Another employee calls it a “huge meeting culture, to the point where anyone at the director level or up spends their entire day in meetings, many of them duplicative meetings about the same subject, over and over to the point where a lot of people have complained.”

I think this anecdote highlights one reason Apple didn't go after Nest: Tony Fadell. Can't see his style meshing well with Cook and the current executive team. And I doubt he would have sold to Apple without coming back to the company and reporting directly to Cook.

EDIT: Nest reviews on Glassdoor aren't great. With the picture they paint of Tony Fadell I can see why Apple wouldn't have wanted him back. Another Steve Jobs wannabe.

 

[kdarling]

I think this anecdote highlights one reason Apple didn't go after Nest: Tony Fadell. Can't see his style meshing well with Cook and the current executive team.

Yeah, Cook feels like more of a listener... while Fadell sounds like he takes after Jobs' harsher personality.

 

[orestes1984]

Repeat of Apple Maps where they buy an even crappier product instead? I can see it happening.

 

[Rogifan]

Yeah, Cook feels like more of a listener... while Fadell sounds like he takes after Jobs' harsher personality.

I can see now why Fadell told the BBC Scott Forstall deserved what he got. The two seem very much alike and probably didn't get along. Especially if they were both vying to be the next Steve at Apple. I have read that some Apple employees feel Tony took too much credit for the iPod; that Jon Rubinstein was really the "father of the iPod" and the project was well under way by the time Tony came on board.

I was a little surprised reading the Glassdoor reviews that Tony is so keen on keynote presentations. From everything I've read about Steve he notoriously hated presentations like that. I guess that's one thing Tony didn't copy from Steve.

 

[vrDrew]

Nest as a company is at the point where it only has two or three products, in a fairly narrow range of functions, in its catalog. And given its structure, it probably is still the sort of company where pretty much every decision can be made by a couple of top executives.

Did that discourage Apple from buying them?

Maybe. But I think there are a couple of much better reasons. Not the least of which is that Nest is currently a niche product. It has some impressive capabilities. But nothing truly unique. And secondly - and more importantly - is Apple has no intention of getting into a bidding war with Google for a hardware company that is years, if not decades, away from making a lot of money.

There is little, if anything, Nest can do that Apple couldn't replicate in-house. The Nest brand isn't, by itself, worth that much. And even with Google owning them, there is pretty much zero chance Nest is going to lock out iPhones as controllers for their devices.

 

[Rogifan]

Nest as a company is at the point where it only has two or three products, in a fairly narrow range of functions, in its catalog. And given its structure, it probably is still the sort of company where pretty much every decision can be made by a couple of top executives.

Did that discourage Apple from buying them?

Maybe. But I think there are a couple of much better reasons. Not the least of which is that Nest is currently a niche product. It has some impressive capabilities. But nothing truly unique. And secondly - and more importantly - is Apple has no intention of getting into a bidding war with Google for a hardware company that is years, if not decades, away from making a lot of money.

There is little, if anything, Nest can do that Apple couldn't replicate in-house. The Nest brand isn't, by itself, worth that much. And even with Google owning them, there is pretty much zero chance Nest is going to lock out iPhones as controllers for their devices.

I think $3B for Beats was ridiculous, same for Nest. Do we have any information on Nest sales and profit figures?

 

[boast]

if only Tony Fadell was more like Dr. Dre

 

[vrDrew]

I think $3B for Beats was ridiculous, same for Nest.

Nest was on track to hit $300 million in sales in 2014. Impressive for a startup.

But Beats was well over a billion when Apple bought them this year. And more importantly, Beats had two (possibly three) things Apple wanted - and couldn't do for themselves

1) A valuable brand name. Since the first iPod appeared, Apple's name has been associated with cheap, virtually throw-away earbuds. It was going to be difficult to change that.

2) A market with a lot of upside. We are still in the very early stages of smart home automation. And it will be decades, if ever, that controlling your home "from the cloud" becomes mainstream. And when you do it - you do it once. Headphones, contrarily, are a much richer immediate opportunity. There are literally billions of people who can spend a couple hundred dollars on a pair of headphones - everyone from young teenagers to wealthy retirees.

Audio is a huge consumer business. Between speakers and headphones, its a ~$100 to $800 "impulse" purchase that fits very well with the rest of Apple's product line. And Apple's manufacturing; engineering; purchasing; retailing; and logistics muscle can help Beats carve out a growing share.

I was not impressed with the Beats purchase. To me it marked a departure from a formula that Apple had followed very profitably for many years. But it was definitely financial and operationally justifiable. If Apple can execute correctly, five or ten years from now it may look like a very astute move.

But five or ten years from now the chances of Nest, in any form, contributing any more than a rounding error to Google's P&L statement is miniscule.