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Why Google's $3.6 Billion Acquisition of Nest is Great News for the High Performance Home Industry
The Race for affordable home automation is officially kicking into high gear. Google's acquisition of Nest is a very good sign for the high performance home industry. Why? In my opinion, the underlying math which had to have been Google's calculus for justifying a $3.2 billion dollar valuation is fundamentally the same math that drives builders to build high performance homes. Let me explain my thoughts.
None of Google’s due diligence or reasoning to make such a huge move has been disclosed publicly, but the valuation of a company like Nest is most likely calculated on some combination of current and future:
None of Google’s due diligence or reasoning to make such a huge move has been disclosed publicly, but the valuation of a company like Nest is most likely calculated on some combination of current and future:
- Product Revenue
- Patents
- The marriage potential with googles vault of personal data
- A proven stellar design team (the guys that designed the iPod)
- One-upping Apple
Without a doubt, Nest is a very well-run company that has executed a new technology product introduction almost flawlessly, truly understands product design and is great at marketing. They've recently migrated from a great thermostat to a pretty good smoke detector and I'm sure they have a very large pipeline of new products that we can only guess at for now.
But even though Nest is a product company and, in that sense, differs from those of us providing services, the fundamental driver of their future business is completely aligned with high performance homes. The math that anchors Nest's future is fundamentally the same math that drives high performance homes:
But even though Nest is a product company and, in that sense, differs from those of us providing services, the fundamental driver of their future business is completely aligned with high performance homes. The math that anchors Nest's future is fundamentally the same math that drives high performance homes:
The # of new and existing homes that have energy, comfort and/or safety related problems
For Google to have paid as much as they did (the second largest acquisition price in their history) means that they see lots of problems and a huge future in devices that solve them. It's also a huge endorsement of the “Connected Home” movement, which we predicted as one of the megatrends for new construction of high performance homes in 2014.
It's very important to recognize that Nest's success, just like Apple's, is in creating demand for products none of us knew we needed. How many of you have been fretting about the problems with your current smoke alarms? Not so many, I'd guess. But along comes Nest with a cool, smart and beautiful new approach and suddenly there's a market (remember this is the same team that invented the iPod). That same dynamic is true for high performance homes.
Congrats to all the great folks at Nest.