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Stock Talk: Google's purchase of Nest is a long-term play, never mind the short-term jokes

This wasn't a $3.2 billion impulse purchase, by any means

Now that all the silly jokes about watching ads on your thermostat are over (they weren’t really funny to begin with), let’s have another conversation about Google’s acquisition of Nest Labs. (For another, see Phil's "Let Nest be Nest" piece from earlier this week.") 

As a quick reminder, for a cool $3.2 billion Google has bought a company that makes a smart thermostat and combo smoke and carbon monoxide detector. The CEO of Nest is non other than legendary Apple designer Tony Fadell.

I’ve been spending some time thinking about what it could mean to Google. It’s definitely intriguing, but it’s also not totally obvious to me whether this will become a brand new line of business disconnected from the Google advertising machine, or if there is some way to tie things together.

Remember, there are physical products involved here

First let’s stick to the actual products that Nest sells. The first is a $249 smart thermostat. It’s Wi-Fi connected, it learns every time you adjust the temperature, and it’s supposed to save on heating and cooling costs. The second product is a $129 smoke and carbon monoxide detector. It’s also Wi-Fi connected, knows what room it’s in (once you tell it), and speaks to you to give you a heads up before the alarm goes off so you can wave away nuisance alarms from cooking, for example. (And you do so quite literally, waving your hand.)

When I think about Nest and home automation, it reminds me of YouTube when Google acquired the company back in 2006. It was still very early days for video on the Internet, but it was pretty obvious that video had a huge future. I think the same is true of home automation. We already use Wi-Fi to control music in our homes (think Sonos), and it makes sense to extend this to HVAC (heating ventilation and air conditioning) systems, alarms, door locks, lighting and more.

But when Google bought YouTube there was an obvious tie-in to the advertising business. It took a few years for them to actually implement advertising in videos, but now that they’ve done it there is no doubt the acquisition was a complete no brainer. Absolutely the best $1.65 billion Google has ever spent. Yes, you heard that right. Google is paying almost double for Nest what it paid for YouTube.

Is home automation really that big compared to video on the Internet?I suspect not, but then again I think Google scored an incredibly awesome deal buying YouTube.

Where is the money going to come from in home automation?Well at first it’s obviously coming from hardware. And if you’re going to make money selling hardware then you need to control the platform, kinda like how Apple does it. The way I see it Nest is an early move to allow Google to become the smart platform for our life, not just for our computers, tablets and phones.

If Google can build the intelligence for home automation, vehicle infotainment and mobile devices and tie these all together, then I think it paves the way for an incredible path of growth selling hardware. Obviously Nest isn’t going to stop at thermostats and smoke detectors.

It's far past time for the house to go high-tech

Long term, I can’t even understand why we would even use thermostats. A thermostat is a temperature sensor and a switch. The damned things are always mounted in a room where I never hang out (your couch-surfing mileage may vary), so the temperature in the rooms where I do hang out is always wrong. I say kill the thermostat and put wireless temperature sensors in every room. Have them communicate to a central switch in my furnace room. Controlling temperature is now either automated, or manually done by speaking into a Google Now-powered device such as the smoke detector on the ceiling, or my smartphone app. We really don’t need an extra screen dedicated to the thermostat function and permanently mounted to the wall.

While we’re at it, why not get rid of those crappy sheet-metal vents that pretty much all houses have. You’re supposed to be able to open and close them to control air flow to each room in your house. But in reality they just suck. They always break. They're tough to reach if they're on the ceiling. Why not build a Wi-Fi enabled vent that actually opens and closes based on inputs from the temperature sensors in each room. My home automation system can then learn how I don’t need my office heated after 6 p.m. How many of you have rooms in your house that are always cold? That so-called “bedroom” above the garage is really a meat locker in winter, isn’t it?Intelligent home automation could fix this.

It may sound like I’m getting way ahead of myself. This kind of stuff requires changes to how furnaces and air conditioners are engineered. It takes time. But that’s kind of my point. Google is not in this for next year’s sales. Google is thinking about the next decade and even longer.

Whether they use Android, or Chrome OS, or some other thin client with APIs that allow home automation devices to communicate between themselves and your mobile devices, the important part will be for Google to control the entire platform right up front. Then sell a lot of hardware.

How will they marry this with the big online advertising machine? I’m not sure. Yeah, I have fluffy ideas about how they could collect somewhat useful data about us and use that to feed us higher quality ads on other Google services … but none of it is very firm thinking at this point. I’d love to hear your ideas.

While we’re at it, I’d love to hear your ideas about home automation too. What else would you like to see invented?How about being able to grant permission for your neighbour to unlock your front door from his smartphone while you’re away?What if your house can tell that the whole family is away on vacation (obvious through GPS location information) and automatically lower the house temperature and start controlling the lights at night to make it seem like you’re still home? How about wireless sensors that have tiny solar strips on them so the batteries never need to be changed?

I’m glad Google is entering this market. I think it’s exciting.

  • agree 100%. I don't see this as an ad business for google but a hardware business just like motorola. imagine if they build sensors to control TV,switches, door lock etc etc
  • Haters gonna hate!! Posted from my "Gift from God" Nexus 5, my "God-Given" iPad Mini 2, or my "Risen" Samsung Chromebook.
  • I hope this purchase makes home automation easier. Right now, it is an almost untouched market because setting home automation up is tedious. It would be great for there to be just one easy way to get it up and running. Hopefully this transpires in the future. Nexus 5...enough said
  • I saw something about Bill Gates (I know, don't hate) house. Each guest gets a little pin and as they enter rooms the temperature, radio, lighting, tv presets, Internet settings and God knows what else changes to their individual preferences. Amazing. The only thing I don't get is how it handles more than one person in a room but I'm sure it does somehow.
    Anyway, even as I watched it, it sounded impossible but I guess $70 billion gets you some pretty cool stuff.
    That's what I want. Posted via Android Central App
  • I remember hearing about this the first time I was in Seattle. Blew my mind. That was almost ten years ago. I always thought the amazing thing was the way the water temperature was set to your exact preference immediately Posted via Android Central App
  • Nest sucks. I returned mine and went for the Honeywell. I hope Google can make a better product Posted via Android Central App
  • What problems did you have with Nest? It's just academic interest for me, since I'm a lowly renter, but I'm curious nonetheless. Sent from my iPhone
  • You can still change out your thermostat while you're living there and switch it back when you move out. Even just getting a regular programmable one will save on your heating and air conditioning costs (you'd never pay off a Nest in savings unless you have a large house and/or stay in an apartment for a decade!).
  • Once you have cheap sensors all over the house, and you know the location of all the members of a household, you can basically disrupt the entire home security industry with a single software update. Just sayin'.
  • If you think about it I see a chance for Google to integrate Nest and Motorola. Motorola could probably manufacture the hardware for Nest products. The tech is basically WiFi and Motorola has a lot of experience with radios etc. I see that tie up.
  • After seeing this acquisition, i don't know if i want a Nest anymore now.
  • Ya, so the cold room in the house is not fixed by leaving the furnace on all the time. Most often the room was not insulated correct, and fixing that fixes the cold room. HVAC systems right now work almost perfect when the house is built correctly. Integrating that analog system with digital is fine like how the smart thermostats work, but wifi connected vents? Just the fact that the wifi spectrum is getting crushed with way to much stuff on it, using wifi is not the way. I want lights to turn on and off automatically as I leave and Enter rooms, my phone alarm turning on my shower or whatever else in the house I may want. Wireless seems fine, but how about something more robust. Data over power lines, something better than wifi. But when I really think about it, most home automation seems stupid. I really can't lift my arm up and flick the switch on and off? When I'm cold I can't manually turn the thermostat up? It seems cool, but seems like a huge ploy to get us to buy stuff that really doesn't do much to improve life. derp
  • My house is relatively new and my room is directly above the garage. It's not faulty insulation or anything, it's just that concrete is opposes any kind of heat. Posted via Android Central App
  • It is faulty insulation and building practices. Incorrect instalation of Windows, house wrap, insulation etc. A correctly built house will stay the same temp almost everywhere in the house, whether it's new or old. derp
  • Opening a door with "OK Google, open front door" command would be extremely useful not only for handicapped/older people but I wouldn't mind it either. Imagine someone in your family is locked out or you have dirty hands while in house or you are doing something. Someone rings your bell and you get a real time video on your Google Now card or notification or lock screen (doesn't have to be a mobile device... could be a TV as well). Without picking up your phone, you see it's not a stranger and just ask for the door to open. I'd love to turn off all my house lights with one command. Every time I leave my house, I have to go through all rooms and make sure lights are off (kids). Sure, this can be done now but not cheap and I think Google can make it more affordable.
  • I was painting the kitchen last week and my playlist (Google Music to Chromecast) stopped. I started to climb down the ladder to wash my hands when I realized what I was doing.
    I went back to painting and said "Ok Goggle Now, listen to Queen" and my Moto X queued up a shuffle of Queen.
    As I was painting I thought of stuff I needed. A few more "Ok Google now" reminders and the next time I went to Home Despot I had an automatic list pop up when I walked in the door.
    We're living in the mother-fracking future folks! Posted via Android Central App
  • That's cool, man!!
  • I use those reminders all the time for stores. So convenient. Anyone that says otherwise is just being ignorant of the technology (no offense meant to anyone of course). Awesome use case scenario here.
  • Also, I think we have the same Moto X. Red back with gold buttons? The Ironman colors? Posted via Android Central App
  • Also, I think we have the same Moto X. Red back with gold buttons? The Ironman colors? Posted via Android Central App
  • I can't wait to have a home like you described. To everyone talking about "privacy", it's a myth. You have *zero* privacy on the internet. By design, everything you do is logged and can be traced back to you. It *has* to be traceable back to you or, when you typed in the URL for a website, the server would have no idea where to send it. If you're really that concerned about "privacy", then it's time to dump the internet connection. And, while you're at it, you might as well cancel your electricity, too. Because with these new smart meters, the power company can tell how often your fridge and AC are running, how much TV you watch and how many times a day you have a cup of coffee. That means I can login to my electricity provider's website and see all of these metrics. This past summer, it actually helped me determine that my AC was dying before it actually went out, too. The whole "internet privacy" thing is a complete myth. It's time to get over it, or go find a nice tree somewhere to live in.
  • +1 Sent from my Nexus 7 2013 or iPhone 5
  • Google is definitely invested in the long play. Tie this into a connected car scenario and things get interesting. Now add in self driving cars and we are really getting places. Last person leaves the house and the nest detects no one in the house and the door locks and alarm set. Get in the car and tell it to take me home and it starts driving. The car communicates with the house and tells it to begin raising temperature. The closer you get home the oven turns on and begins preheating because it has your meal plan. The car pulls into the driveway and tells the garage door to open. The alarm system disarms and lights turns on. Coming from the gym? Charges the hot water heater so you can take a shower. So many things this can do. Excited to see what ten years will bring. Posted via Android Central App
  • You actually can "zone" off different room with different thermostats. This way one section of your house can be a different temperature. It's useful for me because my living room and kitchen can be warmer/cooler (depending on season) than bedrooms based on time of day. I only have to program the digital thermostat for each one. My A/C or furnace can send air to separate vents based on the separate thermostats. Posted via Android Central App
  • And you have 2 furnaces. derp
  • I would love a Google built house where everything works together.
  • Hi Chris Your hitting the nail right on the head on the incentives for Google to buy Nest. First of all I'm an engineer educated with a masters in Architecture working at a small danish firm in Copenhagen. I think your points about home automation are valid but all of the things your describing already exists. Siemens, Honeywell, etc. all have fully fledged systems that cover everything from sensors, power/light plugs, switches, thermostats, to fully integrated HVAC systems. The first problem: these systems operate on proprietary standards and software. Second problem: price. Applying these systems to a single family house requires the same engineering time and cost as a small office building. Third problem: all these systems have what I call 'engineering interfaces' as you need to be an engineer to setup and operate these systems. What Nest have done is take hardware and software that, in function, is no different to what others do (you can get a 299$ Honeywell thermostat that does the same as the Nest) but made this approachable and understandable to everybody. They made a thermostat into something you want to own not just something you need. User interface is a huge part of this. From my point of view Google buying Nest could mean one HUGE thing. A common API(s) for connecting these "smart" things in your house together regardless of maker. An Android OS for your home so to say. We are currently working on implementing some of the same ideas that is behind Nest to a conference center and hotel in Denmark as part of a research project (meaning we offset the cost so we are using off the shelf hardware). If you want to here more about this, contact me on Google+ user 107177563437704858012
  • Well put, Mr. Lund. However, my issue with the Nest t-stat and many of the author's comments misses one big fact that many consumers don't understand - Air-source heat pumps (which are what's most commonly installed in newer homes) work best and most efficiently when then they *maintain* a set temperature. Closing and opening vents, turning the thermostat up and down based on being at work/not at work, when you have a system like this, lead to higher overall energy use. Everything in your home (and the home itself holds heat. When you allow the temperature to drift away from your desired temp, your HVAC unit then has to heat/cool not only the air, but all those objects too. I still use a 2° setback at night because it's more comfortable to sleep when it's slightly cooler, but my daily energy usage has fallen since I started leaving the temp during the day set to a constant temp. Also, the HVAC engineer and builder who built your "bonus room"(as we call them here) above the garage should have compensated by using insulation with a higher R value *and* increased HVAC ducting to that room to allow it to stay closer to the rest of your home's temp. Unfortunately, unless you have a builder who cares, this most often isn't done.
  • Finally a sane comment on hvac. I wonder how much nest really saves, if anything over a normal programmable thermostat programmed correctly. derp
  • +1 Could not agree more. the big print giveth, the small print taketh
  • The ui on something you normally program once is pretty small potatoes. My Honeywell took me 10 minutes to set when I first put my new furnace in, only touch it to turn it down when we leave for few days. Home automation as it is being done now is silly, because the analog versions work so well. Ya you have to turn the lights off when you leave a room, but you don't have to program them ever. Current thinking on automation needs to change before it takes off because making all these analog systems digital is just going to make a problem that needs solved. derp