Google bought Nest, a smart home device maker, for $3.2 billion in a deal that's strategically important because it fills a gap in the company's Internet of things strategy and adds hardware design knowhow. However, Google's Nest acquisition will only look strategically sound if certain conditions line up.
Tony Fadell has to stick around. Fadell is a founder of Nest, loves designing products and unique experiences and obviously hit a home run with making thermostats and fire alarms smart. Fadell was behind Apple's iPod as sell as the early iPhone. To Google, which hasn't quite figured out how to make hardware well, Fadell may be worth half the price paid for Nest. If Fadell splits---or fails to spread his knowledge beyond Nest at Google---the search giant really just bought a fancy thermostat maker.
Nest's hardware design skills need to spread around Google---notably Motorola. Google CEO Larry Page likes to talk of beautiful design in software, cloud and hardware. The latter part has been lacking. Motorola does phones ok, but no one drools over those devices. Google Glass is interesting, but the design could be improved. The idea that Nest will be this walled off part of Google is laughable. Page would be a fool not to loop Fadell in on the hardware roadmap and get his thoughts. Pacific Crest analyst Evan Wilson said:
Google gets high-quality design talent. Google has been taken to task for not having the best consumer-facing design across many of its products, especially hardware. Nest will not design Google hardware right away, but the overlap cannot hurt.
Google has to connect these things to its cloud and ecosystem. Google is now connected to more cars, robots, smart devices and wearables than ever before. Toss in Nest and Google has an entry into the smart home. Appliances may not be too far behind. The challenge for Google will be integrating these Internet of things outposts and creating an experience that will actually matter. Google operates in silos in many respects so creating an integrated experience will be a challenge.
A halo effect should happen. Nest is likely to work a lot better on Android going forward and as Google connects the dots it should see some kind of halo effect for Android, its devices and of course advertising revenue streams. Google and its services can be deadly to Apple assuming the company can get its hardware approach down.