A few things missing in, most, coverage of Google buying Nest
Posted by shannonclark on January 14, 2014
I’ve been following the acquisition of Nest by Google with a lot of interest and while there have been a lot of articles about the acquisition I think even the best tech blogs have missed a number of key points about this deal.
- Google Ventures is one of Nest’s major investors. The full details and specifics of Google Venture’s investment into Nest are not public but it has been noted that Google Ventures led two of the rounds of funding for Nest. As a result they are, most likely, a major shareholder and thus when this transaction closes a significant portion of the proceeds is likely heading to Google Ventures from Google (corporate). Google Ventures is run like a fund so this likely means a good return on that investment – but it is also likely the case that this fact helped Google be able to offer more for Nest than many other parties would have been able to (either for an acquisition or for another large round of funding.
- The takeaway shouldn’t be that “home automation is hot”. Whether or not a given “sector” technology investing is “hot” is always a matter of debate, but it should be noted that while Nest is in the home automation space it isn’t only or even solely in that space, nor does that positioning really reflect what Google is likely trying to accomplish via acquiring Nest. Rather I would highlight Nest as being a successful example of a couple of key business trends.
- Connected devices – not just home automation devices and systems but the broader trend of designing products that expect to be connected, frequently designed to assume continual connectivity.
- Design first devices – Apple is perhaps the biggest example of this trend (which has often been seen as the explanation for Nest’s design ethos) but there are many other companies that increasingly are leading with design over even engineering.
- Smart devices that get better and smarter over time – this is highly related to the trend towards wider sensor arrays increasingly designed to potentially at least be “always on. Again Apple is a leader here with the example of the iPhone which has via OS and application updates offered greater functionality even years after the launch. The Nest is just one of many devices that increasingly get better then more you use them and the longer you own them. In contrast most devices of previous generations have had limited support or updates after their sale. Tesla in cars is another big example of this trend with updates to their cars being pushed out to customers improving their car as they own it.
- Devices tied to cloud data and applications – the Nest is just one of a number of new devices that are closely tied to cloud services, data collection and applications that work with that data and often the device itself via an application interface.
In short I think this is a very smart purchase by Google and one that just a few years from now will be seen as a key marker of a new era and major new line of business (and revenue) for Google. Nest will likely drive a wide range of connected devices, many but not all around home automation, that will lead Google into a very different business than their search revenues.