Google's Nest to buy security startup Dropcam

Google Inc.'s Nest Labs is acquiring Dropcam Inc. for $555 million to boost its offerings for the connected home.

The deal will be in cash and subject to adjustments, Nest said. Dropcam makes in-home cameras that can be checked from a smartphone anywhere in the world, an offering that would broaden Nest's product lineup into home security. Nest sells digital thermostats and smoke alarms that can also be checked and adjusted remotely from mobile gadgets.

"We care very deeply about helping people stay connected to their home, especially when they're not in their home," said Matt Rogers, co-founder of Nest, which is based in Palo Alto, California, in an interview. "This is another offering that helps people get insights into their home."

The purchase underlines how Nest, which Google bought for about $3.2 billion earlier this year, is working to become a bigger player of connected devices for consumers. The trend is part of a technology movement dubbed the "Internet of things," where more gadgets and everyday items are connected to the Web and can deliver data and be controlled by mobile devices.

The products gather data on consumer habits and usage. Privacy experts have questioned how Google, the world's largest search engine, would use Nest's data. Nest has said its information will remain separate from its parent company.

Dropcam's data will also remain distinct from Google, Rogers said.

Deal Machine

The acquisition adds to a growing list of purchases by Google this year as it looks beyond its own engineers for new capabilities. The Mountain View, California-based company disclosed at least five purchases in May and has announced at least three more in June. One of those was a $500 million deal for Skybox Imaging Inc., which designs satellites that can help Google's efforts around mapping and Internet access.

Nest, which was co-founded by former Apple Inc. executive Tony Fadell, has run into product challenges recently. In April, Nest said it was suspending sales of its smoke alarms after it determined the units could be switched off unintentionally. The products are now back on the market.

'Kindred Spirits'

Dropcam, which was founded in 2009, lets users place cameras throughout a home for live-viewing and recording. The cameras also include options for night vision and two-way talking with built-in microphones. The San Francisco-based company's backers include Accel Partners and Menlo Ventures.

Deal discussions began a little more than a month ago after Nest approached Dropcam, which wasn't looking to sell, said Mark Siegel, managing director at Menlo Ventures. The talks were led by Fadell and Rogers, he said. Menlo Ventures invested about $8 million in Dropcam in 2012 when the startup was valued at around $50 million.

"There's very much of a shared vision there," Siegel said in an interview. "Had this not been Nest, I think it might have made it a harder decision to make."

As part of the acquisition, Dropcam's staff will move to Nest's Palo Alto offices. Dropcam's co-founders include Chief Executive Officer Greg Duffy and Chief Operating Officer Aamir Virani.

"Nest and Dropcam are kindred spirits," Duffy wrote in a blog post about the deal. "Both were born out of frustration with outdated, complicated products that do the opposite of making life better."

There could be Nest and Dropcam offerings that are tied together after the acquisition, Rogers said.

"Given how closely aligned the teams are, in terms of our product philosophy - we see lots of product offerings and tie- ins we could do in the future," he said. "We haven't figured it out yet."