Over coffee this week, I was discussing technology, startups, markets and business models. One of the topics that came up is Nest, the smart thermostat company that Google bought in January of this year for just over $3BN.
At first blush, it seems a strange match. Google is not a hardware company by any stretch, nor does it sell almost anything that masses of consumers buy at retail outlets, with warranties, return policies, and all of the headaches. Sure, it has the Nexus line of phones and tablets, but that is more about getting prototypes in the hands of real customers to see what they can do, as well as pushing the industry in a direction they believe is important. They also own Motorola, but that is largely managed as its own division.
My friend made the important observation that Nest is not really about the thermostat; it is about the data. Actually, everything Google does is about the data: search, Gmail, Google Apps, even Google Voice is really all about gathering massive amounts of actionable data on voice, voice patterns and human interconnection. Google makes its money on advertising, but at heart, Google is a data monetization company.
Given that they are willing to lose money on users – when was the last time you paid for search? – to make it back in spades on data, here is a radical idea. Why doesn’t Google give away Nest for free? With Nest thermostats gathering millions points of data about heating and cooling in what could be millions of homes, Google must be able to find a way to use that data or it would not have bothered buying Nest for $1MM, let alone $3BN!