Is Nest Going To Be A Success

One of the acquisitions that made waves back in 2014 was the acquisition of Nest Labs by Google for $3.2 billion. Nest Labs, the maker of high-tech thermostats and smoke detectors was acquired by Google as the second biggest acquisition in history of Google. The objective of the acquisition was clear; Google wanted to venture into the growing market for web-connected household appliances.

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Google has been persistent in trying to establish a strong hold in the home appliance segment and many a time has failed to achieve its target. Google came out with a smart TV which seemed very promising prior release but dint go down so well with the users as many claiming it to be ‘’a jumble of hot mess.’’. Other attempts made were the release of the Chromecast Dongle which was meet with mild success.

The main idea behind Nests products is to bring about a perception twist to everyday products which haven’t really changed all that much over the past few years. To think that there has been any innovation in controlling the thermostat of the air conditioner in your house – it would be safe to say that there haven’t been any, apart from the fact that there may be few physical changes but the idea behind it remained unchanged for a while. Google saw this potential in Nest and hence the whopping splurge of 3.2 billion. The massive payment largely reflects the promising future in technology as it becomes more advanced with large companies willing to pay premium prices for research and development.

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I get where Google is coming from here in this acquisition; wanting to bring about a futuristic spin on homeware. According to statistics people enjoy buying products for their homes which they feel are trendy at the same time cost effective. Keeping the ideology intact I feel that Google is trying to achieve what ‘’The Jetsons” had. If you grew up watching that show then you know what I’m talking about. Having everything remote controlled and easily accessible with just one click of the finger. The feeling is similar to when the first iPhone came out, as it marked the beginning of a new era in technology.

The idea here is similar and Google is depending on its research to work in its favor for the acquisition to be deemed fruitful. So far Nest has reported sales of over $ 300  million which was low compared to what Google had forecasted. However I personally feel that the situation will improve provided that innovation doesn’t lose its pace.

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Majority of the time when start-ups are taken over by large companies such as Google, their pace of innovation decreases due to the fiduciary duty owed by the companies to their stakeholders who like stability. Therefore trusting ones instincts and going in with just a positive feeling is less likely in a big company where decisions are much more calculated, which is great for what it is but capital rationing may not always be the quickest and some start-ups out there will likely achieve something better, faster.

As of now Google’s biggest competitor in terms of smart homeware appliances is Apple. Apple has created a solid brand name for itself which is quite hard to break, and its natural, when a brand reaches such a huge level of recognition it becomes the preferred choice of consumers who put their faith and trust in it blindly.

According to several sources it was claimed that Nest received a $500 million of annual budget. A rigorous retention scheme was put in place by google to keep the effects of brain drain as minimal as possible. Google also created a vesting schedule that prevents Nest’s executives from cashing out their shares before a certain date. In addition, according to sources, as part of the acquisition, Nest and Google agreed on a sales target for the company: $300 million annually. Nest has had issues with meeting its forecasts which shows a decreasing trend in the overall market demand for core gadgets lines due to the decline in the overall innovation in the area.

The future of hardware isn’t better versions of the same standalone technology but It’s what you can create when you take all the breakthrough features of the smartphone and build them into something extraordinary.

Tony Fadell and Matt Rogers, two former Apple engineers, founded Nest in 2010 as a company focused on reinventing old household products thinking that they were tapping into the next big thing. Which could be true if and only if the acquisition by Google would allow it to take innovation a whole new level. The thing with innovation is that it is a never ending process and the risk involved with the success of the product is for the most part unmeasurable.

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So the question still stands  is Nest going to be a success. I personally think it would be, but my yes is heavily dependent on a number of assumptions. Google has to be careful not to repeat the same mistakes it made after acquiring Motorola. The key is to recognize the queue to divest and invest, and if it’s done in a timely manner then it would lead to positive synergies.

If google continues to put in money for innovative research and Nest is able to invent some ground breaking products, like a wireless controlled oven, a wireless controlled door, cleaning appliances and just general day to day activities that make the life of the user easier. Then chances are that Nest can double its revenue stream in a considerably short span of time.

These inventions  however do take a significant amount of time to research and perfect before they are released out in the market, but if Google and Nest together are able to create the synergies they need they might as well be the new technology that everyone will be talking about.

Creating a demand will be easy because the idea behind the products is very simply; making everyday life of the user easier and mobile, and with inventions like 3D printers and VR gadgets the untapped homeware sector might as well the best investment of this century.

 

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