Nest CEO steps down after employees pushed for his exit
The smart home device maker hasn’t had an easy time under Google, including discontent over leadership and a potential sale to Amazon in 2016.
Richard NievaFormer senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Five months after Nest rejoined Google, the search giant told employees Tuesday that Marwan Fawaz will no longer be CEO of Nest, and the smart home device maker will be combined with Google's home and living room products team.
The move may make it easier for Google's smart home devices to work with each other and tap into artificial intelligence and machine learning advances, Fawaz and Rishi Chandra, vice president of product management for Google's home and living room products, said in a joint interview on Monday.
Nest, which had up until now been housed more broadly under Google's hardware division, will be merged with Google's home devices unit. The combined team now reports to Chandra, a 12-year Google veteran.
"This is the natural evolution," Chandra said. "We thought, let's connect these things and build experiences that we really couldn't do before."
For consumers, those connected "experiences" could involve Nest's web-connected thermostat, smoke alarm and home security system, as well as Google Home smart speakers and Chromecast streaming devices.
Fawaz will remain with Google and parent company Alphabet as an executive adviser. He said there would be no layoffs, and that Google is looking to expand the team. Google will also keep the Nest brand, Fawaz said.
It's the latest switch-up at Nest, which was started by former Apple hardware guru Tony Fadell and bought by Google for $3.2 billion in 2014. Alphabet folded Nest back into Google in February after letting it operate for three years as a semi-independent subsidiary of Alphabet. Those subsidiaries, which show up on Alphabet's balance sheet as "other bets," also include self-driving car company Waymo and the investment arm GV.
Fawaz's exit from Nest comes after employees began pushing for a leadership change amid complaints that he's more of an operations manager than a leader, according to multiple sources including former Nest employees. They asked not to be identified because they weren't authorized to comment on behalf of Alphabet and Google.
Google hardware chief Rick Osterloh said the change was "right for our users and the business."
"Marwan led the integration planning efforts and was responsible for determining our organizational strategy, in consultation with me, Rishi and our employees," he said in a statement. "We decided together to make these changes so we can better serve our users."
After publication of this story, Osterloh issued another statement defending Fawaz as a "strong CEO."
"Nest's employee retention and satisfaction has significantly improved over his time with the team," Osterloh said. "Unsourced comments suggesting otherwise are wrong. I am pleased to report that he will stay with us as an executive advisor for our hardware business, for Alphabet companies, and future strategic investments."
Even before Google announced the leadership change Tuesday, Nest employees said they had the sense the reins would be handed over to Chandra if Fawaz stepped aside. They applauded the change.
One longtime Nest employee said, "I'm happy to leave Nest in Rishi's hands."
'The new normal'
Fawaz, a former Motorola executive who joined Google in 2016, took over as CEO immediately after Fadell stepped down. Former employees said there was a disconnect from the start with Fawaz, who was handpicked by Alphabet's board.
They described him as the exact opposite -- likely by design -- from his predecessor.
Employees viewed Fadell -- who's known as the godfather of the iPod and played a key role in designing the iPhone -- as a product visionary and leader. Fawaz, by contrast, was considered a business development manager, focused on efficiencies.
And since Fawaz was in close communication with the higher-ups at the parent company, some employees distrusted him. "He was planted in the role by Google to keep us under his thumb," one former employee said.
Another said he believes Fawaz was so "operationally focused" that the team delivered "on-time mediocre products" while he was in charge, instead of devices that took "big leaps forward."
Others resented Fawaz because they felt he viewed his role as a part-time gig: He lives in Denver despite running Nest, based in Palo Alto, California, for more than two years.
Fawaz on Monday acknowledged some employee discontent. "It's the same feeling probably that they had when I joined a little over two years ago," he said. "With new leadership, the organization always has questions. There is an anxious feeling out there."
When Nest reunited with Google in February, Fawaz began reporting to Osterloh. But several people in senior roles asked Osterloh why Fawaz was still at Nest, according to one former employee. The rancor put Osterloh, a friend of Fawaz since the two worked together at Motorola, in an awkward position.
"What's the purpose of him being here?" another former employee said of Fawaz. "Nest doesn't need to have a general manager anymore."
Fawaz plays down the exchanges employees had with Osterloh. "We have a very transparent structure and organization across Google. That is normal. It's not unusual for people to give their opinions. Rick has been very visible to the Nest team," Fawaz said. "There have been a lot of folks that have encouraged us to move faster. And we listened."
One of the former employees believes Fawaz needs to leave Nest so it can adjust to its new reality as part of Google. "It's important to get to the new normal," that employee said.
There's plenty at stake for Nest, which is why the executive team matters so much. Google is scrambling to catch up to Amazon in the high-profile battle for the smart home market. The gateway drug for most consumers is the smart speaker, which the e-commerce behemoth dominates. Amazon's Echo devices own 44 percent of the smart speaker market globally. Google Home holds 27 percent, according to a report by Strategy Analytics.
The next major battle will be in providing a range of smart devices that work seamlessly throughout the home, from speakers to thermostats to alarms to security systems. Nest was the first smart home company to make a splash when its Nest Learning Thermostat became a surprise hit in 2011. But that was then.
"They're still groping for a vision," said Frank Gillett, a Forrester analyst who covers the smart home industry. "Nest is doing it better than anyone else in the market today. But they aren't living up to their full potential."
In June 2016, Nest held an all-hands meeting at its Palo Alto headquarters, in a meeting space employees affectionately call "The Living Room." Some of Alphabet's senior brass, including CEO Larry Page and legal chief David Drummond, were on hand as Fadell told employees he was stepping down as CEO. Also in the room was his replacement, Fawaz.
The Google execs thanked Fadell for his service. He got a standing ovation, and with that, Fadell was out, according to former employees who attended the meeting.
The meeting capped a tumultuous period for Nest. For months, the company's culture had been under intense scrutiny. Reports claimed that 70 Nest employees -- unhappy with Nest's culture and leadership -- had left the company in the previous 12 months. A bitter feud became a public drama when Dropcam CEO Greg Duffy wrote that selling the security camera company to Nest was a "mistake." (Dropcam eventually became Nest Cam.)
But Nest's relationship with Google had actually started to sour long before Fadell's farewell speech, former employees say. It began when Google reorganized itself into Alphabet in 2015. That's because when Google acquired Nest, a key principle of the deal was that Nest would be allowed to grow and innovate as part of Google, with access to the company's vast resources.
But as a separate company under Alphabet, Nest lost that protective buffer and was asked to show more progress, faster. Nest's leadership felt Google had changed the rules of the deal.
So in 2016, Alphabet explored selling Nest, according to three people familiar with the situation. The company had talks with Amazon as a potential buyer, the people said. One of them characterized those talks as "serious discussions." That person also said Alphabet worked with investment bank Lazard to shop Nest around in a sales effort known internally as Project Amalfi.
The hitch: Fadell made it clear to Alphabet he wouldn't be part of any sale, according to an interview he gave earlier this month on French talk show On Refait le Mac. Ultimately, no deal was made.
The talks with Amazon, as well as the involvement of Lazard, haven't been previously reported.
Google, Nest, Amazon and Lazard declined to comment. Fadell couldn't be reached for comment.
The relationship between Google and Amazon has since become more combative, as evidenced by their public dealings with each other.
Amazon, the world's largest online store, is selective about which Google products it sells. It doesn't sell Google Home, a $130 smart speaker powered by Google's AI "Assistant." When you search for the device on Amazon's site, you'll see results for other products, including the e-commerce giant's rival Echo speaker, powered by its AI, Alexa. Amazon does sell some Nest products, like the $250 smart thermostat and $120 smoke detector, but not others, such as the Nest E, a $170 version of its thermostat, or the Nest Secure alarm system.
And after banning sales of Google's Chromecast streamers two years ago, Amazon in December agreed to bring them back -- though they haven't yet made an appearance on the online store.
Amazon, meanwhile, has fortified its smart home war chest by acquiring the smart doorbell company Ring in February, following its purchase of another doorbell and security system company, Blink, in December. (Nest has its own doorbell and security products, the Hello and Secure.)
Google, for its part, cut off YouTube from working on Amazon's Echo Show video device and Fire TV. Google has tapped partners, including Sony, to introduce four new video devices with the Assistant built-in to compete with the Echo Show.
Competition with Amazon isn't Nest's only concern. In addition to external threats, it faces internal problems as well.
One of the biggest challenges is that Nest has had trouble keeping employees, especially engineers, one former employee said. Many didn't leave for other tech giants. They opted for other jobs within Google. The reason? It's an easy switch -- people don't have to find an entirely new job, and there is often no change in compensation. Perhaps most important, compared to Nest and its confusing hierarchy, there's no ambiguity in what your role is or who you report to if you're, say, an engineer at the Google Play app store.
Fawaz challenged that claim, saying Nest's retention rate now is better than when it was an Alphabet subsidiary.
Going forward, Chandra said one of Nest's goals is making sure the teams and products feel integrated and not siloed.
"We saw so much opportunity right in front of us that we felt, why don't we do this faster?" he said. "It's incredibly challenging what we're trying to do."
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