Why has Google paid $3.2bn for smoke alarms and thermostats?

Nest: Google sees mass-market potential

Every home needs smoke alarms, but there’s no doubt that they’re annoying.

They scream at dirty ovens and burnt toast, and they chirp intermittently when they’re running low on battery. Often people are happier when their smoke alarm isn’t working.

Nest is a Californian start-up which set out to solve that problem. When the smoke content in the air rises, the Nest smoke alarm doesn’t hit you out of the blue with an ear-shattering 85 decibels. Instead, all the alarms in your home give you a spoken warning: “Heads up – there’s smoke in the master bedroom.”

You can disarm the alarm just by waving underneath it. And it can detect heat, smoke, and carbon monoxide.

Nest is in the news today – Google just bought it for $3.2bn. That’s almost twice the price it paid for YouTube in 2006! Now, why is Google shelling out billions for a high-tech smoke detector and thermostat company?

Well, Google’s not so much into smoke detectors per se. Google wants to be part of the ‘internet of things’.

Your home is watching you

Using wi-fi, networks, smartphones, and cheap sensors, we can now get objects to communicate. They can tell us things like their status, and what’s happening around them. This can make the object more useful.

For Nest, it means they can create the ‘conscious home’, such as, for example, smoke alarms which talk to one another and let the user know in which room smoke has been detected. And as you’d expect from its founders, who helped develop the iPod at Apple, the starting point is to create a device that looks good and is ‘cool’.

Nest’s original product is a smart thermostat. It was launched in the US in 2011 and has saved a billion kilowatt hours of energy for its owners. Using sensors and algorithms, the Nest thermostat teaches itself about your household. It learns your habits.


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For example, when it knows you’re away, it turns the heat down; it learns whether you prefer it lukewarm or toasty; it builds a schedule based on observing the household over time. You can also take control by programming it from a mobile app, for example if you’re coming home earlier than usual.

And if the Nest Protect smoke alarm detects a rise in carbon monoxide levels, it can instruct the Nest thermostat to turn off the heating system.

State of the art automation like this was associated with hugely expensive new-build projects, such as Bill Gates’ high-tech mansion near Seattle. But the internet of things is making all this much more affordable. And considering how much it paid for Nest, Google clearly sees mass market potential for the technology.

A $19trn market?

Google’s core strength however is in data, and the internet of things generates enormous amounts of the stuff. The ‘conscious home’ will provide another ‘big data’ opportunity. By looking at big data correlations, these connected devices will work better.

Take the Nest thermostat – combining weather information, the date, and household habits could potentially improve its performance. The price of this might be a further erosion of our privacy, as Google learns yet more about our habits, but I think people will happily pay the price, as long as we can see the benefits.

Estimates of the size of the market opportunity for the internet of things are mind-boggling. Last week, Cisco CEO John Chambers forecast it could be worth $19trn over the coming years. McKinsey has come up with similar numbers. This is why Google is paying $3.2bn for Nest’s estimated $150m in revenues.

The risk to Google is that people will reject intrusive, over engineered gadgets. Maybe the shrieking £5 fire alarm is all people really want. The challenge faced by the tech industry is to make sure the technology solves a genuine problem. At least Google is heading in the right direction, with Nest’s focus on design.

If the object is beautiful and well-made, they have a head start. Even for the humble fire alarm, cool sells.

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6 Responses

  1. 14/01/2014, Boris MacDonut wrote

    How depressing to find that every time you burn some toast or blow out a candle some disembodied Californain will say “Heads up” to you. Every time someone offers that line to me at work I recoil and remember how grim it can be living in the future.

  2. 15/01/2014, Mr Tweet wrote

    Apparently your fridge will soon be able to tell you if you need more milk. Busy as I am, I am cognisant enough to know whether or not I need to buy milk. In a big data sense some of this stuff will be useful, but I’m not too sure about the singing milk bottle. Moreover, a lot of this electronic traffic will be redundant rubbish, but it will have a cost in energy terms. I read a horrifyingly (apocryphal?) statistic recently that 1% of the worlds energy is used to cool server farms!! If this is this case do our gadgets need to be adding to this burden with their largely inane chatter?

  3. 18/01/2014, deandre wrote

    All these smart technologies are outsmarting us! The microwaves which they emitted are not doing our brainpower any good. The Russians used to use (and probably still do) to make their enemies ill. Some doctors think that we are suffering from illnesses that are directly caused by these microwaves. (see the Freiberger Appeal.)

  4. 28/01/2014, John Brown wrote

    I have spent all my life automating things or teaching people to do that.
    We now need big social changes encouraged by government to empower us to benefit from this automation. In big cities, encourage 4-day overlapping weeks with a slightly longer day, Mon-Thurs, Tues-Frid, Wed-Sat etc. Encourage Japanese-style “sleeping pods” so commuters sleep in the city 3 nights in a row. That reduces use of energy and maintenance requirements of rail and road networks to 2 journeys per person per week rather than 10, due to the overnight stays, and divide that by 4 or 5 because of the overlapping weeks, the saving now being 20 to 1. HS2 is no longer needed, and energy imports are drastically reduced. Cars last 2 or 3 times longer. Workers have 3 days with their families, and become more productive rather than commuting.
    Forget the demographics changes causing politicians to look to immigrant workers, and automate the care of the elderly, enabling them to stay in their own homes or retiree flats. With on-demand TV entertainment and Skype to talk to friends, retirees need not travel to have quality of life. We just need to improve the user interfaces so old people can cope with them. Voice-based is the obvious way to go, with interactive voice-help to get them through the problems. Teenagers already spend all their time in the bedroom using social media. Socialising no longer demands expensive travel.

  5. 28/01/2014, John Brown wrote

    We used to have nutritious but expensive “meals on wheels” for the elderly at home. With the easy-interface computer linked to the TV turned on automatically every morning from a central facility over the internet-of-things, automated conversations can be started with the old person to determine if they have eaten breakfast yet, and if they would like a meal delivery for lunch or dinner. They can be automatically reminded an hour before the delivery, to stop them cooking themselves. Algorithms determine the best route to minimise travel and distance for the multiple deliveries involved. We could even have mini conveyer belts from the street up to a hatch in the wall, so deliveries could be done 2 or 3 times faster. That would also support postal deliveries, and the delivery of groceries for those who still cook themselves, and of repeat medications. A better idea than Amazon’s flying delivery drones, I think.
    I suspect that patients with developing dementia could be kept independent longer by having challenging automated conversations with their computer, which of course would be pre-programmed with the unique life experiences for each individual. Sing-songs automatically on demand, with differing repertoires depending on the age. If it all sounds horribly mechanical, I should mention that I have a retired doctor friend who spends a lot of time playing fantasy games on Facebook. The Sing-songs could involve small groups of people, separated by long distances, and automatic friend-groups could be formed.
    Distance learning has long been used in the outback of Australia. Imagine the savings on travel and accommodation if automated voice-based tutorials were available over the Web. These could be automatically generated using machine learning techniques operating over a collection of real-life tutorials. Like FAQ’s but you get to see (now hear) only the ones relevant to your particular stage of learning.
    We can already participate in web-based college lectures from MIT and Harvard etc.

  6. 05/02/2014, Andrew Field wrote

    The smoke alarms are the by-product.
    Now Google can place tiny microphones or even cameras in every room of every people’s houses.

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