Google and the internet of things Feathering its Nest

HOLY cripes, Google just broke into my home”, was a typical reaction on Twitter to news on January 13th that the internet giant had splashed out $3.2 billion of its cash pile on Nest, a startup that makes smart thermostats and smoke-alarm systems for houses and apartments. The deal is striking not just because it represents a massive pay day for a hardware company that is only a few years old. It is also a landmark deal that signals the coming of age of the internet of things, or “Thingternet”—a world in which everything from household gadgets to cars, clothes and pets are connected wirelessly to the web.
Home automation is clearly an important building block in this next stage of the evolution of the internet, which according to Intel could lead to some 31 billion web-connected devices by 2020. There are already plenty of connected televisions and personal computers in homes. But in future, all kinds of personal appliances and gadgets will talk to their owners—and to each other—via the web.
Hence Google’s decision to fork out some of the $57 billion in cash and marketable securities that it has amassed on Nest—its second-largest acquisition since snapping up Motorola Mobility, another device-maker, for $12.5 billion in 2011. The Nest deal, which Google hopes to close in a few months, after getting regulatory approval, not only wins it a big foothold in the Thingternet, but will also bring it some impressive talent. Tony Fadell, Nest’s boss, was the creator of the iPod at Apple and also intimately involved in the development of the iPhone. The sleek design of the Nest thermostat, a round device with a brushed-metal surround and a convex glass screen that displays the temperature (pictured), is testament to Mr Fadell’s design instincts. Nest is also home to a number of other Apple alumni.
Some had speculated that Apple might acquire Nest, given Mr Fadell’s past history with the company and the fact that the colossus of Cupertino seems in need of some fresh creative blood. But it is Google that has walked off with the prize. Mr Fadell will report to Larry Page, the online giant’s chief executive, and the plan is for Nest to run as a standalone business, leveraging Google’s vast resources and know-how to speed Nest's growth. The firm says that its smartphone apps, which connect customers to their devices, will continue to run on Apple’s iOS operating system, which is a rival to Google’s Android.
The deal certainly makes sense for Google, though it is hard to tell whether the firm has paid a reasonable price for Nest, whose finances are shielded in secrecy. Google is already deeply involved in the Thingternet via things such as its driverless cars and the personal robots that are under development in its secretive Google X lab.
But the move also raises plenty of questions. For instance, does Google intend to profit solely from sales of Nest’s hardware or does it see other opportunities to make money from these gadgets, perhaps by placing ads on screens? And what will happen to all of the data generated by Nest’s gizmos? That is more than an academic question given Google’s chequered history on data-privacy issues. Nest says its existing privacy policy will not change for now, but has not ruled out modifications in future. Expect privacy activists to turn up the heat on Google at the first sign of any shift in position.

source: http://www.economist.com/blogs/schumpeter/2014/01/google-and-internet-things