The Three Billion Dollar Question

Some recent comments on the Google acquisition of Nest: [Fred Vogelstein](http://www.newyorker.com/online/blogs/currency/2014/01/why-google-paid-three-billion-dollars-for-a-thermostat-company.html): > Buying Nest may be Page’s most important deal as C.E.O. of Google, a job he took on in 2011; it takes the company a long way toward realizing a vision of a Google that goes well beyond its roots as a simple search…

Some recent comments on the Google acquisition of Nest:

[Fred Vogelstein](http://www.newyorker.com/online/blogs/currency/2014/01/why-google-paid-three-billion-dollars-for-a-thermostat-company.html):

> Buying Nest may be Page’s most important deal as C.E.O. of Google, a job he took on in 2011; it takes the company a long way toward realizing a vision of a Google that goes well beyond its roots as a simple search engine. Buying Motorola Mobility, in 2012, for more than twelve billion dollars, was a first step. Buying Nest not only thrusts Google into the business of selling general consumer electronics but it finally supplies the search company with the expertise to keep doing it.

This ignores the fact that Motorola has seemingly yet to do anything different under Google’s ownership — not even making the Nexus devices for Google.

[John Gruber](http://daringfireball.net/linked/2014/01/14/betteridge-google-hardware):

> This Nest acquisition makes me think Google didn’t want these things to be jokes. That they want to make devices that tens of millions of people will buy and use in the way that they buy and use Apple devices.

Keyword there: “buy”.

[Ben Thompson](http://stratechery.com/2014/googles-new-business-model/):

> In my estimation, this deal is not about getting more data to support Google’s advertising model; rather, this is Google’s first true attempt to diversify its business, in this case into consumer devices.

The idea behind these three thoughts is similar: Google wants to take making *and* selling consumer devices seriously. I have to question whether that is possible.

Google web services are the best of breed because it plays to the Google strength of data driven decisions. Handheld electronics requires more emotionally driven decisions. More “this *feels* wrong” and less “the data says this *is* wrong”. Motorola doesn’t bring that to the table, but Nest certainly does.

In Nest Google has a different challenge: making money from selling goods, rather than from selling ads/users. I’ll go back to something I say over and over: you don’t buy Google products because *you are* Google’s products.

With Nest and consumer electronics that’s not the case at all, and Google has yet to show that they even have a vague understanding of the notion of making money directly from sales of physical goods. Everything Google does is about driving their ad business by selling things at close to cost — just like Amazon.

John Gruber, in [the same post as above](http://daringfireball.net/linked/2014/01/14/betteridge-google-hardware), restates a common notion:

> Perhaps a better way to put that is that Google is getting better at what Apple is best at faster than Apple is getting better at what Google is best at.

He’s specifically talking about design and web services. I think that’s not what each company is truly good at. Google is phenomenal at using data to drive ad sales — Apple sucks at that (look at iAds). Apple is truly good at selling products with industry leading margins — they do that by making you *need* their products, and Google is really bad at that so they give their stuff away free ((Or close to free.)) (because then “why not use it”).

The nagging question I have in my head has nothing to do with Google’s ability to make compelling and good looking hardware. No, instead I wonder: can Google bring itself to making money off of hardware?

They don’t have to make money from selling products, but if they aren’t directly making money then I have to wonder about two things:

1. How long before someone at the company decides the R&D spending is too high and cuts it?
2. How long before Page decides that since the products don’t make money, they really should “get” the data those products generate to help make money from ads?

It seems to me that good intentions are only allowed to happen when you are making money from your “profit centers”, and that those good intentions (especially at Google) quickly die when you aren’t making that money.

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