Google Buys Into Smart Home Gold Rush With $3.2B Deal for Nest

Connected Device Maker Could Surface New Ad-Targeting Information

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Google's mission to organize the world's information has come home.

The search giant has agreed to buy hardware manufacturer Nest Labs for $3.2 billion, Google announced on Monday. Nest Labs builds Internet-connected thermostats and smoke detectors that are considered entries into the burgeoning smart-home market. The company will retain its brand after the acquisition closes in the coming months.

Google didn't disclose its specific plans for Nest, though possibilities aren't hard to parse. The company has built a $50-billion business based on gathering information from Internet-enabled services like search and email that can then be packaged to sell and target ads.

In the last several years, Google has expanded into selling Internet-connected hardware, such as smartphones that surface new information such as geolocation and give the company a foothold into people's lives away from their computers. That effort has broadened into developing connected eyeglasses and cars and even providing Internet access. The connected home would complete the puzzle.

Last week's Consumer Electronics Show in Las Vegas was littered with companies wading into the connected-home market. Brands such as LG showed off dishwashers and refrigererators that could link to the companies' other devices, creating an Internet-connected ecosystem. But the potential revenue stream for those companies would be likely limited to product sales. Not so for Google.

A connected home could provide Google new information such as when people are home, what rooms they frequent and what appliances they use or need to replace. Google unveiled its smart-home vision when in 2011 it announced [email protected] "We'd like to think of your entire home as an accessory, or better yet as a network of accessories, and think of Android as the operating system for your home," [email protected] head Joe Britt said at the time.

Google appears to fancy itself more than simply an operating system. Projects like Internet access service Google Fiber and energy consumption monitor Google PowerMeter suggest Google has ambitions to extend itself into a next-generation infrastructure provider a la Comcast and Con Edison. Combined Google's products could create a more efficient, smart grid that would disrupt those stalwarts and diversify its own business to ease its reliance on advertising revenue. Of course Nest Labs would be able to aid that legacy business as well.

However Nest Labs wouldn't immediately fulfill that vision. The company doesn't yet offer smart devices that canvas the home, like Internet-connected lightbulbs and dishwashers, but those aren't likely far off. "Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone," Nest founder and CEO Tony Fadell said in a company blog post announcing the acquisition. Mr. Fadell had created the original iPod for Apple.

Assuming post-acqusition Nest asks device owners to connect their thermostats and smoke detectors to a Google account, Google would be able to bundle that smart-home information with existing audience data for improved ad targeting. Imagine the day when you receive a display ad notifying you that your dishwasher is low on rinse aid and carrying a coupon for Cascade. Google's acquisition of Nest Labs brings the day closer to reality.

Google's startup-investment arm Google Ventures had previously invested in Nest Labs.

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