Google's acquisition of Nest could be the most important development to ever happen in the nascent and horribly named field of the Internet of Things. It's obviously a long-term investment in the future from Google: the buying price of $3.2 billion was much higher than the company's $800 million valuation (a $2 billion figure was based on a round of funding that never happened). After all, Nest is just a few years old and it had only two products, one of which is nearly brand new to the market.
Clearly Google sees much more potential in the company than just a sexy-looking thermostat and smoke detector. Google hasn't said anything more than a few vague statements about what it plans to do with Nest, but the acquisition is the company's beachhead into "Internet of Things," probably more accurately described in this context as the physical graph.
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You've probably heard of the knowledge graph (what you know), the social graph (who you're friends with) and the interest graph (what you like to do), and the power that data has in aggregate. Google and others have deep hooks into all of those spaces but so far no one has made much headway into the physical graph, the pattern that emerges from the movements of individuals and how they interact with physical systems.
"The data is the interesting part in all this," says Thorsten Kramp, who develops Internet of Things technologies for IBM. "An individual device by itself is not so interesting. If you start collating data from different sources, this is big analytics. This is where the value comes in."
The potential is enormous: For users of smart systems, it means a fully optimized life, with the most everyday, mundane tasks automated — from room lights to climate control to when your car starts in the morning. For the gatekeepers of the vast amount of data that the systems generate, the physical graph is an untapped treasure trove.
"This type of data is one of the few types of data that Google has no holding in," says Gilad Meiri, CEO of Neura, which specializes in Internet of Things (IoT) software. "IoT represents a goldmine from their perspective, and Nest is the most significant first step toward [it]. Obviously with this $3.2 billion ticket, you know there's something going on. It's not a thermostat. It's because they've perfected this 'eye' sitting in your living room."
The Nest thermostat is just the first step toward what CEO Tony Fadell calls the "conscious home." However, you can already start to get a sense of what that vision will look like from how the company's products work: If you own both Nest's thermostat and its Protect smoke detector, the Protect can tell the Nest to switch off your furnace if it detects carbon monoxide.
From the start, Nest clearly had long-term plans for its thermostat, which is much more than it appears. The device was designed to eventually function with hub-like qualities and includes many as-yet-unlocked features (such as zigbee wireless connectivity for connecting to non-Nest gadgets). That kind of long-term thinking goes beyond just a product roadmap, and was certainly attractive to Google.
"Unlike other startups that are out there in the Internet of Things space, these guys know how to scale in a world-class way," says Rob Coneybeer, managing director of Shasta Ventures and a former Nest board member. "That's a big part of the reason it was appealing to Google."
Google thinks long-term, too, and it's been interested in the connected home for many years, although it's had very limited success. Android @Home went over like a lead balloon at Google I/O 2011, and the company's Nexus Q streaming device died in the crib. The Chromecast has been more successful, but it's a drop in the connected bucket.
By acquiring Nest, Google has instantly become a leader in the connected home space. More important to the company's stated goal of organizing the world's information, it puts Google on the path to learning all it can by people's physical patterns of behavior, on of the few types of data on earth it doesn't yet have access to. With Nest, Google gets in on the ground floor of the physical graph.
Think about the potential of charting where you move around your house and how you use your appliances throughout the day. Combine that data with input from wearables and your devices. Over just a few days, your home could begin to automate various tasks (room lights, grocery shopping, vacuuming) and give you tips on living better.
In aggregate, though, unlocking the physical graph could do even more. By knowing how vast numbers of people move, Google will start to decipher patterns. It already does this with every other piece of software, identifying trends, surfacing popular apps and analyzing crash reports to improve its products. Knowing how people live will take the idea even further, providing insight to Google and others on how to offer the best products and when.
If that sounds vaguely creepy to you, you're not alone. The issues of privacy and security are amplified in the connected home. Hacking becomes a more serious issue when the device in question doesn't just run apps, but also has access to heat and hot water. But beyond malware, the thought that all our appliances suddenly become electronic eyes into our lives — however benignly intended — has obvious Orwellian undertones.
The trend toward less privacy in general has been accelerating for years, and the connected home could be a crucial crossroads for the issue. As Meiri sees it, the way to keep things fair to the consumer is to ensure they own the data they generate. Not only would they opt in or out of that data being collected, but they should be able to move their data to another service or delete it entirely should they desire.
"My hope is that data will be owned by users and not by the devices," says Meiri. "So when you move from a Fuelband to a Fitbit, you can take the data with you. You will be in control of your data, with less of these greedy corporations to monetize on your patterns."
The full picture of Tony Fadell's conscious home is probably a decade away at least, and could be even longer as the industry sorts out platforms (Google's Android, LG's webOS, Apple's iOS and even Samsung's Tizen are all sure to be contenders), interoperability and the often excruciatingly slow upgrade cycle for home appliances. But with Google involved, the race to map the physical graph is on, and Nest's name just got even more apt.
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Image: Mashable composite