Alphabet Inc’s Smart-Home Ambitions Are About to Pay Off

The long-awaited explosion of smart homes is getting closer to reality, and the search king is prepped to lead the way.

Tim Brugger
Tim Brugger
Oct 12, 2015 at 2:20PM
Technology and Telecom

Industry pundits have spent much of the past couple of years predicting the pending explosion of smart homes, along with smart cities, cars, and a host of other "connected" gadgets all around us. However, there's been an unexpected lull in the adoption of smart home-related solutions of late. The problem isn't a new one. As is the case with any new technology, a portion of the population runs out and grabs the new gizmos immediately.

But technophiles alone aren't enough to propel the smart-home market to become the nearly $60 billion juggernaut in just five years that some experts predict. For that to happen, smart homes need to garner mass appeal, not just techies showing off their new Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) Nest smart thermostats and smoke detectors to their nerdy friends. According to some new research, it appears that smart homes are getting close to reaching those sky-high expectations, and Alphabet is ideally positioned to lead the way.

What's the problem?
At first glance, a connected home would seem to be a no-brainer. Receiving an alert on a smartphone whenever someone enters the house, regardless of location, automatically adjusting light and temperature to suit personal tastes, and a host of other functions all designed to make our lives easier and more efficient, is something most everyone could benefit from. So what's the problem?

There are a few roadblocks to mass adoption of smart homes, which is why the market has stalled, leaving just 10% of U.S. households utilizing at least one "smart" device in the home. The first is price. Until the folks at Alphabet and its worthy smart-home competitor Apple (NASDAQ:AAPL) are able to bring device and system costs down, smart-home sales will flounder.

Another drag on smart-home sales is that consumers aren't quite certain what smart homes can do to make their lives easier. As it stands, Alphabet's smart-home hub Nest, and Apple's HomeKit software, among others, haven't been able to demonstrate their respective benefits to homeowners -- at least not to the extent that will appeal to the average Joe. Yet.

But the biggest hurdle -- one that Alphabet has since overcome -- has been finding a way for all those disparate smart-home gadgets to communicate with each other. Enter Alphabet's Nest Weave, a tool that allows for communication among all of a smart home's devices, via its Nest hub. And Nest is about to become even more robust when Alphabet opens Weave up to developers next year.

Ready, set, go!
Despite the existing hurdles to mass adoption, smart homes are on the cusp of becoming a legitimate market, according to new research. As early as next year, the aforementioned 10% of Americans utilizing smart-home devices is expected to pop, more than doubling in just a few years. And when it does, Alphabet will be ready.

Similar to Apple, Alphabet garners the vast majority of its revenue from one unit. Of course, for Apple, it's all about iPhone sales, which once again made up the majority of its revenue and profits. For Alphabet, its consistent, double-digit revenue growth is thanks to advertising; and that's not going to change, nor will Apple's reliance on the next iPhone iteration.

Diversifying revenue sources is always a good idea, and with smart homes on the verge of taking off, Alphabet, in particular, will enjoy the benefits. What differentiates Alphabet from the Apples of the smart-home world is its Nest hub. Rather than introducing a few smart gadgets for the home, Nest acts as the basis for a fully connected, interactive smart-home platform.

Once Alphabet is able to rein in costs, and the masses come to appreciate the benefits of a connected home -- which is right around the corner if recent estimates come to fruition -- investors will have yet another reason to get onboard the formerly known-as-Google train.