Google has announced its agreement to acquire Nest Labs Inc., a U.S.-based manufacturer of smart home devices, for US $3.2 billion in cash. Among Nest’s products are internet-connected thermostats and smoke/carbon monoxide alarms. Nest will continue to be led by co-founder and CEO Tony Fadell, maintain its brand identity, and bring its team to Google. The transaction is expected to close within the next few months, subject to customary closing conditions, including U.S. regulatory approval.

Tarifica’s Take

Spending a large sum of cash money to acquire a startup is a bold move on Google’s part, but one that is in keeping with its ambitions to extend itself more and more deeply into the fabric of everyday life, specifically by way of hardware (the launch of Google Glass and the acquisition of Motorola Mobility are previous examples). While it only consists of two systems, Nest’s product line embodies the “internet of things” concept that has been gaining ground recently. It seems to us that the route to success with this concept is to provide services that go beyond the merely gimmicky to deliver a high level of practicality. The Nest Learning Thermostat and Nest Protect, by allowing consumers to monitor and control key home functions from anywhere a cellular connection exists, would appear to meet that criterion.

While some in the industry have speculated that Google is doing this deal just to get Mr. Fadell, a former designer at Apple, it seems much more likely that the primary motivation was to gain an early foothold in a technological field that stands to grow dramatically over the coming years. If it prospers, mobile operators will also want to get involved in ways beyond simply deriving revenue from the resulting data usage. AT&T has already made a move with AT&T Digital Life, a customizable home security and automation service. For MNOs in general, competing with Google is an option (depending on the size of the MNO), as is partnering with the company to co-brand and integrate existing systems.