Google’s Nest Buyout Is a Shrewd Move: 10 Reasons Why

By Don Reisinger

One of the nice things for Google about buying Nest is that the smart thermostat company is already an established firm that understands where it needs to go and how to get there. This isn’t Google buying Motorola to fix the ship. Nest is a successful company that has a clear view on how it can be even more successful. And that attracted Google to Nest.

Home automation is a strategic priority for many companies in the industry. While in 2012, the home automation industry could only muster $3.6 billion in value, recent data released by Transparency Market Research found that it will be valued at $16.4 billion by 2019. If that growth is realized, Nest could be viewed as a bargain just five years from now.

Rumors had been swirling for months that Google was looking to get into the home automation and energy fields. In fact, the company was reportedly working on its own Nest thermostat competitor. But rather than invest in all the research and development, Google made the reasonable decision to dig into its horde of cash and spend $3.2 billion to acquire the company that seems to be doing it right already.

Looking at a cash payment of $3.2 billion might seem hefty, but the truth is, the deal was a bargain. Nest recently launched its smoke/carbon monoxide alarm and was reportedly working on other products to improve home energy usage. That might mean that Nest’s business would grow in the coming years and thus gain more value. Buying Nest now might have been a good idea.

One of the most important aspects of Nest’s business is that it’s built around an innovative team of professionals. The company’s product design is outstanding, its software impeccable and its customer service highly effective. Nest’s innovators can do a lot of good at Google.

One of the most important aspects of Nest’s business is that it’s built around an innovative team of professionals. The company’s product design is outstanding, its software impeccable and its customer service highly effective. Nest’s innovators can do a lot of good at Google.

Although Google might be spending $3.2 billion to buy Nest, it’s getting some of that investment back. Google Ventures led Nest’s series B round of financing in 2011 and did the same in its series C round in 2012. It’s unknown how much stock Google Ventures owns, but it’s also benefiting from this deal on the financial side.

If Google’s efforts to expand beyond search and mobile are to succeed, the company needs to be willing to “go home.” There are real opportunities for Google to increase its presence in the home with Android, Chrome and its Google Play store. There’s no telling how Nest might help that effort, but one can bet it’ll play a role.

Nest has been making inroads in the U.S. and Canada, but where the company is most likely to succeed is internationally in markets that it hasn’t yet competed in. Even Nest said in a blog post announcing its deal that the Google partnership will allow it to “get our products into the hands of people around the world—faster.” North America is a fine market to start in, but real success comes internationally—and that’s where Nest can succeed beyond current expectations.

Let’s face it, some of Google’s consumer market hardware has fallen short. Just look at the company’s Chromebook Pixel, which was essentially a MacBook knockoff. The Chromecast dongle is bulky for what it does and its power requirement is a turn-off to some customers. And remember that Google Nexus Q entertainment streaming device? It was a gimmicky mess. Rather than invest in product design for a new line of thermostats for the home market, it made sense to acquire Nest to acquire its design insight in that space. Stellar hardware design is part of the reason Nest is so successful. It’s also part of the reason Google wanted the thermostat maker.