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I have a hard time believing Nest sold due to scaling issues. I find an easier time believing that they did not have the money to achieve their (expensive) vision, and selling to Google was easier than raising a massive round. It's the classic "our product is good but doesn't make any money; solution: double down." Nest has a huge staff for what it currently sells.

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    Nest has a huge staff for what it currently sells.

I thought something similar. And then I worked there for a summer. Building hardware is much more difficult than you think, in ways that aren't immediately obvious.

Someone like Tony can easily raise capital in Silicon Valley, and Nest's products were selling extremely well across many retail locations. I'd be astonished if they were running out of money.

Why is it surprising that scaling is the issue? Tony's entire background is in devices and hardware, not large software systems.

They have a huge complex stack. Imagine building a system with tens (or hundreds) of thousands of connected nodes, all streaming realtime data that must be analyzed, and which can't ever go down. A Django app just won't cut it. And that's just the tip of the iceberg for Nest. The machine learning is surprisingly sophisticated.

>which can't ever go down.

The thermostats don't cease to function if they can't contact nest's website. I agree that it's important, but it's no more critical than any other day-to-day website.

They do have smoke detectors too though. 100% uptime is critical.

Presumably they'll still function like a normal smoke detector if Nest's servers go down.

Right? RIGHT?!

Of course. Interesting also is that the Nest Protects form a mesh network to set off the alarm across all of them, even if the wifi is down.

I believe that's a recent requirement in California for new or updated dwellings. See R314.5: http://osfm.fire.ca.gov/firelifesafety/pdf/Smoke%20Alarm%20T...

Also interesting is that quite a few municipalities forbid connecting the fire alarm system to any external system, unless the external system is UL listed. Could be some regulatory hurdles in Nest's future.

I am quite sure that by "scaling" he meant the scaling of their business activities and not software.

"... Google offers to bring that scale to us. For me, ultimately building great products is key.... ...you have to look at markets outside of the US. We are doing very well in the US and Canada but we need to get to Europe and around the globe. Just getting to UK has taken up a lot of time and energy and when you look at Europe, there are many countries and many opportunities. It is an atoms-based business and a lot goes into getting it to scale — legal, physical distribution and even localization are time consuming and need new kind of scale."

Here is the interview: http://gigaom.com/2014/01/13/nests-ceo-tony-fadell-explains-...

I don't think so. Nest was in the middle of closing a $150M round at a $2B valuation. That doesn't smell like a company going out of business, that sounds like a company preparing to scale like crazy.

Fadell has intimate knowledge of Apple's scaling troubles—LaLa, iTunes Store, App Store, MobileMe, etc—and Apple has infinite money. Building truly scalable web services is no easy task, and Google is head and shoulders more capable than anybody else.

Do not look at Nest as a thermostat company. Look at what they could be 10 years from now—the timescale Fadell is surely thinking on—and you begin to understand the real scaling issues they will face.

I see a $150M round as a failure: a company that has big dreams but can't make enough cash at what they currently do. Even Tesla only raised $200M at IPO, and that's for a car company with huge overhead and manufacturing capital costs. $150M for a company that assembles products from COTS parts in China is ridiculous.

You can see it however you want, but that won't change what it actually is.

Companies raise huge rounds when they've nailed their product, their production lines, and their sales funnel. They know what they're doing and need cash to accelerate.

Venture capital is not charity.

One issue is that thermostatic systems apparently work substantially differently outside of the U.S you can't buy NEST in the UK, for example because of this wiring incompatibility.

I've wondered about this. To what extend does a Nest drive the CV system? For example does it do modulation? If so, does is use OpenTherm - and thus only works on new CV systems? If not, how is it not 10 (OK, 5) years behind?

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