Apple misses out as iPod creator flies Nest to Google

5:38 AM, Jan 15, 2014   |    comments
Nest co-founder Tony Fadell. (Photo: Martin E. Klimek, USA TODAY)
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SAN FRANCISCO (USATODAY.com) - Nest Labs, the designer of smart, connected devices for the home, should have been an Apple business.

Instead, rival Google agreed to acquire Nest for $3.2 billion Monday, gaining a foothold in the potentially hot home technology sector and bring back a team of innovative, former Apple executives and hardware and software developers.

Apple reportedly was not involved in any negotiations with Nest and the company traditionally has not made big acquisitions of hardware companies, preferring to develop products in house.

However, the Nest deal was a missed an opportunity for Apple, partly because Nest products, with their focus on beautiful design, intuitive user interfaces and cutting-edge consumer technology, would have fit well with its large, loyal customer base, according to investors and analysts.

"It's strange to have somebody like Google come into your backyard and steal a company that is emblematic of the things that you are supposed to do well," said Chamath Palihapitiya, founder of technology investment firm The Social + Capital Partnership. "That is company that should have been extremely high on Apple's radar."

Apple faces a year of challenges in 2014 as the technology giant tries to maintain revenue growth while trying to enter new areas such wearable gadgets and possibly TV. If the company does not enter a large, new category with a successful new product launch this year, Wall Street's faith in its ability to innovate may weaken.

Palihapitiya holds Apple and Google shares through Social + Capital's technology hedge fund, having bought the Apple position last year when the stock was below $400.

"When things like Nest happen, it's disappointing," he added. "I wanted to see that at least they were in the mix for the deal. Strategically are you going to allow core competencies to be now held by a meaningful competitor?"

Apple spokesman Steve Dowling declined to comment, as did Kate Brinks, a spokeswoman for Nest.

On the face of it, Apple should have been close to Nest.

Tony Fadell and Matt Rogers, who started Nest in 2011, used to work at Apple. Fadell is known as the godfather of the iPod for his leadership on the creation of the iconic digital music player. Rogers was an iPhone software manager.

Of the more than 300 people who work at Nest now, a substantial number were hired from Apple.

Bringing those people back to Apple would have been a big reason for the company to try to acquire Nest, according to some analysts.

"It's a missed opportunity," said Brian Marshall, an analyst at ISI Group. "If they would have bought that company for $3 billion plus it would have made about a 2% dent in their cash position and brought back a great team that's very innovative and the stock would have reacted favorably to that."

However, Fadell may not have left Apple on good terms. He told USA TODAY the Google deal gives him the chance to complete his vision for Nest, something that may not have happened when he was at Apple. "I've already been retired before -- and I don't want to be retired again," he said.

Nest gives Google an initial entree into the world of connected home devices, with its smart thermostat and smoke detector. This may be part of a new wave of connected devices that either work with smartphones or connect to the Internet directly.

"While it is certainly unknown what will play out, it does allow Google to further reach and penetrate the home with Android," said Brad Gastwirth, CEO of research firm ABR Investment Strategy. "The battle for the home is something that every major technology company wants and in a few years you will be an iOS, Android, or possibly Microsoft connected home."

"Hindsight being 20/20, Apple missed out on a good opportunity that would have helped them solidify ownership of the home," he said.

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