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Why Google's Acquisition of Nest is Great News for the Home Performance Industry

Posted by Peter Troast on January 14, 2014
Why Google's Acquisition of Nest is Great News for the Home Performance Industry

In my view, Google's acquisition of Nest is a very good sign for the home performance industry. Why? Because the underlying math that had to have been Google's calculus for justifying a $3.2 billion valuation is fundamentally the same as that which drives home performance. Let me explain.

None of this has been disclosed publicly, but the valuation of a company like Nest is most likely calcluated on some combination of current and future product revenue, patents, a vast trove of big data, a stellar team, and one-upping Apple. Without a doubt Nest is a very well run company that has executed almost flawlessly, truly understands product design and is great at marketing. They've migrated from a great thermostat to a pretty good smoke detector and I'm sure have a pipeline of new products that we can only guess at.

But even though Nest is a product company and, in that sense, differs from those of us providing services, the fundamental driver of their future business is completely aligned with home performance. The math that anchors Nest's future is fundamentally the same math that drives home performance:

The # of homes that have energy and/or safety related problems

For Google to have paid as much as they did (2nd largest acquisition price in their history) means that they see lots of problems and a huge future in devices that solve them. It's also a huge endorsement of the Connected Home movement, which we predicted as one of the megatrends for home performance in 2014.

Companies that embrace the whole house approach to home performance rely on the very same market drivers. We don't sell devices, per se, but our services resolve many of the same "problems" that Nest products are aimed at fixing. And the services we offer are worth a lot more than even a premium device like a $250 thermostat. 

It's very important to recognize that Nest's success, just like Apple's, is in creating demand for products none of us knew we needed. How many of you have been fretting about the problems with your current smoke alarms? Not so many, I'd guess. But along comes Nest with a cool, smart and beautiful new approach and suddenly there's a market. (Remember this is the same team that invented the iPod.) That same dynamic is true for home performance.

Congrats to all the great folks at Nest. May our futures remain intertwined.

 

Peter Troast is the founder and CEO of Energy Circle.

This blog was originally posted on the Energy Circle website and is reprinted with permission.

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