In case you were hiding under a rock today, Google acquired smart home thermostat and smoke detector company Nest for $3.2 billion. It’s an unexpected move that has shocked plenty in Silicon Valley, igniting debate about the range of implications — for the hardware sector, user privacy, competitors including Apple, and Nest investors.
When Google enters an industry it goes big, but it rarely asks permission, and in the process regularly tramples competitors and users’ privacy. The Internet of Things category is squarely in the path of where technology is headed and Google is wise to pay up to assume leadership.
Although Google hasn’t always managed to stay ahead of the trends (see: Google+ and social), in recent years it’s been owning the curve. It took over mobile, making Android the most popular phone operating system worldwide, surpassing Apple’s iOS. It has dominated the conversation on wearables with Glass, while Apple, Microsoft, Amazon, and others are nowhere to be seen. And now, it seems set on conquering and defining the Internet of Things (IoT) industry.
Nest is easily one of the most popular and well-liked IoT companies, and investors and consumers alike have been keeping a close eye on its progress. Pundits and experts regularly pointed to Nest as proof of the successful “hardware renaissance.” More than a few wondered whether it was headed to IPO, and if so when. Nest was reportedly trying to raise a $150 million round before the Google acquisition. An early exit was, seemingly, not part of the plan.
But while it’s a win for Google shareholders and to a lesser extent Nest shareholders (it could have gone for much more in a few years), there are several companies that are big losers today. And consumers too have more questions than answers about what Google plans to do with all that new data it’s about to start collecting.
Apple is the biggest loser to come to mind. As a fellow tech giant in the space, the company has been chugging along without much news (Apple iPhone 5S and iOS 7 aside) since the passing of Steve Jobs. Many have posed questions about whether the tech empire is on the decline, unable to produce revolutionary products without Jobs’ guidance.
Meanwhile, Google has remained anything but quiet. It has continued adding updates and marketing Glass, moved into the smartphone hardware space with Motorola, continued working on driverless vehicles, decided to conquer death, invested heavily in robotics, and finally began going after the connected home with Chromecast.
Nest will make an ideal addition to Google’s efforts to own the last sector.
But it’s a company that would also have made a perfect addition to Apple’s product list. After all, the Nest thermostat and smoke detector were designed by Tony Faddell, one of the “fathers of the iPod.” They fit perfectly on Apple’s shelves, which is where they already sit, although perhaps not for long. Apple has been stocking Nest products since May of 2012, in its quiet move to become the seller — but not manufacturer — of connected home products.
With no press releases or other fanfare, Apple’s shelves have gotten more and more full with smart home devices. Go into any American Apple store and you’ll see smart Hue lights alongside Nest thermostats, Dropcam smart surveillance cameras, and countless other “smart” items.
The company is a perfect hub for connected home products, and it’s not entirely clear why Apple has chosen to just stock these products — and ostensibly take a cut — instead of buy these companies and taking a larger share, or to design competing products themselves. Perhaps the hassle of such operations is more financial risk than Apple wants to take on. But by taking a middleman approach, the company runs the risk of less acquisition-wary competitors, like Google, swooping in and buying them up.
With Google’s Nest acquisition, the second biggest loser that comes to mind is the hardware/connected home sector as a whole. Nest had the chance to be that big, defining company that validates other Internet of Things efforts. It could have done for connected devices what Facebook did for social: been the tentpole of an industry.
Perhaps it still will under Google’s reign, but an early exit is far from inspiring. Silicon Valley has had a checkered history when it comes to marquee acquisitions, as it’s proven difficult to maintain the corporate identity and focus of the teams responsible for early product innovation once part of a larger brand. Look no further than HP’s acquisition of Autonomy, eBay buying Skype, or NewsCorp’s big bet on MySpace, for evidence of this fact.
The track record is even worse when the acquirer is looking to enter a new business category, as is the case with Google and Nest. And, while Google’s YouTube acquisition is held up by many as evidence that splashy acquisitions can work, that deal succeeded because YouTube needed Google’s engineering infrastructure and legal resources just to keep the lights on. Nest is in a much stronger position.
Finally, Google has proven itself barely competent when it comes to designing hardware – its biggest wins have been joint ventures or outsourced efforts – and outright terrible at selling physical products to consumers. If it’s Google that’s learning from Nest’s product design and retail sales prowess, rather than the other way around, it could prove to be a major distraction to the company. Under this scenario, it would be the IoT sector that loses out the most.
The final group that loses out with the Google-Nest acquisition is the biggest: the consumer. As many have pointed out the privacy concerns of this development are huge. Nest products track detailed information about their users’ movements, in addition to things like a user’s WiFi IP address, and whether the specific address is a home or a business. At the moment, that information is stored in Nest’s cloud servers.
Google has not been the bastion of user privacy rights. If tweets are any sign, Nest consumers are already concerned about the acquisition. After all, Google access to Nest data essentially puts the web giant’s eyes directly into the homes of the users.
In the meanwhile, users can feel comforted that Google’s not spying on them via their thermostats… yet.