Someone once told me they liked the idea of Nest Labs but that the whole concept was a little too “precious.”
If you didn’t know what Nest was last week, you do now, thanks to Google spending $3.2 billion — roughly 5 percent of its available cash flow — on the cutesy Palo Alto smart-home company, which this time last year was valued about a quarter of what it just sold for. But numbers alone are the wrong reason to give yourself venture whiplash. That misses all the reasons to have looked Nest’s way before the $300 billion Mountain View behemoth gobbled up its Palo Alto neighbor at a value 10 times Nest’s annual revenue. Google’s buyout is merely the latest, loudest validation of several longtime truths about the company. Here are three crucial takeaways from the news:
1. Google Ventures has a seat at the table, and they’re dealing big-time.
Google Ventures was a smart early investor in Nest, and now the parent company has bought the whole thing. Venture capital has been reinventing itself over the last decade — and some of the new faces driving the transformation include Andreessen Horowitz, among others. Google has now thrown its weight behind 200 companies — the most high-profile being $3.4 billion–valued Uber; not to mention Pocket, About.me, TuneIn, 23andMe, and Optimizely. And sure, Valley veterans will tell you there’s something off about these prices running at 10 to 20 to 30 times the revenue an acquired company is pulling in. But to me, that sings of a new way to think about value — based on how a company can change our lives in ways no one has even dared to think about. Yet.
(Note: Google Ventures reports to David Drummond, who is an investor in OZY.)
2. Nest might just be a funny little reminder of the clean-tech revolution bubbling underground.
Nest is one of two big-time clean tech investments Google made this week (the other being $75 million in Texas Windfarms) — because, after all, Nest is primarily a system that lets people save energy (and money) in a user-friendly manner. Which links to an idea that OZY’s friends at American Efficient turned us on to — and it’s a good one: Clean tech, until recently considered an unprofitable pet project, is making real money. Nest, after all, is a manufacturer of prettified yet humble home devices like thermostats and smoke detectors. But are they really that far off from what Tesla’s doing to cars, which hadn’t been made with genuine sex appeal in years? Both companies are doing for the energy industry what Apple did to computers and what HBO did to television; that is, making something truly tasty, something people crave.
3. Design: The next big game changer in business?
Founded by former Apple engineers (including 44-year-old Tony Fadell, called the “father of the iPod”), Nest is a company built on the understanding that design isn’t just a “nice-to-have” addition but rather a make-it-or-break-it essential element. In fact, Fadell and co-founder Matt Rogers spent months building a library of ”ugly thermostats” so they’d know exactly what not to do.
It’s no error on Google’s part that Nest — of all the home appliance, energy tech, Internet of Things companies out there — is pretty much the cutest. And that’s not to say it’s only cute — it’s that rare blend of hardware, software and service, the combination that seems to be Google’s latest holy trinity. But it is to say, beware of the ”dumb blonde” syndrome: Just because something’s pretty doesn’t mean it’s not smart. In fact, being pretty might be the smartest thing a company could do these days. We’re starting to demand it in everything we use, and it’s becoming all too easy to toss out a good idea that simply doesn’t look appealing enough to make me want to stick around.
That’s not to say it’s only cute — it’s that rare blend of hardware, software and service, the combination that seems to be Google’s latest holy trinity.
Nest wasn’t alone in prioritizing design. Take Airbnb (valued at $10 billion or more): Five years ago it was a flailing YCombinator startup, and its three designer founders were living on the $200 a week it brought in. But they threw conventional thinking to the wind and made a call to be all about design. You could say it worked out.
Design is scalable — from iPods to IKEA, from Wired magazine to Coffee Meets Bagel — and it’s now a given in consumers’ eyes. Which is all a way of saying that the guys at Honeywell, among other places, who laughed at Nest as a toy, are no doubt scratching their heads.
But in their defense, they made a rational miscalculation: After all, not long ago it didn’t make much sense to throw billions at Google. Who’d want to invest in yet another search engine?