Tech investors should keep their eye on the “internet of things” revolution – Google & Nest Labs

Google raised a few eye brows this week with its somewhat surprising decision to splash out $3.2 billion on acquiring home automation specialist Nest Labs Inc., the company set up four years ago by ex-Apple man Tony Fadell to reinvent “unloved but important” devices in the home.

Nest is probably a company that most British consumers haven’t even heard of with the company’s main product, a Learning Thermostat, not available in the U.K. as yet, but their Smoke and Carbon Monoxide alarms are sold by Amazon as well as John Lewis.

But the question in many investors and technology followers minds was what on earth was a company like Google which sells online advertising moving into smart electronic thermostats and smoke alarms? Google always had some crazy projects on the go, or example electric cars, but is this a sign that CEO Larry Page is losing his marbles? Maybe not! Google Ventures was already an early investor in the company in 2011.

The Nest Learning Thermostat, costs $249 in the United States is a home central heating thermostat that can learn and programme itself and be controlled using a smartphone app. When no one is hope it uses motion sensors to detect this and turns down the heating to save energy and uses statistical analysis sensors to adjust temperature to match a particular households habits. It knows when no one is home, so it dials down the heat setting to save energy.

The Nest Protect Smoke and Carbon Monoxide Alarm which sells for around £105 in the U.K. can detect the difference between a minor cooking problem and a house fire , it can be turned off by waving a hand near it and uses a pleasant voice to tell householders what the issue is.

The company’s founders are both Apple men. Tony Fadell worked on the iPod as a senior vice president at Apple and Matt Rogers was responsible for software development of the iPod,  iPhone and the iPad. The deal is certainly good news for Nest, since the infrastructure in Google, particularly its massive data centres offer the opportunity for Nest to avoid costly capital spending to exploit the information generated from its devices.

One of the early theories was that Google was keen to get its hands on all the home usage data that Nest is gathering through its smart devices but Nest has said it will not share data it collects on consumers’ habits at home with Google or any other party.

This $3.2 billion bet on Nest is a clear signal that Google is moving into the “Internet of things,” seen by many as the next emerging opportunity in technology products. Samsung and others have already hinted at their desire to connect every day devices like refridgerators and microwaves to the internet and make them smart, learning and adapting themselves to their users habits.

Google hasn’t been slow to realise the potential of the revolution with a recent foray into robotics. Nest’s staff include Yoky Matsuoka, a roboticist and artificial intelligence expert from the University of Washington. Nest sees itself where it could help machine and human intelligence work together, a crypto robotics company since it deals in sensing, automation, and control.

So Google’s multi billion dollar bet on this sector may seem like a strange decision right now given the focus on Adwords and YouTube but home automation may be the one of the biggest innovations of the 21^st century. What next – the Google/Nest kettle, microwave, toaster. Who knows…but exciting times with the R&D budgets and infrastructure at the Californian giant’s disposal. I am sure Tim Cook at Apple is keeping a close eye on things and perhaps regretting that Tony Fadell is now in the hands of Google.

Contrarian Investor UK

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