Google's acquisition of Nest - who is Google

Sunday, 19 January 2014 by Rob Li

I don’t believe the theory that Google is an evil corporation sucking up your personal data to sell it to advertising businesses.

Google is made up of people.

I don’t believe people are inherently evil - nor do I believe they are inherently good. People are, however, biased towards particular behaviour due to their life experiences.

I think life presents you with certain choices that include compromises and people (Google) make the best choice they can with what they know at the time.

Google announced on 13 January that it would acquire Nest for $3.2bn.

I think this is a significant indicator of Google’s strategy.

I need to state two broad stroke premises:

  1. Google is an advertising business which uses it’s core competency of large scale machine learning technology to target ads at a level of accuracy not previously possible before the internet revolution.

  2. Nest is (was?) a business focused on bringing traditionally “dumb” home products into modern times by making them “smart”[^1]. Their core competency is an experienced team making great products (led by Tony Fadell the “godfather” of the iPod) and proven with the Nest Thermostat.

There are some theories regarding why Google acquired Nest given Google’s business does not require it to produce physical products end to end (in the same way e.g. Apple does).

  • Google’s giant machine learning technology wants data from your home (via Nest) to get even better at predicting what you want and delivering that information to advertisers.

  • Google is trying to become good at being a products company to diversify it’s current advertising business given its growth is highly correlated with the growth of internet usage which is predicted to peak in the next few years.

I think there are many good points raised in the diversification argument, however, I see it as a side benefit. I find the acquisition to be quite in line with Google’s current business model.

Just because internet usage is set to peak, doesn’t mean Google will peak with it. Google will still have its core competency - a giant pool of human behaviour data and probably the best engineering team in existence to decipher that data and produce products and information based on that data. I think it’s narrow minded to think this core competency won’t be valuable beyond an advertising business.

I personally don’t think Google is evil - selling your personal data to advertisers. I think that is currently a necessary compromise to achieve a greater goal. I think Google’s aim is to build great products off the back of its core competency - it’s just that this core competency takes a long time to develop and nobody on earth has the money and risk appetite to fund such a project.

Think of it as you will, Google is currently an ad supported giant R&D project.

Advertising and sponsorship are currently the only ways to bring products to market without customers/users handing over cash. Most of the time, it’s the best choice to keep bringing great products into the world.

This doesn’t mean Google’s business will always be advertising. If anything, this acquisition of Nest should be viewed positively that Google is maturing into a products company no longer reliant on ad money.

That would be an exciting thing.

[^1]: Smart i.e.connected; creating an enjoyable interaction process with the user by learning to predict the user’s behaviour where possible and providing an enjoyable UI where not.