Last week there was really only one story people were talking about in the smart home space, which was an article in The Information highlighting the problems at Nest and talk of Google creating a new smart home competitor to the Amazon Echo.
Since there was plenty of good commentary and I was wrapping up some projects, I didn't get around to writing a story. But reading both this post at Techcrunch about Tony Fadell and the ongoing feud between Fadell and the former CEO of Dropcam Greg Duffy, as well as the ReCode report about Nest missing revenue targets and retention clauses expiring this year, I thought I'd put some thoughts together.
Before I get into analyzing how this will play out and explaining why Google's supposed secret project to create an Amazon Echo competitor is part of the same broader story of Google/Nest's continued strategic problems in this space , I do want to mention Nest's seeming stasis around new product introductions has been something we've talked about on the Smart Home Show and have written about since early last year.
If you look closely, the first signs of potential discord for Nest and Dropcam go back to the time of the Dropcam acquisition. Before the ink dried on the deal, Nest had decided to kill Tabs, an interesting new effort to turn Dropcam into a Bluetooth powered home security solution. As the months dragged into a year, the fact that Nest didn't debut a new camera for so long was a strong indicator that something was wrong.
Which gets me to Tony Fadell and the fit for Nest within Google. Stacey had a good post last week talking about how Nest's problems were symptomatic of the broader smart home space, where the company, and everyone else is the space, were thinking about creating platforms and not helping to water and feed the broader ecosystem.
I think there's something to this, but I also think much of Nest's mess is owed to unique structural issues within the company and some managerial quirks of Fadell that are becoming more and more evident. The structural fit is something the Techcrunch article begins to get at, while Fadell's management style issues were best highlighted in a post by Dropcam's former CEO, Greg Duffy.
In some ways, Tony Fadell is in a somewhat similar position to one that Andy Rubin found himself in after he came on to drive Google's mobile efforts. Like Fadell, Rubin was brought in to drive a major new initiative for the company, and while he did ultimately succeed in a big way by making Android a dominant mobile platform, he was also eventually given some ownership for the company's TV efforts which were based in large part on Android. This is where Rubin's eventual frustration with Google became most pronounced as he eventually grew frustrated with the competing factions and duplicated efforts in this area.
So none of this should be that surprising. For anyone who has studied Google/Alphabet knows, the company has long fostered a culture of internal competition, often at the expense of strategic cohesion and consumer-facing clarity. This flows from the founders on down, and this was apparent to Tony Fadell from almost day one.
At the same time, Fadell was given almost complete control of the connected home hardware efforts at Google, and he brought with that an authoritarian leadership style which seemed well-tuned for Apple but seemed out of place for Google. Additionally, the pressure of underperforming seems to have brought out the worst in Fadell, in that he did a very un-Jobs like thing in publicly scapegoating employees while at the same time not really taking ownership for a poorly run integration and high employee turnover.
This public scapegoating was rebutted in a post by Dropcam's former CEO Greg Duffy, who makes a good case for Dropcam having had an elite team at the time of acquisition that had created a category leader, only to see this progress and innovation stalled and eventually killed by Nest and Fadell.
What Now For Fadell, Nest, Google?
All of which gets me to the what now? When you stand back at look at Google/Alpabet/Nest and their current place in the broader smart home, they're in a much different place today than they were two years ago. It's almost hard to believe how fast they went from the golden child of the industry to being dysfunctional and getting lapped both on strategy and execution by Amazon.
And it's evident that the Apple-influenced style of Fadell was and probably still is a poor fit for the Google internal culture and structure. This clash of styles no doubt contributed to the high turnover at Nest and to the glacier-like pace of product releases post-acquisition. As a result, we are now at the point where Google/Alphabet has decided that its answer to Amazon should be kept out of Nest's hands, a decision which comes after last year's move to recreate a new router device in the OnHub, a project that Google also kept out of Nest's hands.
So what happens moving forward? Here are my thoughts:
-Faddell's time at Google is likely short-lived. Google is an unforgiving place when things are not going well, and it's clear that Larry Page has lost confidence in him. That's not a place or a situation someone with Faddell's self-confidence wants to be in long term.
-Google has lost confidence in Nest, and as a result the division is losing its place as the center of Google's smart home hardware efforts. Despite the success with things like Chromecast, Google has historically been much more of a software and cloud platform creation company than a consumer hardware company. I suspect they will continue on, but Nest's place as the center of the company's smart home efforts seems tenuous. That they are creating an Echo competitor outside of Nest (and didn't give OnHub to Nest) shows Nest's diminished stature within Google.
-Amazon's strategy will likely influence Google's strategy going forward. While I expect Google to soldier on with Brillo/Weave and other efforts to create software platforms that act as de facto industry standards, they'll also likely push harder on ways to create new and interesting new products (like the Echo) that don't have all the baggage of standards.
-Google also likely will diversify from Nest's "boring white box" replacement strategy. Fadell has famously said they try to replace those boring devices in our homes like thermostats and smoke alarms. The problem with this strategy is those boxes are limited and consumers can only get so excited about things like fancy thermostats. With new products that create new categories (like the Echo), sales growth can grow much faster as they don't start hitting natural limits as with products like thermostats, which often suffer from factors such as high-friction sales channels (professional installers, etc) and a large percentage of consumers who fear they don't have the necessary technical expertise for installation.
Bottom line, I think we're in for some big changes coming from Google/Alphabet/Nest in coming six months. While there's a chance they could sell Nest or outright kill it, I don't think they'll do that as admitting a $3 billion mistake would be hard for even someone as merciless as Larry Page when it comes to admitting mistakes.
They could try another entry point into the home by buying another category leader like Sonos, but they probably learned their lesson about trying to integrate strong leaders not used to internal culture, and I have my doubts someone like John McFarlane would ever want to deal with the headaches of working at a place like Google.
The most likely route is they'll release their Echo competitor while also finally releasing its home security competitor - if Nest and the smart home group can execute - and see how that plays out.