Google Ventures has been a major investor in Nest, which builds a smart thermostat and fire detector.
Nest was founded by Tony Fadell and Matt Rogers, both of whom are former Apple employees. Under the terms of the deal, Fadell will continue to run Nest under its own brand.
The deal signals that Google aims to be a big player in the connected-home category.
"Clearly with Nest, the intention here is to move more into the 'Internet of Things,' and namely a consumer-facing application focused on the home," said David Garrity of GVA Research.
"While people have been talking about the battle for the living room and … about various devices going through set-top boxes … getting involved in metering and measurement devices in the home could be a way of getting in there as well," he said.
But Google must detail to shareholders the purchase's strategic rationale, Garrity said. It's not clear if that will come as soon as the fourth-quarter conference call, which is scheduled for later this month.
"It's not the $12 billion they paid for Motorola," Garrity said, adding that one could argue that Google got a lot of patents with that deal. "I think people are going to question to what extent they can actually monetize Nest Labs as quickly and as well as they may have monetized Motorola."