Google’s buy of Nest Labs

Google’s buy of Nest Labs

The Delta Perspective
Does the high price tag make sense?

Google just announced the acquisition of NEST Labs for 3.2 bn USD in cash (article). This represents 3.2x what Google paid for YouTube back in 2006. A surprising price tag for a company that currently only has two basic boxes (Power Management/AC automation and CO2 monitoring) and will keep pushing iOS (together with Android) services.
Aside from the merits (or not) of such acquisition and the price tag attached to it, this latest move reflects two clear takeaways confirmed not only here but in multiple examples:

1. When will telcos catch up? 

The window for telecom operators in the digital space is narrowing by the minute (if yet open): we keep seeing concepts that telcos have been “developing” for years taken over by new players with a strong digital component and successfully bringing them to market – eg the old “smart home” concept transformed into the “conscious home”, in which the telco has little (if any) relevance.

2. Engineers and innovators will take over the world!

In the digital space, we are in the “era of the product” and the “era of the engineers” as opposed to marketing or finance executives: in a low innovation environment, focus used to be on how to define the right pricing techniques, marketing campaigns, sales channels, processes, asset utilisation etc to maximise profits of largely similar products. In the current environment, the richness of digital ecosystems and innovation is allowing for the introduction of extreme differentiated products - products that create new categories by themselves. The perceived benefits of these products (eg Jawbone, Nest) are such that they create a customer pull on themselves, diluting the importance of the perfect pricing, channels, etc. Therefore the focus shifts from the marketing/finance executives on the business side to the engineers and innovators on the product side.

Telecommunications players better learn and adapt to these two trends if they want to have an active position in the digital world of tomorrow.