Why did Google bet $3.2bn on the ‘internet of things’?

The purchase of Nest is a hint at the future of smart devices in the home

Nest’s products include a self-learning, smartphone-controlled thermostat that learns your movements and adjusts temperature accordingly. Photograph: David Paul Morris/Bloomberg

Nest’s products include a self-learning, smartphone-controlled thermostat that learns your movements and adjusts temperature accordingly. Photograph: David Paul Morris/Bloomberg

Sat, Jan 18, 2014, 01:00

The news that Google had made one of its biggest acquis- itions to date, when it splashed out $3.2 billion on Nest Labs, a company that makes just two products, raised plenty of eyebrows earlier in the week.

Industry-watchers were less surprised, though, because t Nest Labs isn’t your average domestic appliance company. Instead, Nest is a pioneering force at the frontier of something often called the “internet of things”, a clunky phrase used to describe ubiquitous internet-connected devices that communicate with one another.

Some sceptics believe the $3.2 billion paid is firm evidence of a new Silicon Valley bubble, but others see this as confirmation that the “internet of things” is finally imminent, after years of false dawns.

What’s more, Nest is run by one of the most renowned hardware visionaries in the business, Tony Fadell, who is known as the father of the iPod after bringing the idea of a small music device to Steve Jobs at the turn of the century.

He also played a key role in the development of the iPhone.


Smart appliances
At Nest, Fadell and co-founder Matt Rogers have assembled a veritable A-team of consumer hardware expertise, including more than 100 former Apple designers and engineers. The results have been met with acclaim – a self-learning ther- mostat that adjusts temperature according to your daily patterns, and a beautifully designed fire alarm that issues voice alerts rather than a shrieking siren.

During an interview with Fadell at the Web Summit last October, he told me that the world of smart devices was some ways off yet. “I think we’re just at the very cusp,” he said. “How long did it take to get to the ‘internet of computers’? There are so many layers of software and hardware to be built, and standards to be built, that I do believe it’s a 10-year proposition, easily.”

It might sound like something out of The Jetsons, but Cisco estimates that the “internet of things” will involve “50 billion connected things in the world, with trillions of connections among them”, and will represent a $14.4 trillion business opportunity in the coming decade.

That’s trillions of dollars, mind, not billions. Wildly optimistic as that forecast may be, if it’s anything close to accurate, and if Fadell really is the man who can make the vision a reality, then Google’s piece of business this week will seem very shrewd indeed.