The Google answers out and it's a big one.
For Google, a Toehold Into Goods for a Home
By CLAIRE CAIN MILLERJAN. 13, 2014
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Tony Fadell, the chief executive of Nest, with his company's Protect smoke alarm. Peter DaSilva for The New York Times
SAN FRANCISCO — Google, which dominates much of life on the Internet, has been trying to expand beyond computers and telephones to living rooms, cars and bodies. It made its way a bit further into people’s homes on Monday when it agreed to pay $3.2 billion in cash for Nest Labs, which makes Internet-connected devices like thermostats and smoke alarms.
Nest, which was started in 2010 by Tony Fadell and Matt Rogers, members of the teams that built the iPhone and iPod at Apple, will continue to operate independently under its own brand and expand its portfolio of connected versions of what it calls “unloved but important devices in the home.” Mr. Fadell, Nest’s chief executive, will report to Larry Page, co-founder and chief executive of Google.
Internet companies are vying to be the gateway through which people live every aspect of their lives — whether searching, socializing, reading, shopping, exercising or sleeping. Their businesses, particularly advertising, are built on watching the way people behave online. For Google, gaining visibility into people’s habits beyond computers and phones — whether watching television using Chromecast, taking a walk wearing Google Glass or managing their homes using Nest products — will provide a fuller picture of users.
“Google likes to know everything they can about us, so I suppose devices that are monitoring what’s going on in our homes is another excellent way for them to gather that information,” said Danny Sullivan, a longtime Google analyst and a founding editor of Search Engine Land. “The more they’re tied into our everyday life, the more they feel they can deliver products we’ll like and ads.”
Nest’s products track not just a home’s temperature and the presence of smoke but also when people wake up, leave and return home. By incorporating hardware and software and using sensors and algorithms to learn behavior, they program themselves and can be controlled remotely with a smartphone.
Mr. Fadell said in an interview that he was aware of concerns among customers about Google having so much data about people, and that Google agreed that Nest’s privacy policy — which says that Nest will use customer information only to improve its products and services — would remain unchanged. “That was a major concern or question we had, and they have done an amazing job of convincing us that our privacy policies are going to be well-respected in their organization,” he said.
Still, Mr. Sullivan said, “History has shown that privacy policies do change.” He added, “They won’t hand over Nest data to Google, and Google mines it for whatever they want, but there could be incentives or reasons why it might make sense to tie it to a Google account.”
It is easy to see how Google products could be integrated into Nest. For instance, Nest users who log in to Google could theoretically someday see their home’s temperature or an alert about the presence of smoke in Google Now or in gmail, and information about a person’s home life could be used to target ads.
Google and Nest declined to comment on future plans because the deal has not yet closed.
Creating the so-called connected home through products like Nest’s is a major goal for the technology industry, even if it has not yet made its way into the mainstream. Apple, Philips, Bose, Dropcam and Lively, among others, make Internet-connected devices to dim lights, close garage doors, listen to music or keep an eye on family members or pets with sensors or live video. Still, just 1 or 2 percent of people have common connected devices, and while a third say they are interested in connecting their homes, almost half say they are not, according to Forrester, a technology research firm.
“I think we’re at the beginning of the industry hype cycle but not at the beginning of mainstream consumer adoption,” said Frank E. Gillett, a Forrester analyst.
Nest, which had raised $180 million from investors, including Kleiner Perkins Caufield & Byers, Shasta Ventures and Google Ventures, was seeking late last year to raise an additional round of financing at a valuation over $2 billion, according to two people briefed on the fund-raising. Unlike many of Silicon Valley’s most popular companies that make software that costs very little to build, Nest is capital-intensive because it builds hardware.
Though it was not looking to be acquired, these people said, Google approached the company with an acquisition offer and the resources to expand more quickly than it could on its own.
“What this is really about is accelerating a decade-old vision,” Mr. Fadell said. Despite the Nest founders’ long history and shared values with Apple, a main Google rival, it was not a serious contender to acquire the company, the people said. “This is not an us versus them kind of thing,” Mr. Fadell said.
Google has talked about connecting home devices, known as the Internet of Things, for several years, but has made little traction. Still it has been expanding beyond its search engine roots into hardware, including through its $13 billion acquisition of Motorola Mobility and its development of devices like Google Glass, the Internet-connected eyewear, and Chromecast, for Internet-connected television. It also recently acquired companies that make robots and gesture-recognition technology.
Mr. Page, since returning as chief executive in 2011, has also made priorities of design and products with daily utility, both of which are priorities of Nest.
Though Google once differentiated itself from Apple by giving software to hardware developers, like Android for mobile phones, instead of making the hardware itself, the Nest acquisition is part of a shift away from that strategy. “The way you’re going to change the home is not just through software and services, you’re going to have to change the fundamental products people interact with, and they understand that,” Mr. Fadell said. “They’re moving the entire company that way.”
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