With its forays into driverless cars, health-related nanotechnology, and the odd-looking Glass wearables that seemingly won't go away, there are concerns that Google (NASDAQ:GOOG) (NASDAQ:GOOGL) may be taking its penchant for innovation a bit too far. And in many instances -- Google Glass jumps to the head of the list -- those concerns are legitimate.
However, Google's Internet of Things (IoT) plans are of a different ilk. According to estimates, IoT is poised to become a staggeringly huge market in the coming years. Already, leading tech companies like Cisco (NASDAQ:CSCO) are inking deals with some of the world's largest cities to incorporate "smart" technologies, longtime Google nemesis Apple (NASDAQ:AAPL) is doing the same with both cars and homes, and the list goes on.
Of all the burgeoning markets that encompass IoT, perhaps the most lucrative will be the advent of smart homes. And this is where Google shines.
What makes a smart home smart?
Imagine a home with appliances, security systems, smoke detectors, thermostats and lighting systems – to name a few -- interconnected via the Internet, and hosted in the cloud. Utilizing sensors within each of those household items, the disparate units will both monitor and communicate with each other, and homeowners, to more efficiently and effectively "manage" the home.
A washer that alerts consumers that it's nearly time to buy detergent, a detector that monitors air quality, and lights that are attune to a homeowner's schedule are a few examples of what the smart home of the not-too-distant future will entail. And as big as IoT is expected to become, smart homes could very well lead the way.
Just how big is big?
According to data from Business Insider, the next five years should see an explosion in the number of smart home devices sold to consumers. This year alone smart homes will generate over an estimated $61 billion in sales, and the market is still in its infancy. By 2019, as per the report, smart home sales will grow to $490 billion.
As if the expected smart home device growth rate of 67% each of the next five years wasn't enough good news for Google, consumer adoption of smart home technologies are expected to be led by smart thermostats and security systems, both areas that the search king has gone all-in on.
It begins with Nest
Google raised a few eyebrows in early 2014 when news broke of its $3.2 billion deal to acquire smart thermostat, smoke alarm and air quality monitoring device Nest. The notion of a smart home was even further from consumers' minds than it is today, and there were some who thought, "Here goes Google again." But it turns out Nest was only the beginning of Google's smart home strategy.
While Nest and the $555 million deal to buy home video security manufacturer Dropcam generally lead the discussion surrounding Google's smart home efforts, it was the acquisition of little-known platform developer Revolv late last year that changed the game. Sure, Apple now has its HomeKit smart home platform, but what differentiates Google is that Revolv has helped solve one of the market's biggest hurdles: getting all those appliances, door locks, lights, and other devices to "talk" to each other.
Now, Nest has become the hub for all things smart around the house, and Google's inking deals with the biggest names in appliances and household items like lighting manufacturers to expand what will become its an all-in-one solution. There are others -- like the aforementioned Apple -- that recognize the potential of smart homes, but none are taking the aggressive steps Google is to really dominate the market.
Google and its shareholders will enjoy an additional benefit of leading the smart home race: amassing even more consumer data. Google consistently grows its top line because of advertising revenue, no surprise there. The reason Google's ad revenues continue to soar is it collates, analyzes, and utilizes reams of user data to better target its ads. Soon, Google will be able to add detailed information on consumers' day-to-day habits and product usage around the home to its massive database. The coming of smart homes, and all that will entail for investors, is why the smart IoT money loves Google.