Google’s Nest Acquisition is About Comfort

Nest Thermostat
Nest Celsius Heating image courtesy of Nest Press Room.

Yesterday, Google purchased Next for a whopping 3.2 billion dollars. Although Nest is very cool with its smart and well designed thermostats and smoke detectors, its $25 million in revenue isn’t the reason that this move got made. Instead, this acquisition represents two things: intellectual property and comfort.

Google has been very involved with Nest for the past couple of years, as Google Ventures has played a leading role in Nest’s funding rounds. During this time frame, Nest has acquired 100 patents already, with another 400 patents in various stages of development. By acquiring Nest, Google acquires not only the existing Nest products and customer base, but this intellectual property that will be increasingly important as the Internet of Things continues to advance over the next 20 years. This acquisition allows Google to get in on the ground floor of sensor patents in a way that they couldn’t do for mobility. Instead of purchasing a Motorola and purchasing additional billions of dollars of legacy business capacity that are not strategic to Google’s future, Google can directly acquire the patents at an early stage.

In the Nest company blog, CEO Tony Fadell explained why Nest decided to work with Google (other than the $3.2 billion dollar payout).

Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone. We’ve had great momentum, but this is a rocket ship.

Google has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services for the home globally. And our company visions are well aligned – we both believe in letting technology do the hard work behind the scenes so people can get on with the things that matter in life. Google is committed to helping Nest make a difference and together, we can help save more energy and keep people safe in their homes.

So, what does this mean in plain English? First, intellectual property is useless unless it solves a novel and interesting problem. In this case, many pundits have wondered whether Nest’s purchase was about design or about an “Internet of Things.” The real goal is more fundamental; Nest provides measurements that show personal comfort.

To provide some additional detail, consider the basic functionality of a Nest thermostat. To start with, a user needs to choose how many Nest devices to place in their home, thus defining the number of functional zones exist in their home. Then, users help their Nest devices to determine what the optimal temperature is at various points. The greater the variability, the greater the need is to support multiple functions within this room or zone. At this point, Nest is already collecting the information needed to create a functional map of each home where Nest is used from a utilization perspective.

Based on this information, Nest (and now Google) can start creating activity maps of various homes based both on the number of “zones” that see heavy usage or heavy variability. This is a new level of behavioral analytics where we can actually start to figure out how people are different by the way that they use their house. The potential value here goes far beyond automated heating; these metrics can provide a fundamentally new way to understand homeowners and apartment owners and to potentially create new and innovative products. For instance, there may be populations with high variability in their heating needs. Does this mean that their homes are more modular and that they may need appropriately modular furniture, décor or entertainment? Certain homes may have a very predictable and stable heating pattern; these people would be good targets for expensive, long-term investments that can go in a room and stay there for 20-30 years. Nest’s analytics will provide Google with a new way to understand the intent behind the eyeballs and lead to a new level of insight.

As usual, Google is ahead of the game when it comes to collecting new and novel insights regarding human behavior and in acquiring the relevant technologies as they become mature enough to support billion dollar businesses. Just as they democratized the smartphone experience through Android, acquired the most transformative player in video in YouTube, and fundamentally changed the way we use maps, Google has now moved into a new world of home customization and Nest will be the first step in building the Google home to go with the Google phone, the Google netbook, and the Google car. Although the price is probably a bit steeper than was truly necessary, there is no doubt that Google will get its money’s worth by investing in the quantified self, the quantified house, and the Internet of Things with this acquisition.

There’s a few things to look out for with this acquisition. Expect the developer community around Nest to expand rapidly as people start building all manner of smart services to work with Nest, such as TV, radio, lighting, and other home service capabilities. In addition, we’d expect that the market for adjacent services that aggregate and integrate home data to be increasingly important, such as Revolv. After all, at DataHive, we are big believers in the power of data integration. Finally (and this is a very self-serving comment), there has to be increased focus on the union of this data with human behavior both on an individual and a social level. This acquisition is spot on with our tagline: Social Big Data for Human Insight.

At DataHive, we truly believe that the future of merging social activity, mobile sensors, and analytics are products such as Nest and the soon-to-be Google House. And we love working on projects that bring social data and people together; this is where we shine. To see where your products and roadmap align with this future, email us at connect@datahiveconsulting.com and schedule a 30 minute call to discuss the future.

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