It was recently reported that Google has bought Nest Labs, a manufacturer of home automation sensors and devices with, currently, two products: a digital thermostat and a Smoke + CO Alarm. Why is it, then, that somebody would spend 3.2 Billion USD for a company producing home appliances that have been around for ages from many other manufacturers? And also, why Google?

First and foremost, Nest seems to know how to produce neat and innovative hardware devices that really listen to the user's needs. They are as easy to install as such a device can be, and provide probably the most innovative protection features against device failure on the market for battery powered or battery backed-up smoke alarm devices today. Plus it looks nice, not accidentally reminding me of Apple's design knack: Nest's Founder Tony Fadell was one of the iPod creators at Apple and therefore actively contributed to the appearance of a new quality in tech product design, which has been raising the bar for all market participants together. With companies like Nest Labs, established home automation vendors like Siemens, Gira, Busch Jäger and all the others will be forced to quickly move beyond their current offerings or just lose the market.

Now, buying a company which has the knowledge to produce nice home automation devices certainly has some value, but not $3.2 Billion.

What else is behind the deal? Nest Labs' devices are connected to the Internet and only work as designed  with an account that users create in the “Nest Cloud”, where they store their device configuration and where their devices regularly send status information, like room temperature or luminance, and even information about whether somebody is at home or the house is empty.

It is Google's vision that we all will continue to not care about leaking personal information to whatever extent, that pushed the price. But even if we continued to see Google on the good-guy-side, what about the bad guy's hacks? Would you really entrust your jewelry at home to the “s” behind “http”? The total absence of “privacy by design” and user controlled information flow with encryption based privacy options do make Nest Labs' innovation extremely weak. The first one offering the same thing in a privacy-aware version will be the clear winner, because, don't forget, this thing goes after your “real” jewels.

There are quite a few more weak spots in this deal, too many to name them all. Here are the ones that came into my mind at first:

  • The current 2 products of Nest Labs are US market only. They need significant redesign for many other markets, i.e. to comply with local regulations, or to better compete with local offerings. For example, very few people in Europe would buy a smoke alarm device, which costs 3-4 times more than one would have to pay for a more reliable (non-speaking, old-school) device with 9V lithium battery or wired power with central and/or local UPS.
  • Thermostats are by themselves not innovative. The need to heat a house is a bug, not a feature. I personally do not need thermostats, because I chose a different approach and insulated my house in a way that I don't need a dedicated heating or cooling system (Passive House Standard), even though temperatures over here are comparable to the ones in Washington D.C. The “passive” in “passive house” means that I have 22-28 degrees Celsius all year without Internet connectivity and without a single line of code ;) and without spending a single $ on energy or on devices to manage the energy I don't consume.  So – producing a smart thermostat is not leading edge. There are smarter ways to get your home nice and cozy.
  • The Internet of Everything will bring much more useful applications than a thermostat or a smoke alarm. The real value these devices provide beyond their key feature (detecting smoke or regulating heat) is completely absorbed by Google. This is not a good deal because, after all, those devices are pretty expensive compared to “old school” devices.