In past blogs, I have commented how several large technology companies (from Apple to Microsoft) have moved way too slow when it came to the world of M2M / IoT.  These companies simply had too many of the required building blocks in place (combined with the huge growth that this market offers) to not make a serious run at it.

Well, it appears that Google brass reads my blog (well, not likely, but Sergy and Larry are welcome to call or write anytime).  Google has made an interesting (if not overpriced) splash into the home automation market this morning with their takeover of home automation company Nest. Read about it on 

Did Google overpay?

That seems to be a lot of the chatter this morning.  However, since details of the deal were not fully announced (namely Nest's sales and unlikely profitability), it is tough to know for sure.  However, here are 3 reasons why this may work out well for Google:

1.  Market size

Sometimes, companies buying other companies buy them to make "1+1=3".  Nest obviously has a strong leader (a former Apple Executive) who is quite visionary in his thinking and in the products that he created.  However, his company lacked the size to compete with many of the larger companies out there.  So, the addition of his thinking/products to a company with the resources (and distribution size) of Google means that his products get taken to market much faster, with much more marketing behind them. 

As well, his product portfolio blends very well into Google's overall portfolio.  As mentioned in a growth speculations blog post a while back, Google had all of the building blocks to a successful attack on the M2M/IoT market.  They just never had the solution to sell.....until now.

2.  Creativity is expensive, and in this case, a necessity to buy

It is always great for companies to develop technology (and more importantly, good people) internally.  When great ideas and great people get priced on the open market, they are often overpriced.  Google apparently did not have the resources internally to kick off their M2M / IoT business, otherwise they would not have gone out and acquired it.

I like Google's technology for the most part.  However, their strength is definitely in data, not in hardware.  The product from Nest is beautifully designed, and is not "Google-like", but more like something that would have come out of Steve Job's garage.  You have to remember where people are putting these devices.  Most people do not need to pay 2-3 times the cost of a thermostat, but choose to do so for both the convenience and its aesthetics.  This is something that you are putting in your home....Google needed to make sure that it was something that people would be proud of. 

3. Keeps the competitors away

With the boom expected in Home Automation, how long before Nest was bought by someone else, especially when they were in need of raising money?  Sometimes, there is a "double-win" to overpaying for a company if it also keeps it out of the hands of your competitors.

Bottom Line

Did Google overpay for Nest?  Well, probably, but I think it was worth the premium.  It gives Google an instant launch into what could be a multi-Trillion dollar market in the future. More importantly, it allows a very talented Nest design team (and leader) to make an even bigger splash into the market.  Over time, this deal should pay off....

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