Google’s new $3.2bn Nest egg

Wednesday 15 January 2014 15.43

 

Nest's smart thermostat, one of two available products

Nest’s smart thermostat, one of two available products

By Will Goodbody, Science & Technology Correspondent

@willgoodbody

How can a company with just 300 employees, a handful of products and a very short history be worth $3.2 billion? That’s the question many tech analysts and entrepreneurs around the world will be asking themselves, on foot of the news that Google is to buy smart thermostat start-up Nest Labs. The second largest disclosed purchase in its history.

The answer, if there is one, is probably the “Internet of Things”. It’s one of those slightly annoying technology buzz terms which on the face of it means very little. But clearly, based on its recent acquisition profile, Google sees much value in the concept.

The “Internet of Things” refers to machines connected to the internet which can talk to each other and to us, learn about our behaviour and provide us with unprecedented levels of data, and control over the devices and gadgets of the future. One such area is the connected or smart home, where intelligent objects like locks, fridges and washing machines are now remotely or even autonomously controlled, based on information they glean from your behaviour.

And that is where Nest comes in. It has designed and built a smart thermostat – yes like one of those little boxes on the wall in your house. Doesn’t sound terribly interesting does it? But Nest thermostats are different. The sleek looking, disk-shaped device tells you if the room is being heated or cooled, learns about your usage patterns homes within a week of regular use, and adapts the heating conditions based on that information. It even detects movement in rooms, and when there isn’t any, shifts the heating to energy saving mode. They are also wi-fi connected, and come with a free smartphone app, allowing the user to manage their home heating remotely.

All very clever. And there is also a smoke and carbon monoxide detector, which is similarly smart. But what is behind Google spending so much on a company that only launched in late 2011?

Firstly, like smart devices, Google is learning from  its environment – in other words the market and the competition. Consumers are increasingly demanding high-quality smart devices that make a real difference to the way they live their lives. And the competition – in the main Apple – is providing such devices, by controlling not just the software, but also the hardware which they run on. With that market exploding, according to analysts, now is clearly the right time to be getting a head start.

Clearly too the calibre of the Nest workforce is a factor. Nest was founded by Tony Fadell, a former senior vice president with Apple, widely credited with being the father of the iPod. His co-founder Matt Rogers is also ex-Apple and was a leading iPod software engineer. Consider further that a third of the Nest workforce used to work for Apple, and that there must be a robust pipeline of future products in the mix, and you can start to see what Google is thinking.

And of course there is the data. Nest says its current robust privacy policies will remain in place. But down the line it is hard to imagine a situation where Google is not somehow making use of the data flowing from the plethora of smart devices that will ultimately be all over our home.

But the search giant is clearly diversifying into other areas too. Last month it bought military robot-maker Boston Dynamics and gesture recognition firm Flutter in October.

And with a cash pile of $57 billion left to play with, expect more interesting purchases in the weeks and months ahead.

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