Alphabet's Smart Home Firm Nest is Underperforming

Tim Maytom

Alphabet-owned Internet of Things firm Nest is performing below the company's expectations, despite bringing in around $340m in sales last year through sales of its connected thermostats, security cameras and smoke alarms.

According to Re/code, who cited three people with knowledge of the matter, executives within Google's holding company Alphabet expected more from the startup when it purchased the company in 2014 for $3.2bn (£2.2bn), and following the restructuring that created Alphabet, Nest is under more pressure and scrutiny than ever.

2016 could prove a crucial year for the IoT firm, as part of the deal it negotiated with Google in 2013 secured an fixed operating budget up until the end of 2015 for the startup, in return for ensuring that key executives and engineers remained following the sale to Google.

With that period coming to an end, Nest could face having its budget slashed by higher-ups in Alphabet if they feel it is not worth the continuing investment. According to several sources, the initial annual budget was $500m, which is significantly more than the firm brought it last year.

In addition, Nest has failed to hit internal sales targets by itself, only meeting them after revenues from acquired firm Dropcam were added in. The Dropcam acquisition, which Nest made for $555m in mid-2014, has not gone smoothly either, with two founders leaving and tensions between former CEO Greg Duffy and Nest's chief executive Tony Fadell.

All in all, faced with potentially shrinking budgets and fleeing staffers, 2016 could be a make-or-break year for Nest.