The Real Reason Google Bought Nest

Imagine a world where you could perform Google (Nasdaq: GOOG) searches right from your thermostat or smoke alarm. That is the reason that Google dropped $3.2 billion in cash (its second biggest acquisition, about double what it paid for YouTube) to acquire Nest Labs, the creator of the best-selling Nest Learning Thermostat and Protect CO2/smoke alarm, right?

Well, no. Not exactly.

For Google to drop that amount of money, there must be something truly valuable and previously unattainable for the search goliath. And with advertising being its biggest cash cow, having some sort of way to boost its ability to reach people just might be worth that pretty penny. Could it be that Nest Labs offers a plethora of consumer data that could better inform and place Google's advertisements so that ads know exactly how to target users and follow them wherever they hide?

Bingo.

The Internet of Everything

Google was already an early investor in the Palo Alto, Calif.-based Nest Labs, wanting to get in on these connected home devices from the beginning and seeing the vast potential these types of devices could bring. But it wasn't just the devices it was interested in—it was also the consumer data that those devices could provide.

Nest Labs' products fall under the category of the "Internet of Everything" or the "Internet of Things," a concept that posits that just about anything can be connected to the Internet. They're generally connected to a computer, smartphone, or tablet for some purpose, such as monitoring, activation, adjustments, and so on.

Being that these home products are digitized and connected to the Internet, the devices are also self-learning and can record and relay information about a product's usage not only to the consumer but to the company who produced it as well. This data can be invaluable to the improvement of these products and the structuring of new ones—and Google has figured out one more way to use it.

Google moves beyond computers and mobile devices

Google intends to use these products and information to move beyond computers and mobile devices and access consumers in the place they spend the biggest chunk of their time—their homes. The company wants to proliferate every aspect of consumers' lives far beyond the simple online search, which is currently based on monitoring both Google searches and their online behaviors.

If you thought Google's advertising was invasive now, just wait and see what they're up to when they can access your behaviors at home as well. Using Nest Labs' products as a gateway, Google has gained a new, stronger foothold into the lives of consumers in an ingenious plot to sell more advertising—though there could be something more to it.

What information might Google glean, and how could the company use it?

As an example of the behaviors Google can currently monitor with Nest Labs' products, the thermostat and smoke alarm don't only track what they are originally intended to—a home's temperature and the presence of smoke or CO2—but also other factors such as when people wake up and leave and return home—all controlled by a smartphone.

So how might Google use this information for more targeted ads? If Google knew when consumers returned home from work or errands on a regular basis, it might be able to determine what parts of the day they would be more likely to access the Internet, and thus have a chance to see ads. Google could save certain ads that might be most targeted but more expensive for those times to maximize its chances of consumers clicking them while saving money on advertising costs here and there.

Could this invasion be a good thing?

Surely many consumers will be annoyed or even feel violated by the fact that Google has infiltrated the privacy of their homes—particularly when the company's chief aim is to further tailor its advertising. But could there be an upside to this move from Google? Are there other potential uses other than simply selling more advertising?

If your thermostat and smoke alarm know that you will be away from home for an extended period of time, such as on vacation, they will behave a certain way based on your settings. If Google has this information as well, the company may try to target your connected mobile device with advertisements featuring certain travel companies or amenities. But it could also potentially alert you using Gmail to let you know if your AC breaks down or your smoke alarm detects smoke while you are away so that you can send over a family member or neighbor to scope out the situation.

If a connected appliance needs repairs, Google can not only alert you via Gmail or another messaging system, but it could also provide ads for local companies that might be able to help. This could make getting the appliance fixed that much faster and easier for a consumer who doesn't feel like searching for the right type of repairman for the job.

Conclusion

Nest Labs' products are not Google's first foray into home connected devices, and they certainly won't be the last. With products from Motorola (Google's largest acquisition), Google Glass and its latest device, Chromecast, which connects TV and movies to a consumer's television and can be used for monitoring media-watching behaviors, Google is pushing forward and farther into consumers' homes.

Connected devices are still a relatively small industry, with only 1% or 2% of consumers adopting them thus far. Interest is growing, however, and more products are being created every day. As more of these products are produced by various companies, others, like Google, Apple, Amazon.com, and Microsoft, will move in for access to this data.

Nest has assured its customers that it will continue to adhere to its privacy policy of not sharing data with third parties. However, consumers can opt into this data-sharing, and there is no telling if or when that privacy policy may change. Only time will tell just how Google will end up using Nest Labs' products and just how far Google will go with "smart" devices to be able to access the consumer from every front possible.

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