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01/24/2014 04:00 PM     print story email story  

What the Nest Labs Acquisition Means to Google News

With some of the deepest pockets in the business, Google has made some big acquisitions and Nest Labs - which it just bought for a cool $3.2 billion in cash - is its third biggest so far (after 

Motorola Mobility and the DoubleClick Internet advertising firm). 

While you might wonder why Google would drop so much cash on a company that makes a thermostat, it combines two of its strong strategic paths: energy infrastructure (efficiency/renewables) and leading on the "Internet of Things," the latest tech competition.


Long known for innovating way beyond its core search engine business, Google has made widely diverse investments from  smartphones to self-driving cars to $1 billion in renewable energy.

With the Nest acquisition, Google returns to the home energy management niche. After two years, it stopped producing its own
PowerMeter in 2011 because at that time it was ahead of the curve. But now, it’s considered a “hot sector” and some of the biggest companies are lining up to capture a piece of the "home networking" market: Microsoft, Intel, Cisco Systems, Honeywell and General Electric.

“Google wants to be the connective tissue for all the devices and all the services in our lives,” Jan Dawson, an analyst for Jackdaw Research, told Time Magazine. First-hand access to the energy consumption data of millions of homes via the Nest Thermostat appears to be the next step in growing that tissue.  

"Nest has been able to crack the smart home like no other company, Peter Nieh of Lightspeed Venture partners (one of Nest's investors), told Forbes.


Founded in 2010, Nest Labs is the creation of Tony Fadell, a former senior vice president at Apple, intimately involved in developing the iPod and iPhone. With Nest, he and co-founder Matt Rogers, a former Apple engineer, have a mission to “reinvent unloved but important devices in the home such as thermostats and smoke alarms.”  

Another coup for Google is finally being able to deploy products that have the unique, Apple signature. The Nest Learning Thermostat
 brings the lowly home thermostat into the Internet age of connected technologies using the sleek interface and style Apple products are noted for. About 80 of its 300 employees come from Apple.

Once installed, the thermostat uses sensors to learn and adapt to your lifestyle, increasing the energy efficiency and comfort of your home. Within a week, the intelligent device learns what temperatures you prefer and when and adjusts them throughout the seasons. It knows when you’re home and when you’re out, and gives you the ability to control your energy use from a smartphone or computer. Of course, Nest also receives that data, which is why some people say the company is worth $3.2 billion in cash.

Depending on the weather, users save 5%-10% on energy, Nest says, and is shipping about 40,000 per month. They cost about $250 at Lowe’s, Amazon and the online Apple store.  Globally, the market is expected to grow from $100 million now to $1.4 billion by 2020, according to Navigant Research.

“Google has invested more than $300 million in distributed solar companies that let homeowners produce their own solar power,” says ThinkProgess. “A smart grid is a necessary part of any distributed energy system, and technology like Nest that can monitor, manage and collect energy-use data will play a key role in future electricity infrastructure.”

“It was unacceptable to me that the device that controls 10% of all energy consumed in the U.S. hadn’t kept up with advancements in technology and design. We hope it will not only save money and energy, but that it will teach and inspire people to think more about how they can reduce home energy consumption,” Fadell told WebProNews.

But there are other, less warm and fuzzy implications of the move as well.


It will be hard for Google to resist the temptation to monetize the data Nest devices collect, which could be bad news for personal privacy, something Internet users are already struggling to maintain. Knowing what we do at home - whether we cook a lot or when we leave for our job - presents all kinds of tantalizing opportunities for personalized ads that go far beyond what Google can learn from our use of desktop computers and smartphones.

For now, Fadell, who remains at the helm, says that Nest is entirely separate from Google.  To ease fears about Google mapping our every action, Fadell insists Nest's privacy policy stays in place - information will be used solely to improve Nest products and services and not shared with anyone else.  


Still, what sounds like a windfall for Nest and a great tech partnership for Google isn’t without potential roadblocks. For one thing, Nest has generated about $275 million in sales since its founding - a mere blip on the revenue charts for Google. And Nest faces strong competition. Honeywell went so far as to file a lawsuit for patent infringement against Nest in 2012 and is deploying its own smart thermostats in homes with partner OPower



Last week, Google announced more renewable energy purchases. It bought a wind farm from Pattern Energy (Nasdaq: PEGI) and 59 MW under a 10-year power purchase agreement from four Swedish wind farms to supply a Finland data center. 

Even with 2 gigawatts of clean energy under its belt, that only supplies 33% of Google's electricity. Its goal is for data centers to be completely power by renewables. 

Read Fast Company's take on this, that Google may become an energy company:


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