Google bought Nest to acquire high value customers: period

next-billion-dollar-purchaseI’ve seen more than a few articles on Nest. Ironically at work, I was explaining to people over lunch the reason why the, “Tweeting fridge,” isn’t a pie in the sky idea. It’s going to happen, whether you or I like it or not. Similarly, Nest getting acquired by Google was inevitable to a degree, just like Zappos getting acquired by Amazon was going to happen whether customers liked it or not.

While I have worked in digital marketing for a long time, it’s my product management hat which makes me stunned at the purchase, and the zillion pundits who’ve gotten the details wrong.

Nest subscribers are the highest value customer segment on the planet

If you live in an environment to make Nest, the adaptive thermostat, work for you…then you’re already one of the world’s 1%. On top of that, if you actually bought one, you own the place you live and the savings, the benefits, from using the *only* product in that category, you’re never, ever going to switch. So what’s the ROI on a customer who buys today and uses your product for the life of their mortgage? Banks look at things from a 30 year perspective. Most digital companies can barely stomach a three year customer lifetime value model (CLTV for those geeky enough).

That heading above and paragraph that followed was the marketing training, the marketing roles, I’ve had over the years shining through. Really, what motivated me to have the tweeting fridge discussion, what drove me to write this, was my product strategy hat. Having invented both AdSense and Delicious, as well as a list of other products, I know a thing or two about digital strategery. (AdRevenue was the product; launched before AdSense and finished with a lawsuit for Trademark infringement with Miva…Delicious was Makunu, in 2001, several years before Delicious came and went – tag based navigation was a great idea a long, long time ago).

Let’s circle back to Nest. The closest write-ups I have seen is one where people said, “Google is a robotics company,” but that’s a gimme. Given the spate of acquisitions in the category the past year, it wasn’t a question if Google needed or wanted robotics or not. It was a no brainer. Kiva Systems, the $750 million dollar Amazon purchase, showed in spades the value of networked robots in the physical world to investors, punters and tech geeks alike.

However…dealing with a network of robots is fundamentally what web search engines have been doing for nearly twenty years. There are scores of academic papers on how networked, autonomous systems work. It wasn’t because Google, somehow, just realized a year ago that a network of robots was even more efficient than robots working in silos. Companies, teams of real people have long realized the benefit of working together, rather than in silos. Isn’t it a cliche to say, “Break down the silos?” 😉

Let’s take the network of robots analogy one step further. What Google needs and drives them is to automate the tasks of everyday life. John Battelle said a while ago, “Google Now is the most strategic project at the company.” There was a cartoon years ago that showed a fictional, real world Googlebot indexing a guys apartment…if you imagine a Roomba crossed with the robot, “Bender,” then you can imagine what that visage. Eric Schmidt, a few years ago, said that Google wants to not just give you information, but know what’s next and suggest, advise, plan your life for you and present you the sequence you’re going to need.

That’s huge. But to help me in the real world, I can’t engage with a screen twenty-four seven. If my home is my most valuable possession, what better way to keep it secure than with Google Fiber running the fastest internet in the US, Google Home Security with motion sensors, Nest Thermostat and Nest Smoke Detector?

While Google is a robotics company (that much, one article had right – but they’ve been a robotics company since the 90’s when they first started with Backrub…), there are limits to the human condition. One fundamental limit is that we can only keep five to seven things in our head at the same time. Whether this limit is because of our five senses or something else, but, Google’s brand can only extend and stretch so far. Google can’t be the system in my house that monitors my temperature, air quality and water usage. That has to be something else, because Google is also the brand that I use when I want to download an app to my janky phone (cough, sorry – Android ICS and below sucks if you’ve only used an iPhone).

It’s Nest that monitors my house, Youtube that delivers my entertainment, Google that drives the car and helps me get to where I need to go. While on the way, Google gives me updates, information and apps that help me with my life.

See? If it was Google monitoring my house, then transitioned to driving my car and helping me at work…it’d be creepy as all hell. By partitioning out the brand (Xbox, hello???), to the various states of my life, it *feels* as if they aren’t taking over. Even if they are, the feeling, as a product in their system consumer of their services, isn’t as nefarious as it might be otherwise.

By the way, having taken a quick look at John’s take on the Nest buy…he has one detail right, but also wrong. Google won’t buy or get into the clothing business. They will end up competing with the quantified self companies, one way or the other. While this is inevitable, they can’t launch a, “Google Clothing,” line because again, that would freak all of us the f–k out. Instead, they’ll do it via acquisition and maintain the brand, same as Nest, Youtube or Adsense.

If you’re curious who Google will buy that gets them into the quantified self game, it’s Athos. Either Google or Nike will scoop up this company. Just don’t look surprised when it happens.

Usually, people who make investments add disclaimers or some statements. I’m not involved in any of these companies, but I know people at Federated Media, have met John Battelle once upon a time (but then, most people have, right?) and know more than one or two current and ex-Google employees.