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Google’s Acquisition of Nest and Smart Homes

Google’s $3.2 billion acquisition of high-tech thermostat and smoke-detector maker Nest Labs will allow the company to further infiltrate people’s lives, not just via their smartphones but now also via a range of home appliances.

It is a logical development for the digital media giant and based on their record of innovation we can expect a range of interesting products and services, also known as machine-to-machine (M2M) communication and the Internet of Things (IoT), to enter this market.

It is not too difficult to imagine what the possibilities are. Judging by the role of smartphones in people’s everyday lives, understanding habits and preferences of home automation devices will take that one step further.

It can also have serious consequences for electricity utility companies, because if these devices take a similar growth path to smartphones then these companies will experience the same calamities as the mobile phone companies who were totally unprepared for this level of innovation. They stuck to their old business models and were rapidly (within one year) relegated to the ‘pipe operators’ for Google, Samsung, and Apple. In addition, many mobile operators faced a range of infrastructure problems as a consequence of the increased traffic over their networks.

Nest has been an innovator, and within four years became an expert in developing systems for home information that will be accessible by computers and analysing that data into real time, actionable applications. It developed an internet-connected thermostat that learns to cool and heat homes to suit the needs of the inhabitants, as well as a smoke and carbon-monoxide detector equipped with voice technology and the ability to communicate with their thermostat product.

Given the amount of money that Google paid for this company, it is expected that it will develop an entire line of internet-connected home products, some of them to be integrated in its smartphone apps and other existing Google services, all in an effort to make people’s lives easier.

However, there is also a worrying aspect to this. Google is not well-known for a stringent privacy policy and these new devices and services could possibly enable the company to gather more information that could be used to sell the digital advertising that generates most of the company’s revenue. This remains their core business and all acquisitions need to be assessed with that in mind.

While Nest Labs promised that customers’ personal information will only be used for ‘providing and improving Nest’s products and services’, we have heard similar messages for Google and others before.

It will be interesting to see if Google will get the balance right in this instance. In general, these developments are very positive and can offer great benefits to people, the environment, and the need to be far more efficient with our electricity. However, there is increased anxiety about Google’s all-powerful position in the digital market and we are not too far away from governments stepping in if Google continues to ignore privacy concerns. This would be a pity and it would be much more beneficial if the company finally took up a leadership role about these concerns. With Nest products Google will soon be able to map every corner of people’s homes, together with a range of home and personal data. Without strict privacy rules, this could become a timebomb for the company.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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