This article was taken from the July 2014 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by <span class="s1">subscribing online.
In January 13, Tony Fadell sold his four-year-old startup, Nest Labs, to Google for $3.2 billion (£1.9 billion) in cash. It seemed a high sum for a home-automation company that made just two products: an adaptive thermostat and a smoke and carbon monoxide alarm. But then Fadell, 45, is no ordinary engineer. After an early career at Philips Electronics and General Magic, in 2001 he was hired by Jon Rubinstein, Apple's hardware boss, to create what would become the first iPod -- ultimately leading the teams that shipped 18 generations of the iconic music player. In seven years at Apple, he also played a leading role in developing and shipping the first three iterations of the iPhone.
In conversation with Wired editor David Rowan, Fadell discusses what Google saw in his team, why Nest intends to be the dashboard to the connected home, the "conspiracy theories" about Google's intentions regarding data collection from home appliances -- and what lessons from Apple he can bring to his new owners.
Wired: what's changed since Google acquired Nest in January?
Tony Fadell: Not a lot. There's less worrying for me about what is the tax code in Germany, how our store is going to work in XYZ country, what about credit card fraud... I can go back to building amazing products. Think of Google as a big candy store where we get to choose what we want -- everyone [at Nest] still reports to me; we have lots of nice things from Google in terms of comforts; and in general we're running as fast as ever. It's been great for attracting new talent -- potential employees see this as a much better opportunity for them -- and for attracting great partnerships. And the amount of learning our team is doing from other teams inside Google allows us to think bigger and bolder, knowing there are resources for us to tap into when we dream really big. Because other people inside Google are dreaming along the same lines as us, and we can team up to change the world even more quickly.
Why sell now, when Nest clearly had an ambitious product roadmap ahead of it?
So I could go back to doing the things I really love. Never in my career have I ever wanted to be CEO of a public company, and we were headed down that road. I want to build great products. Google have a bold vision -- that's what won us over -- and the resources to see it to reality. It's been like the Medicis: "Go do what you do, do it really well, we're here behind you." I'm here on a mission.
Still, $3.2bn seems a high price...
The number came at the end of the deal, not the beginning. The number is just an after-effect for the investors -- you have to look at our current earnings, our future earnings, our team, our vision, and competitively about what investors would be willing to pay. We didn't need money. There was a history here. I first met Larry [Page] and Sergey [Brin] in 2001, at a party just after the first iPod came out. We started talking in earnest and they invested in us two-and-a-half years ago. If we needed some expertise, we'd go to them. That was our high-school dating period.
As we continued getting closer, we were thinking about going out to raise more money, and we decided maybe it makes more sense to work together and make it much bigger than just an investment. Over a series of months we were able to see how this felt before any offer was put forward. Marriage for money can never work. We wanted to make sure we had culture compatibility, vision compatibility, everything that makes a good relationship.
How often do you see Larry Page?
I saw him yesterday; I see him all the time. He said, "We love the roadmap, we want Nest to remain Nest, go make it happen, and we're here to help." I know Andy [Rubin, running Google's robotics division], and I'll say hi to Andy and chat -- "What you got? Oh, cool." It's a treasure trove of ideas that they're working on. The whole goal here was not a financial transaction but [to learn] how we're going to make both companies better -- and that means figuring out how best to work together. You see some very exciting things going on -- things that are incredibly unexpected for me.
When the acquisition was announced, some commentators expressed alarm that google would now know what was happening inside people's homes -- on top of all the other personal data it collects.
We're basing speculation upon speculation upon speculation. All I can answer is how our customer data is treated, vis-à-vis the other entities inside Google -- it is definitively not shared, the customer's data is the customer's data, and there has been no inkling of changing that. And if there ever was, we'd be sure to alert our customers and let them know. People can speculate all they want, and they can make conspiracy theories -- I can just tell you what the reality is. We had long discussions about this. It was part of the courting experience, to make sure this was a critical parameter of the relationship.
Whatever Google and Nest will or won't do, you can understand why access to the home via connected devices could be a powerful tool for the marketing industry...
We take data privacy very seriously. And at least from the conversations I've had, Google take it very seriously as well. So we as a team really regard user privacy as an important thing. We also know that people want convenience, and that requires you to share data. Trust is about privacy and security. The only way you gain trust is by earning it, and we earn it every day. It [comes down to] communication and transparency: If you're not hearing from me, if we're not being transparent on what we do, you're going to distrust us. I might trust you when I meet you, then I look for clues -- either you're going to lose it or maintain it. But once you lose it, you're never going to get it back again. And we give you insights on your data -- we'll tell you why you consume more or less energy. Because we can collect the data, we can improve our algorithms. We have five new features inside the [thermostat] product that we didn't know we'd have, and that all came from reading the tea leaves of the data and seeing all sorts of interesting behaviour patterns in these kinds of homes.
How much is your role at Google about bringing some apple magic into its interface design?
I asked Larry, "How do you want us to help within the wider company?" He said, "You guys have a huge vision, just stay focused on what you're doing and if you can pull that off and you have some spare time, then let's talk. Until then, just tell me what you need, don't worry about us." I'm hopeful that over time people will come over and learn what we do and maybe bring some of that back into Google. But I'm not going to be the Jony Ive of Google -- that's not my job.
How could you bring an emotional aspect to Google's products?
You just ask the right questions. Why does this matter? Tell me why this works. Why do we really need that feature? Do we have data to say this is of real value? It's always just a question. Or people sometimes ask, "what's your opinion?" I'm not going to offer my advice if people don't want it, but a lot of people ask me for my advice, and I just tell you exactly what I think. Sometimes just by asking the right question people get on their own right path themselves -- they just didn't look at it from the right angle.
They go away, don't talk to you for four months, then say, "Here's the new version, what do you think?" I'd rather them learn by doing than from me telling them. You've got to build a culture.
Which other companies do you feel understand the emotional aspect of the design experience?
Nespresso -- it's emotional, people love it, they've got the retail set-up right, customer support is right, the ongoing customer interaction is right. They have a rabid following -- they make people feel differently about coffee. And look at Dyson -- he
[James Dyson] is much more techie than most, he communicates, gets his message across -- he's turned a mundane utility into something you care about. I'd love to meet him.
What were your main lessons from Apple?
For me it's really about defining an experience and making sure you understand all the touchpoints of that experience. That was the big takeaway. The experience wasn't just about turning on the product, but how you first learned about the product, where you first saw the product and touched the product, the community around it, how you engaged with it -- it took the blinkers off. It's not about looking at what is in front of you, but at all the touchpoints people don't normally look to when designing a product.
You're crafting the storyline all the way through, to this ascending emotional engagement. You want positive emotional acceleration through every single touchpoint. Through that you gain the momentum to talk to the consumer; hopefully they'll talk to their friends about it. Another lesson from Apple is to let the team own the idea, even if you come up with it. That's their self worth. In the meeting, you don't say, "That's a shitty idea." You say, "That sort of works, let's expand on that." If you give them that little piece, that makes people trust you, trust the company, trust themselves. It's empowerment. And that's something you don't get at Apple -- or didn't when I was there. That is one thing I definitely strive for in our company. That's how you train the next generation to come up behind you. You mentor them; don't just make a babysitter, make a parent.
And presumably at Apple you learned the value of secrecy.
Actually, I learned that at General Magic. I also learned at Apple what not to do when it comes to confidentiality. If you're on a team, you'd better trust your team members. Google's much more open
[internally] about confidential stuff -- and you don't see a lot of leaks coming out of Google. People get vindictive when they don't have information -- that's when they're more likely to go, "Hey, I got a secret for you." You do have to give people credit -- that goes a long way. When everything's going wrong, you need people to say, "We can do this together." I saw sometimes [at Apple], when things didn't go so right, everybody started finger-pointing.
Did you feel empowered when you were leading the iPod and iPhone teams?
Yes, because I wouldn't listen to somebody. I thought, "I don't care what he says, we're going to do it this way." Steve said, "Over my dead body are you going to put the iPod on the PC." He said it would kill Mac sales, that iPod was the only reason people were going to buy Macs. So I had a whole skunkworks team making the whole PC connectivity happen. He wouldn't allow it. The first quarter was nice on iPod sales; the next three were really rocky -- because once we went to all the Mac loyalists, there were no more customers. It took two years, but PC is what finally got iPod to break out. Then there was Intel -- he wanted to put Intel in the phones. He said, "[Intel CEO] Paul Otellini swears to me he's going to make a chip for us the way we want it." I said, "Steve, I like your relationship with him, and he did amazing things for the Mac, but there is zero evidence that says they can do anything like this." I literally said, "I'm going to quit if you pick Intel over ARM." We had a love-hate relationship.
If he'd known about your Skunkworks, would he have fired you?
Sometimes. He told me to shut things down. You had to be defiant at certain times: I'm doing the right thing for the company. You see the details and you know the facts -- this is not an opinion.
He had his opinions. You can't confuse opinion-based decisions with fact-based decisions. And you have to be clear as a leader to know which is which, and to communicate that to your team. In the case of Intel and iPod on PC, these were fact-based decisions. You'd say, "No, Steve, this is the fact." With the Intel thing, we called a truce, and said we'd put Intel to the test over six weeks, and if they fail, we'll go with ARM. I think he respected that -- even though we'd almost come to blows a few times. I wasn't always right -- I wanted to make an iPod Touch with a hard drive. He said, "I think you're wrong, it's the stupidest idea ever." And three months later I said, "Yeah, you're right. We killed the project." There was a very good working relationship.
What other lessons can entrepreneurs learn from Steve Jobs?
Trust your gut. Check it all the time but trust it. Sell your idea to every-one from day one -- it will help you refine the idea. He'd keep refining the elevator pitch so it was the 30,000th time he said it when he got on stage. When you see Steve Ballmer on stage, you know he was given some messages he learned overnight. The other thing is focus -- learn to say "no" to a lot of things. Only when you focus on the "yes" things do you have time to get it right.
Did you have any idea how successful the iPod and iPhone would be?
No, I had no idea. Well, I had a pretty good idea on the iPhone.
But the iPod -- remember, everyone loves to think about Apple as it is today, but think about 2001, when Apple had $150 million in the bank and was $500 million in debt. Now it has $150 billion in the bank. Apple loved to say it had two to three per cent market share of PC sales. It was less than three-quarters of one per cent in the US. There were no sales really anywhere else except possibly Japan.
And I'd come from Philips, where I was CTO, so I knew big companies. When Steve goes, "Come and do this with me," I'm like, "I can build anything, but can you sell and market it?" He goes, "You build it." I swear to you, that's when I finally found out we had the right marketing. And the other decision, to finally take the iPod to the PC, so PC people would understand what Mac was about. That's why we made a $49 iPod Shuffle -- we wanted everybody to be using iTunes music. I said the cheapest way to buy iTunes music at that point was a $249 iPod -- so it wasn't a 99-cent song, it was a $249-plus-99 cent song.
Could Nest have been built within Apple?
[Pause] Yeah, I think so.
So why leave?
I left because I had a one- and two-year-old. My wife also worked for Steve -- for nine years. We never saw the kids. We took off for a year and a half. I came back and went nuts; my wife said, "Get the hell out of the house." So I said, "OK, I have to build a company."
Why start with a thermostat?
I set out to design a house thinking about the iPhone as the primary way to control it. I went through every single device in the house, thinking, "How would you consume energy differently, how would you interface differently?" I was frustrated by so many products. The first one was the thermostat. Then the smoke alarm.
That's how we got Nest in my brain. I was living in Paris with my family for eight months, and just could not let go of this thought.
I came back and met [cofounder] Matt [Rogers] for lunch, and he persuaded me that we had to do it now. Everyone needs a thermostat -- it controls 50 to 70 per cent of all the energy that you consume in your house. Yet it's a product we ignore, that a lot of people hate, and get frustrated with. If you could produce a product you actually liked, that could help you save 20 to 30 per cent, maybe you could learn to conserve more. The device is the manifestation of that entire conversation about energy conservation. It gives you feedback to help you tune your habits. Why can't the product adapt to you with a machine learning algorithm? Why can't it tell when you're not home and turn the heating down?
Your smoke and carbon monoxide alarm -- the Nest protect -- seems an odd follow-up product.
Seventy-two per cent of fire-related deaths are caused because people had smoke alarms but they ripped them off the wall as they were so annoying, beeping at the wrong time, or because the battery went. It's a black comedy. We thought, "Why don't we reinvent those with the same low-cost sensors?" Nest Protect looks different to make you think about it differently. It will talk to you: "Heads up, there's smoke in the kitchen." It's like your spouse: "Honey, something's not quite right here." We've localised it in five languages, the reason we put the voice in is because children from the age of two do not wake up from beeps, but from the sound of their mother's voice.
You recently withdrew the product from sale because it could be inadvertently turned off if a hand was waved.
If you want people to trust you, you always have to do the right thing. Usually the best way is to figure out the right thing earlier and not delay. It was very soon after we learned of this that we suspended sales. We're now in weeks of tests. I don't work on gut, I want to see the data.
But Nest wasn't about thermostats and then smoke alarms -- you have a bigger vision.
We saw the discontinuity in the components and software that goes into connecting smartphones over the internet dramatically lowering the bar in putting those components in products all around us. Now we can use those interfaces to plant extra displays on all these products around us to interact with. There will be lots of accessories to that smartphone in and outside your home that will be revolutionised. Internet of things 1.0 is just trying to connect stuff. We're trying to be internet of things 2.0 -- where you dramatically change your relationship with the devices. The power of being on a network is when devices interact with other services.
Will cooking appliances be networked? The coffee machine? Where does this lead?
It's all networked today. It's called the power network. And we're talking about adding one more piece of the puzzle on to that network: it's called data. The data network will be incredibly powerful in ways we never predicted. When you add connectivity, it will also change the nature of what might be done. A decade from now, these things will all start working together in ways we've never conceived before. To guess where the home is going to be a decade from now? I have no idea; all we can do is revolutionise individual products.
What qualities, for you, mark out a great entrepreneur?
First I see passion in their eyes and how they're communicating -- not just with emotion, but they have a good balance of emotion with rational thought. It's similar to how I hire: you ask them what was the key thing that made them interested -- they'll tell you something that happened in fifth grade that helped them find their call. That's when I know that person is really passionate.
When did you find your call?
I found it very early on, luckily. My grandfather was a tinkerer and carpenter and he built stuff. He mentored me, and we would do all kinds of things together -- we built our own go-karts. He owned a bowling alley so I got to go in and fix the machines. He taught me that if a human built something, don't be afraid, you can take it apart and put it back together again, and you might even be able to make it better. We moved [house] a lot, and when I was on my own I was building rockets and tearing apart old vacuum-tube radios.
Then in 1979 the Apple II Plus showed up. I was ten. My grandfather said, "If you work really hard this summer, I'll match whatever you earn and help you buy a $2,500 computer." I was a caddy -- I worked like crazy. I came up a little short, he put up the rest, and I got a computer. I taught myself coding and hardware design -- I created a CPU before I even took CPU class. I redesigned an Apple IIGS CPU with another guy in LA, we fabricated it and sold it to Apple. I had a restless curiosity -- I'm not driven by money, but by intellectual happiness. That's why, when I retired from Apple, I got into every bit of the house and figured out what the next generation of the house would look like. I'd think, why do you pay $300 for a smart thermostat and they don't do anything? I can buy an iPad for the same price and it has ten times the technology.
How important is a traditional design education in creating products?
You can create these experiences without that kind of formal training. I've seen some great designers come out of music school or engineering school. Design isn't about the things you touch or see -- other parts of the puzzle can be thoughtfully designed, which every consumer will see: just tap into that part of your brain to make a great experience.
What's next for Nest?
My head's about eight years out, and the team's about two years out. The most important thing first is to get to 90 countries where our products are used -- we see the IP addresses coming in, yet we don't sell.
And when do we get the self-driving car with one button to control it?
I can tell you I don't think we're on that. But I'll put it in the suggestion basket.
This article was originally published by WIRED UK
