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.
Information in The Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do
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