Nest and Google – Ecosystem tentacle

The founders and VCs are the real winners from this acquisition.

• Google’s acquisition of Nest is all about the ecosystem and highlights some trends that are likely to continue for some time to come.
• Google has agreed to acquire Nest for a whopping $3.2bn despite a valuation of around $600m just one year ago.
• The big winners are the founders and VCs, many of whom I calculate have made 20x their money.
• This is a classic example of a crazy valuation being justified through long-term strategic value.
• This acquisition clearly shows that the mobile ecosystem is going to be far more than just phones and it also points a clear signal that one OS does fit all.
• Google had a crack at home automation some time ago using Android when it launched Android @ Home but very little has come of it.
• This is because Android is a solid OS that can do many things but only one thing very well; mobile.
• Hence, it performs poorly when it goes up against a user experience that has been specifically designed for one purpose in mind such as Nest.
• This combined with the Apple DNA of designing nice products has given Nest meaningful success in its home markets and far more than Google or any of the existing thermostat makers has achieved.
• For Google, this is all about expanding its tentacles into other areas where consumers generate data but Google has no ability to collect it.
• This deal is likely to mean that Nest is kicked out of the Apple retail stores and both Apple and Microsoft will be wondering what their respective plays are in home automation.
• This is how the fault lines will be drawn in the ecosystem war.
• Each big ecosystem will have its own offering in each area that will be optimised to work with all of the other devices in and services that pertain to that ecosystem.
• The world is not becoming less siloed but more.
• This opens up the market for other players as users loyal to other ecosystems are likely to be pushed in a direction way from Nest.
• This acquisition also clearly demonstrates that wearable devices, home automation appliances and the like are going to need software systems that are designed for their use cases from the ground up.
• I suspect that “using Android for everything” is not going to work although Android, iOS or Windows could easily be the systems that glues all of these experiences and devices together on the smartphone and tablet.  
• Wearables and Home Automation are shaping up to the hottest areas in the technology industry this year with the M&A valuations to match.