“Internet of Things –” the theme of last week’s Consumer Electronics Show in Las Vegas and yesterday’s announcement from Google that it would buy its portfolio company Nest, which makes smart thermostats and smoke detectors, for $3.2 billion. The Internet of Things refers to what less hip people may call home automation or automation of the car, controlling devices like security systems through the Internet and wireless networks – things affecting things.
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The idea is years old and many mature companies, like Cisco, Qualcomm and Honeywell, play in home automation. What’s new is that the premier Internet search company Google put down $3.2 billion, a multiple of between 16x and 320x 12-month-trailing revenue, according to rumors – a lot of money whatever the case – for a smart thermostat. “Google’s going beyond the Internet and phone ecosystems and into the house,” a banker said.
Frank Gillett, analyst at Forrester Research, said, “This is the year of the Internet of Things in terms of mind share.” It’s a far reaching phenomenon, affecting machine-to-machine technologies and robotics, other techniques for things controlling things. Telecom provider AT&T is working on a platform for home automation, cable companies may follow suit, and Microsoft, Apple and Amazon will probably have to formulate ways to play in the market, said Gillett.
As far as who acquires what now that Google has made its mark with Nest, the natural buyer in the space is still Google, said a second banker. It can’t justify a $3.2 billion price for a three-year-old startup without a broader plan for home automation.
Though it seems like Apple missed the Nest opportunity, Apple doesn’t buy products but bits of technology to add to products, the second banker continued. Cisco, another potential buyer of anything networking, prefers to deal with utilities and businesses rather than consumers. Since Google can make money on anything that drives Internet traffic on its search engine, it’s uniquely positioned to buy in the space.
Google did not return requests for comment.
One startup pleased with Nest’s valuation is Tado, a three-year-old company in Germany which sells an intelligent heating system application. Christian Dielmann, Tado’s CEO, agreed that the idea of the Internet of Things has spread beyond technology enthusiasts this year, in part because of Nest’s ability to educate the market.
While Nest provides smart thermostats to the US, Tado is the only company “connecting heating systems from different vendors” in Europe, said Deilmann. He assumed Nest was on an IPO path after reports of a $150 million financing at a $2 billion valuation early this month. But if Nest can be bought at an extraordinary valuation in the US, the same can happen to Tado, Dielmann reasoned.