Google's Nest buy could spur growth of 'Internet of things'

If you thought that the "Internet of things" was a geeky and niche industry aimed only at early adopters, Google's got 3.2 billion reasons you should see it as an industry primed for massive and widespread growth. When the tech giant announced Monday that it plans to spend $3.2 billion in cash to purchase Nest -- makers of, to date, smart thermostats and smoke and carbon-monoxide detectors -- it put the brightest spotlight yet on the nascent industry.
"When we first showed up two years ago, people were like, 'thermostats, poo-poo,' and they didn't even talk about connected homes or the Internet of things," Nest CEO (and "father of the iPod") Tony Fadell told CNET. "We changed the landscape, and made them top of mind. When it comes to the Internet of things, we can take a large piece of credit for kick-starting that. What we're doing [with the Google deal] is we're changing the landscape yet again...[Google] is a major corporation saying, 'We believe in these products," and we want to help them succeed even further."
In recent months, Nest was said to have been seeking significant venture funding, but thanks to the scope and scale of Google's offer, it decided to blow off the VCs. Perhaps the most important factors of the deal, to Nest at least, was that Google agreed to let the smart home company stay largely autonomous -- "Nest will stay Nest" -- and that it agreed to keep its hands off Nest's users' data.
In general, the reaction to the deal has been largely positive. Some, like Forrester Research analyst Frank Gillett, think that Google may have overpaid in the short run, but that "long term, they could look smart if they execute well...This acquisition is about Google getting experience to build the online services platform for the connected home. That will allow them to support lots of third parties beyond just the Nest company."
Google's entrance into the connected home arena could well provide Nest with the resources to throttle some of its smaller existing rivals, or much more quickly branch out into new product categories that are currently dominated by others. Yet there doesn't appear to be much fear of that in the early going. Instead, some could-be Nest competitors seem to be reacting enthusiastically to today's news.

The Nest Protect, the company's smoke and carbon-monoxide detector.

(Credit: Lindsey Turrentine/CNET)

That could be because Google has a history of ensuring that companies it acquires don't immediately gain unfair advantages over existing competitors, said Jason Johnson, CEO of smart lock developer August.
"I think it provides a level of confidence that these types of technologies are not just a flash in the pan," Johnson said, "that connected devices, particularly everyday objects that didn't have connectivity in the past, are here to stay...These are only markets that will grow."
Added Johnson, "We all knew that 2014 was going to be a big year for the Internet of things, and this is just validation that IOT is going mainstream. When you have a company like Google invest this much money, it's clearly a validation."
In its own statement, home automation developer Revolv applauded the acquisition. "We think that Google's acquisition of Nest is positive for the smart home industry overall as it will raise awareness for the space," Revolv co-founder Mike Soucie said in the statement, and it "opens up third-party development for Nest devices as well as drives faster adoption of smart home technology by mass consumers."
Fadell clearly agrees. The Nest founder's vision for creating the company was at least in part to give its customers access to the smartest, easiest-to-use appliances, and to connect them together in a way that reflected the state of the art in connected devices. "But even if we're a part of Google, we can't build everything," Fadell said. "It's going to take a whole ecosystem to build this, just like you saw in digital music, and in digital video."

The Nest Learning Thermostat.

(Credit: Nest)

The big question is, what exactly is Google hoping to get for its $3.2 billion? And there appears to be a wide set of possible answers. First, clearly, is instant ownership of the biggest name in the connected home space. While until just a few years ago, thermostats and smoke detectors were, as Google put it, "unloved," Nest made them almost sexy. A big part of that, of course, had to do with Nest's pedigree, having been founded by two people with deep Apple backgrounds, and even deeper design cred.
But Google is also getting quite a bit more. It's getting instant entry into the energy management space, given Nest's partnerships with a significant number of utility companies around the country. And it's getting access to technology that could well be at the heart of the future connected home hub. And, despite its assurances that it will respect Nest's commitment to users' privacy, many seem to believe that this is a big data play on Google's part.
Still, Nest has spent much of its energy today making the case that users -- weary of nonstop stories of NSA scandal-era intrusions into their privacy -- need not worry. "We had long discussions [with Google] about what they do with users' data today," Fadell said. "And we had them read our privacy policy, which clearly limits [use of Nest owners' data] only to improving Nest users' [experiences]; they looked at us and said that's what they wanted to do."