Why Wasn't Apple in the Mix for Nest?

NEW YORK (TheStreet) -- The Google (GOOG) acquisition of Nest Labs for $3.2 billion announced Monday is being interpreted in a number of ways this morning:

  • That "Larry Page's Google" is one of action
  • That the entire "Internet of things" space is now validated
  • That this is a lot of money, which makes it important
  • That Google is going to know even more about you
  • That Apple (AAPL) "missed out," which suggests that Tim Cook is neither a man of action nor vision and that Apple is "slower" in comparison to Google

If you believe that Nest is an important company -- and it certainly appears to have momentum in the consumer home automation space with increased use of its products -- then the question is, why wasn't Apple "in the mix" to buy it, as Liz Gannes wondered?

If Tony Fadell sold his company to Google without talking to other serious suitors, then he wasn't serving the best interests of his shareholders. Wouldn't it at least be worth Tony's or Frank Quattrone's (or whoever Tony used as an intermediary) time to beat the bushes and figure out if there were other interested parties? Wouldn't $3.8 billion or $4.3 billion have been a better price than $3.2 billion?

If you assume Fadell did his fiduciary duty by shopping his company to others, then why would Apple not be in the mix?

Some might say, "Well, Google must have made a high offer that was too good to pass up." Of course, $3.2 billion is a huge return for all of Nest's investors. The Wall Street Journal reported this morning that Kleiner Perkins saw its investment increase "twenty-fold."

But, again, any Nest investor is going to want more. I'm sure they were all excited to hear about the Google offer, but it would have taken them about two seconds for them to inquire about competing bids.

Now, Google Ventures was a big Nest investor and they might have played a role in selling the Nest M&A idea to Larry Page and others on the Leadership Team. Rich Miner and the Google Ventures team might have been indifferent on whether Nest got a higher offer or not but Shasta Ventures and Kleiner Perkins would not have been shrinking violets on this issue.

So, we come back to the question: If Gannes is correct -- and there's no reason to believe she's not -- that Apple wasn't in the mix now, why would that be?

The only plausible answer I can think of is Apple was very familiar with Nest, founded in 2010, and made the internal decision a while ago that it could develop a better product for Apple's purposes than bolt on the Nest hardware and software.

The Apple critics will decry this as hubris and a lack of vision. They will say that Apple neglected to use its cash strategically and let an important company get into the hands of a fierce rival.

It's too soon to pass judgment on Apple yet.

Last year, a number of Apple critics were claiming Apple was losing ground in not pushing out a larger form-factor iPhone. A year later, we're expecting such a phone in a matter of months. It appears that Apple was well aware of the strategic direction it wanted to go and proceeded in a judicious manner without pushing out some inferior product too soon just to quell the critics.

On the other hand, it sure seems like Apple missed out on an opportunity to make a bid for Netflix (NFLX) last year when it was trading in the $50s. Apple likely believed that Apple has all the content relationships it requires, so why should it feel a need to bid on another brand? However, Netflix's brand is meaningful and likely could have been a valuable addition to Apple's content library, especially at such a depressed price. Given its cash, why wouldn't have Apple done such a deal?

Maybe a year or two from now Apple will again look smart for passing on Netflix in the face of more competition from Amazon (AMZN) or others (including Apple itself). If that plays out, avoiding the distraction of integrating Netflix will again make Apple appear wise.

My point is that snap judgments of Apple being too plodding and lacking vision are usually unfair and sometimes look foolish a few months in the future.

I believe that Apple must have its own products similar to (or, in its view, far superior to) Nest that it plans to introduce. Maybe it will be later this year or maybe it won't be until 2015 or later.

In the future, maybe we will all pass judgment that Tim Cook is an idiot after all. I think that's unlikely, however.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, Eric Jackson was long XXX.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at Dr.eric.jackson@me.com.

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