Google is buying digital thermostat maker Nest Labs for $3.2 billion as the Internet search company moves deeper into Web-connected devices.
Nest's founder Tony Fadell, who previously helped create Apple's iPod and iPhone, will keep running the product under its own brand, Google said.
The all-cash deal is subject to regulatory review and should close in the next few months, Google said.
To diversify beyond Web ads, Google is buying its way into the gadget market, a spending spree that picked up in 2012 with the $12.4 billion purchase of Motorola Mobility.
By adding Nest, Google gains a popular seller of connected home thermostats and smoke alarms.
"It's a further push into consumer hardware as a way to control knowledge of the user," said Carolina Milanesi, a director at market research firm Kantar Worldpanel.
“Google is going to use the information to see what other products they can come up with.”
The purchase is the third largest for Google, trailing only smartphone maker Motorola Mobility and display-ad company DoubleClick, which cost slightly more at $3.24 billion in 2008.
As of the end of September, Google had $58.4 billion in cash and equivalents on its balance sheet.
In addition to its Motorola unit, which uses Google’s Android operating system for its phones, Google is designing wearable computing devices, including Google Glass eyewear.
The company has also invested in software for laptop computers, driverless cars and televisions.
The Nest purchase ratchets up competition with Apple in the connected-device market, where Web-based software meets hardware.
It also deepens Google’s role in the so-called Internet of Things market, an industry of wireless, connected gadgets that could create between $2.7 trillion and $6.2 trillion of economic value annually by 2025, according to the McKinsey Global Institute.
To compete with Apple, Google is picking off former talent. Mr Fadell (44), started Nest after leaving Apple in 2008, where he was a longtime deputy to Steve Jobs and central to the development of the iPod and iPhone.
Matt Rogers, who co-founded Nest, also came from Apple and was part of the original iPhone team. According to LinkedIn, 97 former Apple employees now work at Nest.
The thermostat devices can be managed and tracked via smartphones and tablets, and Mr Fadell said that Nest will keep control of all of the data.
Bloomberg
When you think of Nest Labs, you think of smart thermostats and an infinitely less annoying smoke alarm. At first glance, it's not Google's typical market, so what exactly does the internet giant get out of
the acquisition?
Data: Whatever else the company does, Google is all about data. The Nest acquisition will give it access to even more information than before; what's not clear is how Google will use that in the future.
Innovation: Nest founder Tony Fadell has already been involved in one game-changing innovation: the iPod. Now his company is hoping to replicate that with its new line of smart products, and there are plans to extend it beyond the smoke alarm and thermostat.
Untapped markets: Nest has no qualms about exploring markets that others have ignored for years. As existing markets become saturated, creating new ones is vital.
The Internet of Things: The internet is becoming less about connecting people and more about connecting things, and allowing them to communicate. That's what Nest is built on, and it plans to go further in the future. It's a growing industry, and one in which Google could do well.
Technology: Nest's expertise lies in how it uses sensors to make its products smarter. Connecting to each other and learning over time, the devices eventually anticipate human behaviour. That provides Google with yet another way to break out of the web as we know it and extend its reach even further into our lives.
CIARA O’BRIEN
