The explosive potential of the Internet of Things and smart homes, in particular, is almost difficult to fathom. According to some reports, smart home devices alone generated over $60 billion in revenue last year and will climb to an estimated $490 billion in 2019.
That explains why Google (NASDAQ:GOOG) (NASDAQ:GOOGL) went all-in about a year ago, acquiring what was then little-known Nest Labs and its smart thermostat, smoke, and carbon monoxide detector solution.
What wasn't clear was how Google would turn that major smart home acquisition into a significant source of revenue -- at least significant enough to warrant writing a $3 billion-plus check. Google's vision for smart homes came into focus a bit when it announced a $555 million deal for cloud-based home security manufacturer, Dropcam, which was followed by the acquisition of Revolv -- an all-in-one app to control multiple smart devices -- for an undisclosed sum.
Now, based on a recent announcement from the company, it's becoming clear how Google intends to dominate smart homes.
A plan comes together
The Consumer Electronics Show, or CES, is an annual gathering of who's who in the world of technology -- specifically, consumer tech solutions and innovations. Not surprisingly, Google is well-represented at this year's CES in Las Vegas, boasting "over a dozen booths." Why so many? Google needs a lot of room to show off the laundry list of devices that can now be operated by, and in conjunction with, its Nest device.
In addition to syncing with smart locks, VoIP phones, and even electric cars, Nest will also work with Whirlpool and LG smart appliances, along with Philips Hue light bulbs, to name just a few. In other words, just six months after launching its Works with Nest initiative, what started as a smart thermostat is quickly becoming the centerpiece of Google's entire smart home strategy.
Virtually all of the Nest-enabled smart functionality addresses either energy efficiency, safety, or both. Locking your doors as you leave a Google-inspired smart home automatically adjusts your heat down to conserve energy. Have kids that are due home at a certain time after school? If they're late, your Nest-synched smart home will alert you via a call to your cell phone. At first glance, it would appear Google's Nest solution is the driving force for its smart home ambitions, and it's certainly the hub. But it's likely the aforementioned Revolv acquisition that will really put Google smart homes over the top.
The telltale sign
After spending over $3 billion for Nest Labs and another $550 million for Dropcam, the significance of the Revolv deal may have slipped under the radar. But it was Revolv that helped Google solve one of the fledgling smart home market's biggest hurdles -- getting all of these devices to "talk to each other." And as more products in the home become connected via the Nest hub, Revolv will act as an interpreter of sorts.
Google's smart home competitors, including Samsung following its $200 million deal for SmartThings and Apple offering the ecobee3 smart thermostat via its Store, are specific to each company's mobile devices and operating systems, though the ecobee3 is also available for Android. Certainly good first steps, and both Samsung and Apple have proven their mettle time and again when entering burgeoning markets. But Nest, Dropcam, and especially Revolv, with its all-in-one communication and control capabilities, have set Google apart in the smart home battle.
Can smart home device shipments really grow significantly faster than mobile devices over the next four years, as some predict? Could they amount to over 25% of the entire IoT industry by 2019 -- a market that's expected to be nearly $2 trillion in total? It's hard to imagine, but even if these aggressive estimates prove overly optimistic, it's safe to say smart homes will play a significant role in driving IoT revenues. And Google, as its Works with Nest group is demonstrating at CES, will lead the way.
Editor's note: This article has been edited to clarify the relationship between Apple and the ecobee3 smart thermostat.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.