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As Google reclaims Nest, ex-CEO Fadell says spin-off was a blunder

Nest co-founder Tony Fadell says Google hurt its smart assistant efforts when it spun off the maker of net-connected gadgets not long after acquiring it.

Ex-Nest CEO Tony Fadell

Ex-Nest CEO Tony Fadell: "Nest was acquired by Google for a specific reason. I pitched it as 'We are the senses and you are the brain.'"

James Martin/CNET

Google's announcement this week that it's bringing Nest back under its wing has some former employees of the smart-thermostat maker saying the company never should've been spun off in the first place.

Tony Fadell, co-founder and ex-CEO of Nest, said both companies' efforts in connected gadgets were hurt when Google made Nest a separate business less than two years after acquiring it. Google bought Nest in 2014 for $3.2 billion, and the spin-off happened in 2015 during the restructuring that created the Alphabet holding company.

"From the outside it looked like Nest was the perfect poster child for Alphabet," Fadell told CNBC in an interview Friday, "but at the same time, separating it was undoing the thing that was most essential for both companies -- figuring out how to make them work together."

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On Wednesday, Google said Nest would no longer operate as a separate division under Alphabet's "Other Bets" group. Instead, it's rejoining Google as the tech powerhouse looks to work its artificial intelligence technology and smart assistant into new Nest products. That effort comes as rival Amazon unleashes a bombardment of Echo gadgets equipped with its Alexa smart assistant and Apple touts its HomePod smart speaker, which relies on Siri.

But Fadell, who left Nest in mid-2016 amid questions regarding sales goals and workplace culture, told CNBC that bringing Google's AI smarts to Nest gadgets had always been the point.

"Nest was acquired by Google for a specific reason," Fadell told the network. "I pitched it as 'We are the senses and you are the brain.'"

Two other former Nest employees, who wished to remain anonymous, told CNBC that after the Alphabet restructuring, Google and Nest staffers weren't properly encouraged to work together. The two teams were also kept in the dark about each other's projects, even when those efforts were similar, and even after Amazon began gobbling up the smart-home market with its Echo and Alexa products. Google reportedly tried to sell Nest in 2016 but abandoned that effort.

"I think it would have helped had the [mergers and acquisitions] team put something in place in the early days to structure and incentivize Google and us in a way that would have led to more cooperation," one of the ex-employees told the network.

"It was like a soap opera," one of the former staffers said.

A culture clash might have been involved. Fadell, an ex-Apple executive and disciple of Steve Jobs, is known as the godfather of the iPod, and played a key role in the development of the iPhone. His joining the search giant was seen by many as Google co-founder Larry Page's attempt to inject his company with Apple's storied hardware sensibility. But Apple's rigid and secretive culture is a stark contrast from Google's open and experimental one.

On Thursday, Matt Rogers, Nest's other co-founder, said he's leaving the newly reintegrated company to devote more time to a venture firm and lab he helped establish.

Fadell told CNBC he'd like to see Google's effort to marry its AI technology to Nest products succeed this time around.

"For the sake of Nest customers and talent," he said, "I hope they follow through on their commitment they made to us four years ago instead of trying to sell it off like they did just two years ago."

Google didn't respond to a request for comment.

CNET's Rich Nieva contributed to this report.

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