About That Smart Home: Nest Founder Resigns As Google Frustration Rises

Tech leadership rule #1: you can be an abusive boss when your product is doing well, but not when it's disappointing investors. JL

Steve Lohr reports in the New York Times:

Google’s record with acquired hardware businesses, notably the Motorola deal, has not inspired confidence. Technology news describ(e) a harsh corporate culture that led to resignations, stymied product development and disappointing revenue growth.The larger issue is not Nest’s past performance but what impact Mr. Fadell’s departure will have on its future.

Time to move on. That is the explanation Tony Fadell, a former star executive at Apple known for his aggressive management style, offers for his departure from Nest, a maker of digital versions of household staples like thermostats and smoke detectors that he helped found and sold to Google.

Alphabet, Google’s parent company, announced on Friday that Mr. Fadell was leaving Nest after leading it for six years, including the last two under the ownership of Google, which bought it for $3.2 billion in 2014. His departure comes after months of controversy regarding his leadership.

Mr. Fadell, the company said, will become an adviser to Alphabet and to its chief executive, Larry Page.

In a recent interview in his Palo Alto office, Mr. Fadell, 47, talked about his career. At Apple, he led the engineering team that created the iPod digital music player and worked on the first three versions of the iPhone. In 2010 he founded Nest with Matt Rogers, a young Apple engineer.

“I’m a guy who’s at the beginning of things,” Mr. Fadell said. “I don’t like to do maintenance mode. It’s not what gets me out of bed.”

But he is leaving after articles on the technology news sites The Information and Recode describing a harsh corporate culture at Nest and abrasiveness on his part that led to resignations, stymied product development and disappointing revenue growth.

The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera and cloud-computing service that Nest acquired for $555 million in 2014, about six months after Google bought Nest. Mr. Duffy clashed with Mr. Fadell, remained at Nest for eight months and briefly moved to another post at Google before departing last September.

Writing on Medium in late March, Mr. Duffy said he regretted selling Dropcam to Nest and noted his “extreme differences on management style with the current leadership at Nest.”

In the interview, which Mr. Fadell agreed to on the condition that it not be published before Alphabet announced he was leaving, he had answers for most of the criticisms of his tenure. He described the staff departures as a small fraction of Nest employees and in line with the turnover in Silicon Valley, where switching jobs is common.

Mr. Fadell said that Nest had “strong double-digit” revenue growth from the outset. In a statement on Friday, Mr. Page, citing Nest’s achievements, noted that its revenue growth was “in excess of 50 percent” a year since it began shipping products in 2011.

Mr. Fadell characterized Nest as healthy, with 1,100 workers and strong teams in design, software and services around its three product families — its “learning” thermostat, smoke detector and video camera.

Yet the larger issue is not Nest’s past performance but what impact Mr. Fadell’s departure will have on its future. Nest is the linchpin of Alphabet’s bet on the emerging smart home market — devices and software to automate homes for convenience, energy savings and security.

Mr. Fadell will be succeeded by Marwan Fawaz, a former executive vice president of Motorola Mobility, the mobile phone maker Google bought for $12.5 billion in 2011. Google unloaded Motorola three years later to Lenovo for the fire sale price of $2.9 billion, though a sizable share of Motorola’s value was its thousands of patents.

In the troubled Motorola acquisition, Mr. Fawaz led a financial bright spot, Motorola Home, a television set-top box business. He pared its product line, cut costs and oversaw its sale in 2013 for $2.35 billion to the Arris Group, a cable television equipment maker.

In the Alphabet portfolio, Nest is a leading entry among the parent company’s “other bets,” its effort to build businesses beyond Google’s lucrative franchise in online search and advertising. Google’s record with acquired hardware businesses, notably the Motorola deal, has not inspired confidence.

When the Nest thermostat was introduced in 2011, it was an innovative reimagining of a product category, much as the iPod was a reinvention of the MP3 music player and the iPhone was a new take on the cellphone. It was a stylish piece of hardware, a circle of brushed stainless steel, reflective polymer and a crystal-sharp color display.

Inside, the Nest thermostat houses sensors for detecting motion in the room and clever software to learn and adjust room temperatures, according to whether people are present or not, to curb electric bills.

Priced at $249, the Nest thermostat was far more expensive than traditional models. Rivals scoffed but later offered their own models. Honeywell, for example, now has a $249 model that resembles the Nest oval.

The pace of product introductions in the home necessarily will be more gradual, which critics often miss, Mr. Fadell said. A thermostat typically lasts 10 or 12 years.

“Some people expect us to be a gadget factory,” he said. “But you don’t want your thermostat to be like your smartphone, replacing it every two or three years.”

More is done with software, especially updates, sent over the internet and wirelessly connected to Nest devices. Relying on software, of course, opens the door to software bugs. In 2014, the United States Consumer Product Safety Commission ordered a recall of more than 400,000 Nest Protect smoke and gas detectors because a defect could cause users to turn them off unintentionally. Nest halted sales for a while and fixed the problem by updating the software.

The software is what allows its devices to communicate with each other. The Nest Protect, for example, can detect a carbon monoxide leak and tell the Nest thermostat to turn off the furnace.

Mr. Fadell points to the 18,000 software developers working with Nest software, 12,000 retail stores that sell Nest devices and more than 100 utility companies, many of which offer consumer rebates to buy Nest thermostats, for their energy saving potential.

“We’re not a products company,” Mr. Fadell said. “We’re a products, services and software company.” And, he added, building up those networks “takes a long time.”

It will be up to others to do that building now. Yet Mr. Fadell expresses no regrets. Selling to Google, he insists, was the right choice to give Nest the financial ballast it needs for the long term.

When Nest started, the technology giants were not in the smart home market. But now, Samsung has SmartThings software and devices, Apple has HomeKit software, and Amazon has the Echo voice command device.

Nor does Mr. Fadell apologize for his management style. He described his strength as “holding people to a higher standard than they thought they could achieve and pushing  them beyond what they thought they could achieve.”

Mr. Fadell said he had no immediate plans but he would spend more time looking at technology start-ups.

In the last decade, he has quietly invested in and advised many fledgling companies. His current investments include Impossible Foods, which synthesizes beef without cattle; Airwave, an operating system for drones; Mousera, sensor technology to speed insights from preclinical drug trials on lab animals; and Phononic, semiconductor-based heating and cooling.

“I’m not a scientist,” Mr. Fadell said. “I’m looking for technology that is about to come out of the lab and has the potential to transform a business. I like to see these technologies raw.”