Google has entered into a formal agreement to acquire Nest Labs, Inc., the Palo Alto, Calif.-based maker of home automation devices, for $3.2 billion in cash. Google says Nest will continue to operate under the leadership of CEO Tony Fadell and retain its own brand identity.
That's a massive price tag for a company with just two products in the market — an Internet-connected thermostat and smoke detector that can be controlled remotely through a smartphone. Nest's mission "is to reinvent unloved but important devices in the home."
Obviously, Google sees a massive opportunity and has taken a decisive step to lead in the consumer Internet of Things, or IoT. This deal marks the first big tech company endorsement for the IoT, which we covered in an in-depth recent report. Here's why we think the Nest-Google deal is important:
- The numbers being forecast for the IoT are truly mind-boggling. Since it will come to encompass a layer of devices and apps across industries, it will account for an increasingly huge number of connections — 1.9 billion devices today, and 9 billion by 2018, according to BII estimates. (See chart, below.)
- In particular, this is a huge endorsement for Internet device-mediated home automation, a category that Nest and Fadell have pioneered and led since the smart thermostat launched in late 2011. Already, home automation represents the most prevalent business-to-consumer application for the Internet Of Things, and will likely drive IoT growth for the foreseeable future. SmartThings, another home automation company, recently raised $12.5 million in funding.
- With so much Internet-borne data poised to flow through non-phone and non-tablet connected devices, Google needs a foothold in this burgeoning category or it will lose control of its firm grip on the Web's data firehose.
- Finally, Nest has managed to forge partnerships with large energy and utility companies, which give customers rebates for installing these devices in their homes, anticipating that the investment will pay off in future energy savings. With Nest, Google has taken a step toward playing a role in tackling a problem with hundreds of billions of dollars at stake: energy efficiency.
