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Google Buys Nest: So What?

This is a big deal in terms of money – $3.2billion – but is it a big deal in terms of the connected homes market?  After all Google buying Nest has been a case of ‘when’ not ‘if’ for some while.  Nest will continue to operate as a standalone business so what does the deal mean really? 

Here’s our first take on what it means. 


It’s Good News

 We see it as a positive development for the connected home space.  The size of the deal and the fact that it’s Google will give everyone confidence that this market’s time has come.  One of my colleagues  remembers working in the oil industry 20 years ago for a leading petrol retailer.  To decide where to build new petrol stations the oil company basically looked for where MacDonalds had plots for drive throughs, and then tried to get the next door plot.  If MacDonalds thought it was a good location, that was enough evidence for the oil company.  The same principle could apply for many investors in the connected home market.

 
If it’s good news for the market, most of the players also stand to benefit too.  Given the embryonic state of the market, ‘co-opetition’ remains more important than ‘competition’ ie it’s good for all vendors if one player is successful, because this helps the market grow and creates opportunities for everyone.  Competition starts becoming more important as the market matures.  So we think HEM vendors and smart home providers should see this deal as positive.

Google Says “I’m Back”

We know there are some cynics out there in the energy industry that have questioned our view that there is long term value in owning the home.  Probably some of the cynicism arises from Google’s first effort into the connected home space through its failed Google PowerMeter, which it shut down in 2011.  Around then Google had spoken quite openly about how energy companies wouldn’t have this space to themselves.  But when Google had to retreat with its tail between its legs, the cynics in the energy industry could say “I told you so”.  Well now Google’s put a few billion on the table to prove the cynics wrong.

 
Where Google leads, will Microsoft follow? 

Around the time of Google’s failure in 2011, Microsoft also withdrew from its connected home initiatives.  But there are already rumours about Microsoft’s future strategy regarding the Xbox One which it launched in 2013 – with its next generation product being provisionally named Home 2.0.  The Xbox is always on, connected to a screen and has apps that enable it to connect with devices in the home.  Could this become an alternative competing, gateway into the home?

 We think this transaction could trigger other moves by major players in the connected home space, resulting in a rapidly shifting landscape.  It now seems even less likely to us that the energy industry will be able to have its own way and capture the connected home prize themselves.  More than ever, utilities and manufacturers need to think through very carefully how much of the connected home prize they can realistically capture.

 A Trigger For European Growth

 So while we expect this deal will have knock-on effects, we see it as very good news for the connected homes market in Europe.  It certainly goes some way to explaining the delays in Nest launching its products into Europe – now we know what top management has been focusing on in the last months.  The flip-side is that we can expect top management at Nest to really start focusing on European opportunities and be in a better position to accelerate market activities in 2014. 

We’ll continue evaluating developments and associated repercussions as part of our analysis and forecasts in our Connect Home Research Service – Contact Arthur.jouannic@delta-ee for more information on this. Watch out for updates from our Connected Home Research Service.

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