Did Google overpay for Nest?

Did Google overpay for Nest?


Nest Thermostat

Earlier this month, Google announced it would acquire NEST, the smart thermostat manufacturer, for $3.2B. This represents Google’s second-largest acquisition ever. Since then, the buzz has been whether Google overpaid for NEST.

The Motley Fool believes that Google paid at least 13 times revenue, and from that measurement the M&A seems indeed very high.  But this was a strategic purchase, and everyone knows it.  That same Motely Fool article goes on to conclude, “Nest may ultimately provide Google with more insight into how its customers live and spend their time.”  In other words, behavioral learning on customers beyond mouse clicks, looking at how they live their lives. This in turn can be used for immersive or at least high CPM advertising. Google is very good at monetizing advertising.

Another common theory on the reason is to funnel all Google home-related products through the Apple-like products machine that the (previous Apple employee) founders of NEST represent.  The “Internet of Things” is promising to be a huge new sector and NEST was pretty much the leader in that emerging category.  So, as a spear-point to take over an emerging market, which, if integrated and leveraged correctly, it could represent, the purchase is significant.  According to Business Insider, “Connected Life Market Revenue as the sum of all of the revenue accruing from the sale of connected devices and all related services … will balloon to $2.5 trillion by 2020.”

So the answer for now is that yes, Google paid a lot by financial metrics, but also that the strategic potential is vast. So the answer in the end will depend on how the new corporate marriage plays out.

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