In 14 years, Google acquired Nest, the largest acquisition of an energy technology company. Nest introduced a thermostat (lowly thermostat) and made it desirable and exciting. This is the first smart home product that lets utility companies think that "customers may really care about these things." Nest's story also became a slide for each energy technology company's fundraising platform. During this time, I saw at least 50 platforms with Nest as a model, and Google was a possible buyer. It looks great!
but it is not the truth.
After the Dropcam acquisition, the entire market appeared a complete "Fadell-is-a-tyrant" tyrant defeat. In the years following the acquisition, Nest failed to launch any new products. Then Tony Fadell resigned. Now, Nest returned to Google's brand. Even Nest co-founder Matt Rogers left the company. With a purchase price of US$3.2 billion and, say, a capital cost of 10%, an additional EBITDA of US$320 million/year should be generated to allow the transaction to break even. Alphabet's revenue from other companies achieved $794 million in revenue in 2017, most of which came from Nest, Verily, and Fiber. Even if Nest created one-third of this number, it did not achieve the growth rate that Google hoped when it acquired Nest. So what went wrong?
Where did the problem go?
One of the major signs of Google’s acquisition of Nest is that Google/Alphabet has been releasing new connected products under its own brand name and has operated Nest as an independent company. Google and Nest have been releasing compatible but non-complementary products for smart homes. This is what two different companies do on their own. Amazon’s strategy in smart homes shows that a platform approach that uses a centralized home hub is more likely to be the winning strategy for smart homes. Amazon provides homes with a convenient platform (Echo), and, just as you think about HomePod, Apple is experimenting with smart home entertainment applications. But what is Google's platform strategy? With Nest, it may be comfortable (the third of three smart home use cases). But this advantage is disappearing because Google decided to become a "claimer" rather than a "given" in the acquisition of Nest.
Giver vs Requester
Google has never been a hardware company. Although it will be one of the greatest software companies of our time (having a basic business model), the idea behind the Nest acquisition is "Learning Nest& ”'s expertise. This has almost never worked in mergers and acquisitions. Most of the successful M&A transactions, the integration of the acquirer and the acquiree, and the expected benefits of the acquisition were born under such circumstances:
1. The acquirer's strategic direction is in line with the acquired party's strategic direction, and there is cheap capital for the acquiree to grow. Considering Google/Alphabet's smart home vision, Nest has done a good job in this area. When the company became Alphabet, Google took a blank cheque for their "other bets", which was where the problem began.
2. The acquirer transfers internal related skills to the acquired company. According to this standard, Google's acquisition of Nest is doomed to fail. Google did a good job of transferring its internal technology to Android and made it the most popular smartphone operating system. But in the software field, we all know that Google has strategic advantages and expertise, which other companies (never will) have. Unfortunately, hardware is not a Google deal. What will be different this time?
3. The acquirer expects to give more than it requested. This is where Google really failed in the Nest transaction. As an article from Harvard Business School suggests, Google will do both of these things while providing management oversight after the acquisition. Once Google decides to start releasing its own brand of smart home products and expects Nest to provide purely the revenue value it can generate, this will not happen.
If the estimate is credible, then in our lives we will have more networking equipment than we need. Gartner said that we will have 750 billion connected devices. PricewaterhouseCoopers said that by 2020, we will spend US$236 billion. Google is trying to be an important part of it. In addition, there are two ways to do this:
1. Sell Nest to another company. A sensible approach may be to focus on building open source operating systems for smart/connected devices. Or acquire a company that focuses on this. It will follow the route of the Android acquisition/acquisition strategy. And it will make full use of the deep expertise that Google already has, which has achieved quite good results to solve the company's urgent need to find a competitive market. For all small companies that may have hardware business, an open source platform using Google artificial intelligence and voice architecture will not be a bad choice. And, even if Google decides not to follow the open source approach, it can also use the AWS approach to own the infrastructure.
2. Really include Nest. Instead of just putting it under Google, you can save face or loss costs. In reality, all resources currently allocated to 12 hardware products are put into Nest's products, and all Google Smart Home products are converted into Nest-branded devices. This will deviate from the $12.5 billion acquisition of Motorola's strategy, which is a complete failure. One competitive advantage Google/Alphabet currently has is that connected devices are becoming closer to the underlying software than hardware, and artificial intelligence is playing more of a role than ever before. And very few companies do software like Google or its subsidiaries. Especially DeepMind. According to my non-scientific survey, not many people will replace the Nests they already own. This is not an iPhone-style product. However, considering that there is still a huge market for the hardware equipment market for low-income (US) and global consumers, it is worth staying in the game.
I have no doubt that Google/Alphabet will solve this problem. They benefit from a growing market, not the real competitors, and historical data/expertise that can provide information for winning strategies. However, the key issue is that Alphabet is willing to accept the "Ship and Iterate" method of software development. Is this the reason that it has been screwing up hardware? Will it be willing to change its model to win hardware?
Amazon blocked Google
According to the tech blog Business Insider, Amazon’s official website will no longer sell any of the new products recently announced by Nest. In other words, as long as it is Google's smart home, Amazon will not help you sell it, after Amazon and Google got into a commercial dispute because of streaming media services. There are many aspects of direct competition between Amazon and Google.
At the end of 2014, Amazon launched the smart speaker Echo. With Alexa becoming the mainstream product of home smart speakers, Google launched Google Home in November 2016 to seize the market, and the two sides started a tug of war in this regard.
At present, the record of the two sides is slightly better than that of Amazon. However, the time has not yet set. Let us wait and see.
(Selected from: venturebeat Author: HarperJacobs compilation: NEW YORK intelligent participation: nariiy)