Last year, Nest pulled in $340 million in revenue, which isn’t bad for a niche market company after being scooped up by Google.
However, Google originally paid over 3 billion dollars for Nest, so it’s only natural that they’d want to see a better return on investment than that, especially considering that both companies are now owned by a more focused Alphabet.
After the original Google/Nest acquisition, the companies figured out how to best continue running Nest. This involved retaining high level employees, as well as setting up an annual budget for Nest to work with. Several sources say that budget was around $500 million per year, and it doesn’t take a math whiz to figure out that if you’re spending more than you’re bringing in, you’re going to have some financial problems as a company.
Fortunately for Nest, Google understood that the connected home device market wasn’t mature enough to support billions in revenue, so their sales target was only $300 million annually. Nest did technically hit that goal, but it only happened after buying up Dropcam for half a billion dollars.
Google and Nest’s original deal was only set up for three years, which means the end of this year means the end of that contract. Alphabet very well might extend and keep throwing money at it to see what happens, but it might also sell the company off and try to do something different.
Personally, I’d hope they’d simply fold Nest and Nest products under Google’s wing and try to sell connected devices under the more familiar brand. Whatever happens, we’re definitely going to hear more about this over the next few months.