Google’s acquisition of Nest has stirred a lot of interest and reaction, some of it misguided. After talking to lots of reporters, here are ten quick thoughts on why Google bought Nest and what it means:

1.    Google bought Nest for talent and strategic perspective, not products or data. Nest is too small and not scaling fast enough to justify the acquisition. This is about getting a great team that can teach Google about a new market realm, how the Internet of Things comes into the Connected Home.

2.    The price is ridiculously high – unless Google gets a huge head start on Connected Home. Google’s acquisition of Waze for $1 billion and Nest for $3.2 billion look pricey – but they are strategic bets for the long run, and can’t easily be compared.

3.    Building the next generation of Google Now is the goal, not snooping on our temps, room locations and smoke alarms. The Nest Labs team will help fuel development of the next generation of Google Now as it shifts more toward proactive assistance and advice.

4.    Google’s aim is to get an early start on identifying and adding software interfaces (APIs) to Gmail/Google Drive that connect it to smart products. This is not about Android in the home or about a battle for the device OS – it’s a battle for whose cloud service platform will coordinate an individual’s smart products – and their digital self.

5.    Identity, privacy, and security will also crucial in building out the Connected Home. Blanket privacy policies won’t be enough. Fatemeh Khatibloo’s research on contextual privacy shows the new way that privacy and identity will have to be managed.

6.    Google is not becoming a device company, but they are admitting, as they did with the Motorola acquisition, that it helps to have an in-house company modeling the great experiences only possible with an integrated hardware/software/service experience.

7.    Nest has its share of product challenges. We’ve heard of multiple firmware update crashes that resulted in too much or too little heat at very bad times. They do seem responsive to complaints on their Facebook page, where customers have vented concerns about the product and about the Google acquisition.

8.    This won’t ignite an M&A rush. There aren’t many companies or talent available for acquisition, not at the level of Nest. Two I would call out as very interesting: SmartThings, in Virginia, is building a home hub to link together disparate smart products and connect them to it’s cloud service platform. I spoke to the CEO, Alex Hawkinson, last week at CES – they’ve got 5000 developers on their platform already. The other is Withings, in France. CEO Cédric Hutchings leads a team that has built software interconnects with dozens of services for the results from their body scale, blood pressure cuff, and activity monitor.

9.    It’s notable that Google has taken two big steps in Connected World in the last two weeks. On January 6th Google and partners announced the Open Automotive Alliance (OAA)– the opposite of what I think it will do with Nest, in that OAA is about embedding Android as an OS in the car for infotainment systems.

10. Google’s competition? Apple, Microsoft, and Amazon will want a role to play in the Connected Home. Carriers and telcos already have expanded from competing with security monitoring companies such as ADT into smart home offerings such as Comcast Xfinity Home, Time Warner Cable’s Intelligent Home, or Home by SFR in France. And AT&T’s Digital Life offering is building on open standards and protocols to integrate with products from many companies, not just their own. Forrester is also familiar with home insurance companies that aim to offer services and products to help with the Connected Home – and reduce insurance claims. So it will be a very complex set of competitors.


What do you think?

What are your questions for Forrester about the Internet of Things and Connected Home?