Nest and Rover were widely ridiculed for applying Silicon Valley ambition to thermostats and dog sitting. The hosts argue that ridicule can indicate a startup is pursuing an important but non-obvious opportunity, although attention does not make success likely.

Nest was mocked for treating thermostats as a frontier of innovation
Rover was dismissed as an absurd Airbnb derivative
Both companies became significant businesses
Ridicule is a positive attention signal, not proof of viability

“when if somebody makes fun of your startup, you should probably take that as a compliment.”
David Rosenthal · 37:00

“If people care enough to make fun of your stuff, it's still likely to fail, but if people aren't making fun of it, you know…”
David Rosenthal · 37:00

#startups#contrarianism#market perception

Hot Take1:28:30

Why the Hosts Gave Google's Nest Acquisition a D

The hosts regard Nest as a respectable business with strong products, but judge the acquisition against Google's strategic needs. Google overpaid for expected synergies, maintained an incoherent integration strategy, endured organizational turmoil, and responded too slowly to Amazon Alexa's smart-home lead.

Nest's product quality and revenue were not the central problem
Google oscillated between independence, sale, and integration
The anticipated strategic synergies were delayed or unrealized
Google Home did not launch until late 2016
The lost time responding to Alexa was the largest opportunity cost

“I think this is a D.”
Ben Gilbert · 1:28:30

“the biggest miss here is not the money they spent on Nest is not the corporate drama, is not all this stuff. It's like why…”
David Rosenthal · 1:30:30

#acquisition grade#google#nest#alexa#strategy

Explainer· 4

Explainer39:00

The Numbers Behind Google's $3.2 Billion Nest Deal

Nest reached an estimated annual revenue run rate above $100 million shortly after launch, but its hardware model remained capital intensive and likely unprofitable. Google paid $3.2 billion in cash, with $2.35 billion assigned to goodwill tied primarily to expected synergies rather than current cash flow.

Nest reportedly shipped about 50,000 thermostats per month in early 2013
The thermostat sold for about $250
Google Ventures already owned roughly 12% of Nest
Most of the purchase accounting value was attributed to goodwill
The deal depended heavily on future strategic synergies

“2.35 billion dollars attributed to goodwill that is primarily for the synergies expected to arise after the acquisition.”
Ben Gilbert · 44:00

“this is not uh a multiple of current cash flows or anything like that.”
Ben Gilbert · 44:30

#acquisition#valuation#google#nest#finance

Explainer50:30

How Alphabet Rewrote Nest's Acquisition Bargain

Nest was reportedly promised five years of independence without conventional financial targets, but Google's restructuring into Alphabet changed that arrangement. Financial discipline increased, Nest became a separate Other Bet, and Alphabet explored selling it before eventually reintegrating it into Google's hardware organization.

The original deal reportedly granted Nest unusual autonomy
Ruth Porat's arrival brought stronger financial discipline to Google
Alphabet's formation changed Nest's operating arrangement
Project Amalfi explored a sale but found no buyer
Nest ultimately returned to Google under Rick Osterloh

“when that happens all of those agreements between Nest and Google got redone.”
David Rosenthal · 51:00

“they got so serious into trying to sell Nest, it had like a project code name called Amalfi, Project Amalfi.”
Ben Gilbert · 52:30

#alphabet#corporate structure#nest#integration

Explainer57:00

Nest Grew Revenue but Remained an Expensive Business

Leaks indicated that Nest generated $340 million in 2015, including Dropcam revenue, and likely later exceeded half a billion dollars annually. Yet it sat inside an Other Bets portfolio reporting billions in operating losses, while frequent hardware launches continued to demand substantial research and development.

Nest reportedly achieved $340 million in 2015 revenue
Dropcam helped it meet a $300 million target
Nest may have represented roughly three quarters of Other Bets revenue in 2016
Other Bets lost $2.44 billion in the first three quarters of 2017
Public reporting did not isolate Nest's profitability

“In 2015, they did hit that. They had 340 million in revenue”
Ben Gilbert · 57:30

“we should look and and and say conservatively that Nest is doing over a half a billion in revenue now annually.”
Ben Gilbert · 59:30

#revenue#profitability#other bets#hardware

Explainer1:24:30

Why the Smart Home Finally Became Viable Around 2010

Smart-home concepts had circulated for decades, but several enabling technologies converged around Nest's launch. Cheap sensors, smartphones as universal remote controls, cloud connectivity, and learning systems made connected home products useful without requiring constant manual operation.

Earlier smart-home demonstrations repeatedly failed to become mainstream
Smartphones gave users a practical remote interface
Sensors and cloud services enabled persistent intelligence
Learning behavior reduced the burden of manually programming devices
Nest arrived slightly ahead of demand rather than years too early

“they they really nailed it with they were about six to twelve months ahead of when people really wanted this stuff, but they weren't five…”
Ben Gilbert · 1:25:30

“I think we can look back on it and we can say sensors, uh we can say um uh certainly uh the smartphone was a…”
David Rosenthal · 1:26:30

#smart home#timing#sensors#smartphones#cloud

Story· 5

Story10:30

General Magic Failed—and Its Alumni Built the Mobile Future

General Magic assembled veterans of the original Macintosh team to pursue an internet-connected personal digital assistant in the early 1990s. The product arrived before the market and supporting technology were ready, but alumni including Tony Fadell, Andy Rubin, Pierre Omidyar, and Kevin Lynch carried pieces of its vision into later companies.

General Magic tried to build an iPhone-like connected PDA in the early 1990s
The company consumed substantial capital and ultimately failed
Its alumni later shaped Android, eBay, the Apple Watch, and other major products
A failed company can still become an influential talent network

“even though the company failed, like took little pieces of its vision and made them reality at different pieces of the ecosystem.”
Ben Gilbert · 13:00

#general magic#mobile#apple#talent networks

Story17:30

How Apple Shipped the First iPod in Ten Months

After Toshiba showed John Rubinstein a tiny 1.8-inch hard drive, Apple recognized that it could build a pocket-sized music player holding a thousand songs. Tony Fadell produced a component plan and physical model during a six-week consulting project, and Apple mobilized to ship the iPod for the 2001 holiday season.

Toshiba possessed the enabling hard-drive technology but lacked a use case
Rubinstein connected the component to Apple's digital-music strategy
Fadell assembled the hardware and software plan in six weeks
Apple moved from component discovery to shipping in roughly ten months

“A thousand songs in your pocket. Toshiba has the hard drives, we can make it happen.”
David Rosenthal · 18:30

“It's kind of it's pretty amazing. From like, it's it's like 10 months from when Rubenstein sees the 1.8 inch hard drives at Toshiba uh…”
David Rosenthal · 21:00

#ipod#apple#product development#hardware

Story23:00

The Rival iPhone Teams—and Steve Jobs's Cold-Blooded Demo

Apple ran competing internal projects for the first iPhone: one extended the iPod and click-wheel interface, while another shrank OS X around multi-touch. The multi-touch team won, and the public iPhone demonstration appeared to foreshadow Fadell's departure by visibly removing him from the phone's favorites list.

Apple tested two substantially different paths to the iPhone
Fadell's team pursued an iPod-derived click-wheel phone
Scott Forstall's team pursued OS X and multi-touch
Fadell left Apple within months of the iPhone announcement

“there were two competing uh projects to become the iPhone purple one and purple two”
David Rosenthal · 23:00

“The contact he removes is Tony Fidel.”
David Rosenthal · 28:00

#iphone#apple#tony fadell#product rivalry

Story29:00

A Frustrating Tahoe House Inspired Nest

After leaving Apple, Tony Fadell attempted to build an energy-efficient vacation home in Tahoe and became frustrated by the available household products. Matt Rogers was encountering similar problems while retrofitting an older home, and their shared frustration led to customer research and eventually Nest.

Fadell's own construction project exposed poor home-product experiences
Energy efficiency was difficult to achieve with existing equipment
Rogers independently experienced similar retrofit problems
They researched installers, homes, and thermostat-driven energy consumption

“all these products, everything that's going into the house, it's all like total BS. Like these things suck. Like, I can do so much better.”
David Rosenthal · 29:30

“they're talking to installers, they're going and they're looking at homes, they end up talking to somebody in the EPA who's done a lot of…”
David Rosenthal · 31:00

#nest#founder story#thermostats#customer discovery

Story46:00

How Nest's Dropcam Acquisition Became a Cultural Disaster

Google directed the Dropcam acquisition toward Nest, combining a young, scrappy startup with a team steeped in Apple's product culture. Nest halted Dropcam's nearly ready security product, repeated delays followed, and founder Greg Duffy escalated his concerns to Larry Page before leaving and publicly criticizing Tony Fadell.

Dropcam and Nest possessed sharply different organizational cultures
Nest suspended Dropcam's security roadmap
Nest's replacement security product suffered repeated delays
Duffy asked Larry Page to replace Fadell with him
Fadell and Duffy then criticized each other publicly

“it's basically a complete disaster from a cultural uh standpoint.”
David Rosenthal · 46:30

“Nest puts the Dropcam security product on indefinite hold, moves everybody over to working on the Nest product, and it just keeps getting delayed and…”
David Rosenthal · 48:00

#dropcam#culture#acquisitions#leadership

Frameworks in this episode

Full-Stack Platform Test

Product-to-Platform Stair Step

Sweet-Spot Market Entry

Insights & moments

◆Hot Take· 2

Why Being Mocked Can Be a Positive Startup Signal