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My Sunday Washington Post Business Section column is out. This morning, we look at Google’s acquisition of Nest Labs.

My perspective is that Google is trying to avoid being disrupted or marginalized the way so many other tech companies have been.

Here’s an excerpt from the column:

“Perhaps the granddaddy of cautionary technology tales is Eastman Kodak. The film and camera manufacturer was so dominant that, according to a case study by Harvard Business School, in 1976 “Kodak controlled 90 percent of the film market and 85 percent of camera sales in the United States.” Astoundingly, it was Kodak itself that developed the digital camera in 1975. Fearing that digital photography would cannibalize its photographic film business, the company buried its own invention. That helped sales for the next decade or two, but, eventually, digital cameras came to dominate photography. Rather than own the future, they clung to the market share of the past. It should surprise no one that Kodak eventually filed for Chapter 11 bankruptcy protection.

None of this has been lost on the founders of Google, with their dominant position in search. Their acquisitions and research and development actions suggest that they are cognizant of how easy it is for a company to lose its grip on its primary market. This is especially true for dominant firms that became complacent — like Kodak, Microsoft and BlackBerry did.”

If we look at the 10 largest Google acquisitions, half are directly related to their core advertising, and none stands out as an obvious dog.

G Acq

 

The full article is here

 

Source:
Defense! Why Google’s Nest Labs acquisition is a smart move
Barry Ritholtz
Washington Post, January 26 2014  
http://www.washingtonpost.com/business/with-next-labs-acquisition-google-makes-a-savvy-move-aimed-at-the-future/2014/01/24/50c447f2-82d5-11e3-9dd4-e7278db80d86_story.html

Category: Corporate Management, M&A, Technology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Why Google Bought Nest Labs”

  1. stonedwino says:

    Once the NSA revelations surfaced, I stopped using Google. Why would anyone think I would allow Google with Nest to know anything and everything about my family & home life? that’s nuts. The thought of it is way beyond what George Orwell ever imagined. Just let the NSA camp at your house and ride in your car instead. No thanks man.

    • Crocodile Chuck says:

      +1 @ stonedwino. The whole ‘NSA Jumped The Shark’ thing will create big problems for US tech co’s ex-USA, eg data storage privacy concerns; GER migrating its gov’t IT to Ubuntu; India wishing to create its own search engine.

      But moreover: Goog no different than MS – after 15 years two products represent 98% of revenue.

      NEXT!

    • willid3 says:

      did you also turn off your internet? and your cell phone? if not, then you wasted your time

  2. EdMcGon says:

    This is why I own Google stock. To paraphrase James Carville, “It’s the vision, stupid!” This is the kind of thinking that differentiates good companies from great companies. It is the ability to see what is coming, and position your company for it.

    Google is one of the few companies I would call a 20 year buy-and-hold, especially when you consider Page and Brin could still be running the company in 20 years.

  3. Lyle says:

    One difference between Kodak and other companies is that the founder was no longer around. Thus it was professional managers that drove it into the ground. In the case of Google, the founders are still in charge, which makes a big difference, as founders tend to have a longer time frame than professional managers, when looking at decisions. Of course that does not completely apply to Microsoft, but Balmer was not its founder in the way Gates/Allen were. But in all cases its a good bit of the Innovators Dilemma, was involved. The disruptive technology was not in the very short term the way to grow the company. Of course in addition in the case of Kodak, it was due to historical factors not knowing what business it was really in, (it thought it was in the film business, not the imaging business).

  4. Yofish says:

    For many years I worked in The Aleutian Islands for a community development organization as a construction manager. The boon of digital imaging was huge for us that were fixing broken things at the ends of the earth. In Atka, it was not unusual in the summer fog to not get a plane for a month. The phones (usually) worked and with a digital camera and a dial-up connection, you were in business. The first camera we had was a Kodak DC something-or-another; it was a huge (not much smaller than the Brownie I had as a kid) clunky, ugly and slow device that charmingly had imbedded within an audible ‘CLICK” sound to reassure the user! Now, if that click sound was not indicative of Kodak’s’ demise, nothing else could have been.

  5. kaleberg says:

    Kodak split off its chemical business in the early 90s. I was doing image processing and got the impression that Kodak just wasn’t taking the future seriously. Digital cameras, to them, were just a novelty. I sold my Kodak, but kept the Eastman Chemical for a while and made some money on it. I figured that people would always need chemicals.

    I’m willing to believe that Google bought Nest as a way of looking into the future, but they also bought Nest because their product is extremely un-Googly. There is no cluttered interface with a focus on obscure options. There is no complicated set up to get the defaults you want, rather than those the guys selling the product want. There is no Google autism like announcing a contact lens to read the blood sugar levels of diabetics who are generally warned not to wear contact lenses.

    I still have my doubts. Google sells its users to advertisers. Nest sells its product to customers. Will Google be happy with Nest’s business model, or will they want to sell Nest’s customers? I’m guessing that some time in the next three years Google will go for the latter. It won’t even be for big bucks, but it will be the typical Google mistake, and it will hurt Nest irreparably. (I’ve already dropped my plans to buy one, and I gather I’m not alone. The whole point of buying a Nest is so that you can monitor your home. Will Google start passing them out free to collect data on home usage? I wouldn’t put it past them.)

  6. sethmiller says:

    Barry-

    Sorry to go negative here, but if this purchase was “defense”, then you are defining that word in a way that has stripped it of all of its meaning.

    Many of Google’s earlier purchases/investments, such as Motorola, Youtube, and Android were about entrenching or establishing Google’s dominant position in on-line advertising. To me, those are classic defensive plays.

    The purchase of Nest – along with Google’s other purchases of robotic companies – feels different. These have nothing to do with Google’s core revenue stream. They are not about advertising.

    Instead, it feels like Google knows something about algorithms that the rest of us don’t. And they are betting, big time, that they are right. They can afford to – as you said, this is not a huge amount of money to them – but their bet has nothing to do with “defense” unless you think they are worried that automation will somehow stop people from using web searches. Google is trying to become to automation what the IBM was to computing in the 1960s. They are trying to become the company that turns the Jetsons into reality (finally).

    This is a fairly audacious offensive play. And the rest of corporate America (IBM included) should be perking up to take notice on those terms, and should start to play better offense themselves.

    • Google did not have a dominant position in Online Video. Prior to Android they had no position in smart phones; and the Motorola purchase revealed they had so little tech in mobile cellular that they were vulnerable to patent litigation.

      So I disagrewe with your fundamental premise as factually incorrect.

      Where we agree is that both the Home Automation and Robotics purchases currently appear to have nothing to do with their core business today. I suspect they might at one point in the future.

      It might be an offensive play; a defensive mindspace could have been what drove it.

      My tortured Superbowl analogy would have been better had I used your “audacious offensive” play as part of it.

      • sethmiller says:

        Ultimately, both Youtube and Android have been monitized through advertising, so in that sense they are in line with Google’s core model and were defensive (to protect against the migration of advertising dollars away from a web platform). I think we both agree they were successful as well!

        We won’t know if Google’s new purchases were defensive for 3-5 years, if/when we start to see products. (If we remember, Google’s profitability model was sort of unclear for Youtube and Android at the time of purchase.) If Nest’s products derive revenue from eyeballs and ads, then you will be demonstrated right. If Google decides that its mission to “organize the world’s information” extends to selling things… I’ll put a note on my calendar to flame you then. And don’t forget to whip my in public as well if I am wrong. Someone has to hold the pundits accountable!

      • I would argue that Google’s core business was internet search, and mobile was an expansion into a related but different field.