A couple of good blog posts from other analysts this morning triggered a thought in my mind about Nest.
The first of the two blog posts is from my fellow Techpinions contributor Ben Bajarin. I recommend reading the whole thing, but here’s the key thought:
Apple’s customers are higher value customers and their growing installed base means they are amassing one of the largest, if not the largest, installed base of premium customers on the planet. This observation has some striking implications…
He goes on to talk about two of the implications, and I think the insight there in particular is great. One of them is the impact this has on the competition, among which of course we find Google, which owns the mobile operating system that’s mopping up the vast majority of the non-Apple customers.
Something else I read this morning (a post from Benedict Evans that’s really about something completely different) prompted me to think about this in the context of Google’s Nest acquisition. I’ve been thinking about Nest primarily as Google’s strategic play in the smart home space, and as the hub and vehicle for the rest of what Google will do in the home. And I think that may well be in large part what that Nest acquisition is about.
But thinking about Nest in the context of Ben Bajarin’s piece made me see Nest in a different way. Think about Nest for a minute: its characteristics as a product, the people it’s likely to attract, even the people who work there. This is a very Apple-like product, made by a former Apple executive, and I’ve always said that Nest was a much better fit at Apple than at Google. It’s even sold in Apple stores.
What if Nest is at least in part about capturing those very lucrative and attractive Apple customers without having to convert them to Android? What if what Google is building with Nest is at least in part a concession that Android and phones based on Android aren’t likely to attract these customers, but by playing in a completely different space – the smart home – Google can in fact attract those customers? And once it has them there, perhaps convert them to other aspects of the Google ecosystem, which after all is where Google really makes its money? There’s no particular reason why Google needs to have all its customers on Android anymore – it’s served its function of preventing Microsoft and Apple from dominating the mobile world. And of course, there’s been lots of talk about even Google’s services making more money on iPhones than on Android. What if Google could establish a different beachhead in devices that’s not dependent on first converting people to Android? What’s fascinating about Nest is that it’s about the only recent Google initiative that’s not about reinforcing Android as a platform – Android Wear, Android Auto and Android TV are all about extending Android specifically into new domains rather than simply spreading Google services into new domains.
I’ve no idea if this was actually part of the thinking behind the acquisition of Nest – most likely, like other acquisitions, it wasn’t about a single strategic objective but rather several. But it would certainly be an interesting response to the emerging reality that Apple has captured the vast majority of the most valuable customers within its ecosystem, and trying to win them back through phones seems to be a losing strategy.
The big downside to this, of course, is that Google has very deliberately kept Nest somewhat at arm’s length from the rest of the company (a point Benedict raised in his post). But this strategy only works if Google continues to build links between the two, as it’s already begun to do with Google Now integration. With Tony Fadell now overseeing Glass as well, there’s obviously even more linkage between Google proper and the Nest team, and it’s another sign that Fadell might be asked to oversee more Google devices and pursue the same strategy.