Alphabet To Move Struggling Nest Lab Platform To Google

Alphabet Inc. (NASDAQ:GOOGL) is reportedly moving its home-automation subsidiary Nest Lab’s entire platform team to Google. The team currently works on the Weave protocol, “Works with Nest” and Brillo, a low power operating system planned to be integrated into Nest devices.

What’s Behind the Move

We see a number of reasons behind Nest undergoing this restructuring. It appears that the change is part of Alphabet’s push to streamline its Google Home efforts by forming a unified Internet of Things platform and working on third-party integrations. It will also help to lower costs at Nest.

Google Home is a personal digital assistance device announced by Alphabet at its I/O developer conference in May and highlighted as an Amazon.com, Inc.’s (NASDAQ:AMZN) Echo. A commercial rollout is expected by the end of this year.

Nest’s Journey So Far

This smart home appliance company was co-founded in 2010 by former Apple Inc. (NASDAQ:AAPL) engineers Tony Fadell and Matt Rogers. Alphabet, then Google, acquired Nest in 2014 for $3.2 billion. After Alphabet’s formation, Nest became a separate entity with Fadell as its CEO.

But Fadell’s stint was not very exciting. Product releases were said to be slow and the company had to recall its “Protect” smoke detector a few months after its acquisition by Google. Nest employees publicly aired their dissatisfaction over Fadell’s management style holding him responsible for product delays, dropping sales and employee departures.

The 2014 Revolv acquisition did not go well. In April, the company discontinued its Revolv smart-home hub stating that it is shifting resources from Revolv to Works with Nest. The $555 billion Dromcam buyout in the same year did not go smooth as well.

In May, a former product manager at Nest filed a complaint with the National Labor Relations Board (NLRB) and alleged that he was fired for posting comments against Fadell on a private Facebook, Inc. (NASDAQ:FB) group. He also complained that both Google and Nest were trying to block workers’ voices through illegal surveillance.

Fadell stepped down in June, probably in an attempt to save Nest and Google from facing further criticism.

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Our Take

The restructuring will shift some dozens of employees from one of Alphabet’s subsidiary to the other, but it could contribute significantly in boosting the company’s share in the nascent IoT market, provided Nest sheds off its poor image and comes up with commercially successful products.

Currently, Alphabetcarries a Zacks Rank #3 (Hold).

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