Google and Nest: Two Companies in the Business of Understanding You

Google has announced it is buying Nest Labs, maker of smart thermostats and smoke alarms, for $3.2 billion in cash. At times like this, it’s normal to ask what is in it for each side.

This time, that is a particularly interesting question for what it says about our world.

Rather than the usual start-up founders, made suddenly rich after an acquisition, Nest’s Tony Fadell and Matt Rogers are both Apple veterans who had made decent fortunes before they started Nest. This isn’t just about the money, though in various funding rounds Nest has probably raised less than one-tenth of what Google is now paying (including funding from Google’s investment arm).

What Nest is getting is a like-minded corporate parent with muscle. Its business is based on algorithms, which Google knows how to write. Also, Nest’s competitors are very large multinational companies. Even a start-up as clever as Nest might not have been able to outlast those giants, but Google can. Unlike other start-ups, like Snapchat, which turned down its own multibillion-dollar acquisition offer from Facebook, Nest very likely needs that corporate girth to grow.

Rather than thermostats, Nest’s key technologies were described by Mr. Fadell in an interview last November as “communications, algorithms, sensors and user experience, running over a network to the cloud.”

That is, Nest is interested in how people behave inside their houses; the thermostat was just the first step to understanding that. Its sensors gave information about interactions; after that, algorithms on everything from user preferences to battery power were deployed to give people a sense of control they had not had before. As Mr. Fadell put it at the time, “we’re focused on experience.”

By the way, Nest did all of it on Amazon Web Services. It will be interesting to see how quickly Google can put all this on Compute Engine, its public cloud. Nest, along with Snapchat, which already runs on Google, would be among its marquee customers.

Google, for its part, gets engineers who understand lots of things it can use in businesses like phones and self-driving cars. As more devices become connected to the Internet, Google is increasingly interested in those devices, much the way Google built the Chrome browser when the Internet was mostly limited to desktop computers.

In whatever form, understanding the connected device, and how people work with it, is a big part of understanding overall behavior, and that is Google’s driving ambition.

Google also has about $56.5 billion in cash, so Nest isn’t that much of a drain. Pile it up too much, in fact, and the shareholders may start asking for it back. Better to spend on perhaps the most valuable asset of our time: a better understanding of human behavior, in all its forms.

There are enough Apple veterans making a difference elsewhere in the Valley for them to be seen as something of a diaspora. They include Dave Morin at Path, Reid Hoffman at PayPal and LinkedIn, Evan Doll at Flipboard and Tom Conrad at Pandora, among others.

Mr. Fadell is also an old Apple colleague of Andy Rubin, who built Google’s Android operating system and is now working on robots for Google. It will be interesting to see if there is anything the two can do to pool their businesses. The two were also at General Magic, an old so-called pen computing company that is turning out to be more influential in its afterlife than it was when it was around.