The battle for the home: Why Nest is really Google’s new smart home division

Guess who’s now the leader in the connected-home space? Google’s 3.2 billion dollar acquisition of Nest made it one of the few companies that’s not just talking about the “Internet of things.” Google is now actually shipping products that deliver on the promise of the connected home. With the dust settled and news of the acquisition sinking in, it’s time to take a look at what Google might have in store for the company.

Google’s Smart Home Division

One of the most important bits of news to come out of the acquisition was found in The Verge’s interview with Tony Fadell, CEO of Nest. Fadell gave us a little peek into just how high up he is at Google now:

The Verge: Where do you and [co-founder] Matt [Rogers] report? What’s your relationship with Google?
Tony Fadell: I report directly to Larry [Page] and Matt reports directly to me.

That information is huge—of Google’s 40,000+ employees, only a special handful directly report to Larry Page. The ones we know of are Alan Eustance, head of Knowledge (Search and Google Now); Sridhar Ramaswamy and Susan Wojcicki, who jointly head Advertising and Commerce; Salar Kamangar, head of YouTube and Video; Sundar Pichai, head of Android, Chrome & Apps; and Vic Gundotra, head of Social (Google+). Numerous reports peg these people as members of the fabled “L Team”—Larry Page’s inner circle. Each person is a Senior Vice President in charge of a major product division at Google, and all are plainly laid out on Google’s Management Team page as “senior management.”

To that list of direct reports you can most likely add the heads of divisions that Google would rather not publicize for one reason or another, like Dennis Woodside, CEO of Motorola; Andy Rubin, head of the new Robotics Division; Astro Teller, the current head of Google[x] (the moonshot division in charge of Glass and self-driving cars); and Arthur D. Levinson, CEO of Calico, Google’s life-extension company.

Plenty of Google’s acquisitions are acqui-hires, in which the product is shut down and only the team is retained (see Bump and Sparrow), or a monopolistic move designed to hurt the competition (Waze and AdMob). Nest seems like something more. Tony Fadell even directly compared his company’s acquisition to two of Google’s biggest, saying Nest was “somewhere between YouTube and Motorola.” Considering YouTube cost Google $1.6 billion and Motorola $12.5 billion, Nest slots in nicely between the two at $3.2 billion.

It’s easy to ignore the continual flow of Google takeover announcements, but all signs point to this being a historic acquisition that signals the formation of an entirely new division within Google: the Smart Home division. Fadell briefly glossed over this when describing the deal to Gigaom saying, “Larry basically said that Google could add another product group [emphasis ours] but since you (Nest) have the vision, the team and expertise, why not join up.” Fadell basically confirmed that Google plans to build a new product division with Nest as the core. In that light, Nest should be considered an acquisition on the same level as YouTube or DoubleClick. Google takes the best company within a certain field, drops it into Google, and instantly becomes a market leader.

And a new smart home division would fit Google perfectly. Larry Page has huge ambitions, he’s a self-described “10x” thinker, which means he’s always trying to improve something by quantum leaps rather than incrementally. He often talks about his “toothbrush test”—products that are important enough that millions of people use them at least once or twice a day—as a measure for products Google should try to build. Nest and smart homes easily fit both categories, and as an added bonus, it’s a power-saving initiative too. That’s something Google is very much involved in.

Google’s Smart Home Experiments

Google has been experimenting with the connected home since at least 2009. The first public project that fit under the “smart home” banner was probably Google PowerMeter, a Google.org software product that was designed to monitor the user’s power consumption, provide usage visualizations, and recommend ways to save energy. It was part product and part advocacy of user access to energy information. HVAC systems are one of the biggest users of electricity, making the Nest a natural successor to this line of thinking. Nest even provides historical usage data for your HVAC system.

During Google I/O 2011, Google announced a full-blown smart home initiative cooked up by the Android team called “Android@Home.” The plan was to consider your entire home as an Android “accessory,” with Google saying that it wanted “Android apps to discover, connect, and communicate with appliances and devices in the home.” This was called the “Android@Home Framework,” and Google designed a wireless standard allowing Android to communicate with “lights, alarm clocks, thermostats, dishwashers, et cetera.” The company even demoed turning lights on and off with an Android app. The first Android@Home devices were promised at the end of 2011, but none of the smart home hardware ever made it to consumers. It appeared Google had taken care of the software portion, but its hardware partners never came through. Nest solves this by being a killer hardware and design house for smart home products.

A leaked picture of Google’s EnergySense app.

Credit: Android Police

Since then, we’ve seen numerous hints that work on the smart home is going on inside of Google. A year ago I found a Google Now card meant to control connected lightbulbs hidden in the Google Search app. The source code of Android 4.2.2 mentioned changes for an “Android@Home mesh network” device—something that would work independently of the home’s Wi-Fi connection. The ChromeCast, which was released about six months ago, could also be considered a smart home device or at least a significant move for Google out of the computer/smartphone and into the rest of the home. A month ago, word leaked out about a product called EnergySense, a smart thermostat app that Google was building. According to reports, Google hadn’t touched the hardware aspect and was using a smart thermostat made by Ecobee as its test hardware. Now Google has that hardware division and, critically, a group of people and leadership that can actually deliver a product to market.

Privacy and the future

A lot has been made of what will happen to the user data Nest collects. Nest tries to learn your schedule by combining data from the built-in motion sensor and assuming things from manual temperature changes. All of that basically boils down to a really crappy form of location data, though—Nest mostly just wants to know if someone is home or not. A smartphone has access to much more thorough data in the form of your exact location as detected by the GPS chip, Wi-Fi location, or cell tower triangulation. Even if Google had full access to Nest’s data, it would probably be the least accurate form of location data it has about a smartphone user.

In fact, one of the biggest benefits Google could provide to Nest is significantly more accurate location data via smartphone. An easy, low-power way to detect location would be to use a resident’s smartphone and Wi-Fi as an “at home” indicator. Just register each smartphone as a member of the household in the Nest app, and as long as one of those devices is connected to the home Wi-Fi SSID, Nest could safely assume that someone is at home. Or, Google Maps can predict the time it takes to arrive home, and Nest can predict the time it takes to warm a house up; by combining those two pieces of information, the Nest could kick on in advance of someone arriving home and have the house at an appropriate temperature by the time a household member arrives. A Nest powered by all of Google’s data would be a much more useful product.

The other data Google would be getting would be really esoteric stuff, like the current temperature in your home, which could probably be used to determine how much of a cheapskate you are. The Nest motion sensor could tell the level of activity in your house, and it could maybe tell how often you burn food, which would lead to advertisements for cook books. All of this seems like data Google could probably get some other way if it really wanted to, but it’s a few more signals for Google’s massive database. Nest says its data will be kept separate from Google, but that could change at any time. Eventually Nest will have to share data with Google, because, firstly, Google probably wants that data, and second, like with the Google Maps example, it’s a great way to make the Nest a better product. Things like the unified privacy policy bother privacy advocates, but it’s the only way to create a service like Google Now.