Will Alphabet Sell Nest?

Yesterday I wrote about what I viewed as the most likely scenario for Nest under its new CEO, Marwan Fawaz, which is to focus on shipping some of the products under development and transition the division to paid consumer services. It should go without saying, however, that there are lots of other scenarios to consider, one of which is selling the company. 

This is exactly the scenario explored in an interesting post over at Ars Technica published yesterday. The post is a good wrap up of many of the issues the company experienced under Tony Fadell, including Nest's inability to ship product since the acquisition.

It also goes on to look briefly at the new head of Nest, Marwan Fawaz, and suggests that that Fawaz very likely could have been brought in to position the company for a sale. From the post:

"Previously at Google, Fawaz was in charge of Motorola's "Home" Business—the set top box and cable modem division—in 2012. Under his watch, Motorola's Home division was sold off to Arris for $2.35 billion. On Fawaz's own LinkedIn page, he only describes his role at Motorola as "Manag[ing] the M&A transaction and divestiture of the business to Arris Communications, Inc." Fawaz's own words, combined with the short, six-month lifespan of the Home division at Google, suggests that selling the division was his primary focus.

Is Fawaz working on a similar plan for Nest? Is he pounding a "For Sale" sign into the lawn of Nest's smart home right now? Fadell himself said Alphabet was entering a "fiscal discipline era," and Alphabet does seem to be "spring cleaning" its companies lately. Robotics company Boston Dynamics is reportedly up for sale already, and the entire robotics division built up by Andy Rubin seems to be in jeopardy. Is Nest up on the chopping block?"

Interesting and thought provoking speculation, and I certainly think that selling Nest is one possibly scenario. In fact, selling Nest may be one of the top two or three scenarios going forward. But if I were to bet on what Nest does under Fawaz, I still don't believe it's the most likely scenario. Here's why:

Fadell was part of the problemIt has become clear that the inability to ship product was largely a result of Fadell's management style and a series of cascading events and internal disputes that had led to sort of internal delivery paralysis. This is in part due to the simple fact Fadell's style did not mesh well with Google's internal culture, but also because it seemed over time Fadell had created a somewhat toxic mix of employee dissatisfaction across Google sowed by personality clashes, controversial product decisions as well a good dose of bad luck. 

Fawaz is a Google man:  While Fadell is, without question, a brilliant product visionary (creating two iconic, game-changing products in the iPod and Nest thermostat is a clear validation of that), his authoritarian style honed under the stewardship of Jobs at Apple just didn't seem to work at Google. From all accounts, Fawaz is a disciplined, no-nonsense manager who runs a tight ship, and a manager that has proven that he can already operate within the somewhat looser and chaotic environment at Google. Now, with their man in place at the helm of Nest, I think there's a chance they might want to salvage what was - and still is - a promising company by getting products out the door. 

Alphabet/Google Still wants to be a big player in the connected home: It must have been very frustrating to Alphabet/Google senior management to spend $3 billion on a company that had been punching above its weight in the smart home, only to see it languish once inside.  That said, Nest still has fairly strong market share in two important categories in the smart home in thermostats and netcams, and could be on the cusp of disrupting a third category in home security that could, in reality, be a bigger opportunity than both the netcam and thermostat market combined, particularly if it provides an entry point for them to get into paid services.  

Clearly at this point Alphabet has rebooted its Nest division with the hiring of Fawaz.  With Fadell leaving (or by removing him - my feeling is that this move was a mutual decision), they at once lift the toxic fog that has lowered around Nest within the broader Alphabet/Google company and have a disciplined company man who has a good feel for some of the new markets they've been rumored to be considering. While they may certainly have brought on Fawaz for a repeat performance of Motorola Home, my feeling is they will give Nest one more shot by finally bringing products to market.

Michael Wolf is the Chief Analyst for NextMarket Insights, where he advises smart home, home security and IoT companies on business models and strategy.Subscribe to his newsletter to get posts like this in your inbox. Also, check out theSmart Kitchen Summit.


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