Google Gets a Nest, But Is It Flying Too High?

Xconomy National — 

Somebody needs to say it: Google is getting too big. When one organization controls so much of the infrastructure of the digital economy, it’s not good for consumers. And when it has such an outsized influence on the resources flowing to inventors, programmers, and entrepreneurs, it’s not good for innovation.

Like almost everyone else I know, I’m a heavy user of Google services and technology. Unlike most other people I know, I report on Google as part of my job. So I think about the company a lot. And I worry that the future in store for us—if Google gets a pass from regulators and consumers and continues on its path of insatiable growth—will be a lot more monochromatic than the company’s colorful logo.

The news this week that Google has acquired Nest Labs for north of $3 billion in cash was my personal tipping point. I’m looking at Google and starting to feel that this Silicon Valley success story—and the resulting concentration of wealth, brainpower, and ambition, not to mention data—has gone too far. It’s time for consumers, politicians, regulators, journalists like myself, and members of the innovation community to start pushing back on the company.

Google has many vocal critics, and in a way I’m late to the party. For years, I dismissed the concerns of groups like FairSearch, a coalition of Google competitors alleging that Google’s behavior in the search marketplace is anticompetitive. Because FairSearch’s membership includes companies like Microsoft and Expedia that have their own search businesses, the message always sounded to me like sour grapes.

But now my worries go beyond Google’s 67 percent U.S. market share in search (compared to Bing’s 18 percent and Yahoo’s 11 percent—November 2013 figures). The number that really bothers me is $56.5 billion. That’s the amount of cash Google had on hand at the end of the third quarter of 2013. It’s the fuel for a series of acquisitions that threaten to undermine market-driven innovation and consolidate a huge chunk of Silicon Valley’s engineering talent under a single corporate roof.

Google isn’t any more acquisitive now than it always has been—in fact, the pace has slowed a little since the peak year of 2010, when it bought 26 companies. (There were 25 acquisitions in 2011; 11 in 2012; 17 in 2013; and two so far this year that we know about.) No, the notable change is that Google seems to be thinking more imperially about the sectors it wants to explore.

When the company was younger, most of its acquisitions related to its core businesses of search, advertising, network infrastructure, and communications. More recently, it’s been colonizing areas with a less obvious connection to search—such as travel, social networking, productivity, logistics, energy, and robotics. On top of the M&A activity, Google is investing in areas like wearable computing, self-driving cars, and global wireless Internet connectivity via balloons through its Google X skunkworks division, and in longevity-enhancing technologies through its new life sciences subsidiary Calico.

Think about it. Some morning in the not-too-distant future, you could be awakened by the alarm on your Google-designed phone (Motorola’s Moto X) running a Google operating system (Android). You could ride to work in a Google-powered robot car guided by Google-owned GPS maps (Waze). At your office you’ll log onto your Google (Chrome OS) laptop running a Google (Chrome) browser. You’ll spend your day analyzing documents and spreadsheets saved on Google’s cloud service (Drive) and stay in touch with your co-workers and friends using Google’s e-mail system (Gmail) and social network (Google+).

The virtual personal assistant on your phone will stand ready to help you with any question instantaneously (Google Now), and if you miss a call from somebody while it’s doing that, they can leave a message on your Google answering service (Voice). At lunch you’ll choose a place to eat using Google’s restaurant guide (Zagat), make a reservation and get directions by talking to your wearable display (Glass), and pay using your smartphone (Wallet).

When you get home at night, your house’s HVAC system will adjust itself to your presence using its Google-powered thermostat (Nest) and you’ll cook dinner under the watchful eye of your Google-powered smoke alarm (also Nest). You’ll eat in front of your Google-powered television (Chromecast) watching shows hosted or licensed by Google (YouTube, Google Play). Before dozing off you’ll pop a Google-funded pill to optimize your metabolism (Calico) and use your tablet (Android) to read a few pages of the latest mystery novel (Google Play again).

And throughout the day, of course, everything you read, watch, search for, and talk about will be tracked by Google’s algorithms—the better to show you the targeted ads that generate the high click-through rates that bring in the advertising dollars that subsidize everything else about Google’s business.

That’s only the beginning. Who knows what master plan for our future is behind Google’s recent string of acquisitions in robotics—namely Schaft, Industrial Perception, Redwood Robotics, Meka Robotics, Holomni, Bot & Dolly, Boston Dynamics, and Nest (which is a robotics company at its core, and has a famed academic roboticist, Yoky Matsuoka, as its vice president of technology). John Markoff at the New York Times quotes experts who think the big vision behind Google’s robotics rollup is about supply-chain automation and robotic delivery men.

To be honest, I don’t see any coherent plan. I just see Google waking up to the fact that robots—the hardware that lets software extend its reach in the real world—are the next big technology frontier after the Internet, and deciding to plant its flag.

So, why should it pain me to see so many cool companies, in robotics and other fields, being annexed by Google?

After all, when Google buys a startup, there’s usually a nice financial outcome for the founders and the shareholders. (A very nice outcome, in Nest’s case; venture backer Kleiner Perkins Caufield & Byers will reportedly see a 20x return on its investment.) Some of that money might eventually get reinvested in new startups. And you could argue that joining Google extends an acquired startup’s product-development runway, while freeing its employees from practical business concerns. As long as the AdWords engine keeps pumping out cash—the way a quasar at the center of a distant galaxy spews radio energy—no one else at Google need worry about money.

The problem, as I see it, is twofold.

1. Giant Companies Are Where Innovation Goes to Die 

There’s just no way around this truth. For reasons that Clayton Christensen and others have documented, it’s extremely difficult for a company that has hatched one world-changing product to keep innovating into its second, third, or fourth decade—Apple being one of the few big counterexamples. After an initial era of exponential innovation and growth (which, for Google, ended about 10 years ago), successful companies get addicted to their cash source, become fearful of internal disruption, and switch to innovation-by-accretion.

And while Google has a better track record than most companies when it comes to integrating newly acqui-hired employees into its corporate culture, it’s not so great at making use of the technologies it buys. Out of the 140-some companies Google has acquired since 2001, only a handful have made notable contributions to the bottom line and the company’s overall value. Those include Android (2005), YouTube (2006), DoubleClick (2007), AdMob (2009), and Motorola (2011). And also, perhaps, tiny Upstartle (2006)—this was the company behind Writely, which became Google Docs, which became the core of Google Apps.

As a journalist who loves writing about startups and their struggles and triumphs, I’m always a little sad to see the companies I’ve covered disappear inside Google. I’d point, for example, to Bump Technologies, a Y Combinator company whose mobile app allowed users to exchange business-card data and other files by physically tapping their smartphones together. Bump had some momentum, but it got acquired by Google in September, and a couple of weeks ago the Bump team announced they’re shutting down the service in order to focus on “new projects.”

Then there’s Apture, which helped publishers enhance Web pages (also gone); Wavii, a news aggregator covered by my colleague Ben Romano (gone); and The Fridge, which offered private social networks as an alternative to Facebook (gone).

Once a startup is absorbed by Google, two crucial things happen. First, the founders and employees cash out their ownership stakes and stock options. They become much wealthier, in theory, but there’s no longer much incentive to work startup hours, take big risks, or pour their lives into their product (assuming it hasn’t been discontinued) the way they did when it was just them against the world.

Second, all market pressures are removed. Desktop and mobile search are so enormously profitable for Google that there is only a tiny chance that any other product will ever generate a fraction as much revenue. So, again assuming that the startup’s product isn’t discontinued, it instantly becomes a hobby rather than a business. That’s not a great position to be in, if you really want to innovate and test yourself against the market.

I can’t say what will happen to Nest now that it’s part of Google. Founder Tony Fadell says the company will retain its brand identity and that, with Google’s scale and resources, it will simply be able to get its thermostats and smoke alarms into consumers’ hands faster. “Google will help us fully realize our vision of the conscious home,” he said in a blog post this week. “We’ve had great momentum, but this is a rocket ship.”

But frankly, that’s what every founder-CEO says after they’ve sold their baby to Google (or any big company). The real questions are 1) whether Nest will feel the pressure to keep innovating that comes from a dwindling bank account—the real fuel for most startups’ rocket journeys—and 2) whether Nesters will now start thinking more like Googlers.

Nest promised in its original venture pitch deck that “after the thermostat, we’re going to reimagine every unloved product in people’s lives.” But that’s not a very Googley sentiment. If anything, it’s Appley. I can’t help thinking that the Google rewrite of Nest’s promise will be something more like: “We’re going to make every house into part of a global sensor network, the better to organize the world’s information and make it universally accessible and useful.” If your future home is conscious, in other words, it will be Google doing the thinking.

2. We Don’t Need A New Ministry of Information

There are obviously some big reasons to appreciate Google: it’s full of smart people, and it makes our lives easier and more productive by helping us communicate and find information when we need it. But these services aren’t free. We pay in the form of our attention and the data we reveal—through our online and, increasingly, our offline behavior—about our desires and intentions.

And that brings me to my second big concern about Google’s growth. At a time when our privacy is being assaulted from so many directions—by marketers, by hackers and thieves, by our own national-security establishment—it feels like a bad idea to allow one company access to so much of this personal information. As Google expands into mobile, entertainment, transportation, robotics, and other markets, it will only want to hoover up more and more of our data, heightening the chances that somebody will want to misuse it.

My worry is that any sufficiently advanced search, communications, and sensing infrastructure is indistinguishable from Big Brother—especially when it’s subject to warrantless intrusions by the NSA. Granted, Google and its peers have expressed outrage about NSA efforts that allegedly collected millions of e-mails and other records every day by tapping the fiber optic cables linking its data centers. And they say they’re adding new layers of encryption that may, for now, stymie U.S. and U.K. snooping programs. But simply by centralizing so much data about consumers and businesses, Google will remain an irresistible magnet for hackers, whether they’re wearing white hats, black hats, or gray ones.

*  *  *

From all outward appearances, Google’s own intentions are benign. Larry Page, Sergey Brin, and Eric Schmidt seem to me like good guys. But in recent years, Google has developed the somewhat grandiose habit of describing its big investments and R&D initiatives as “moon shots.” That’s a telling phrase. It connotes not just a willingness to take on hard problems and a tolerance for risk, but a Cold War-era will to dominate—to be the first and the biggest.

If no one but Google has the cash or the courage to pursue big, audacious goals like extending our lifespans or photographing every foot of every street on Earth or populating our homes and freeways with robots, then perhaps Google deserves the credit and the eventual spoils. But everyone forgets that the United States’ real moon shot—Project Apollo—was so expensive that the last three missions had to be canceled. (As a first step into the solar system, Apollo was awkward and abortive. Who’s on the moon today? A Chinese rover.)

Moon shots staged by superpowers who’ve drafted every available brain aren’t the right way to organize sustainable innovation and economic growth. That takes a balance of collaboration and competition, free-market enterprise and regulation, ambition and humility. It’s time for Google to come back down to Earth.

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20 responses to “Google Gets a Nest, But Is It Flying Too High?”

  1. Anmolr says:

    But Apple and MS don’t take risk. They keep offering the same old shit again and again.

    • neighborhood cat lady says:

      Apple hasn’t taken a risk since the iPhone. (I’d argue that the iPad was a no-risk venture.) But MS scrapped their original phone OS and started over. There’s Windows 8 and Surface. All are struggling, but there’s a lot of creativity in them, and MS is staying with them, working to improve.
      Google, however, scares me, for all the reasons in this article and more. By giving away software, they’ve destroyed a lot of good products. Because their software is not revenue-driven, they give very poor customer service, and they have demonstrated repeatedly that they’ll kill popular products that aren’t bringing in the data streams to support their advertising model. Yes, their size leads to huge market distortions, but they’ve been there for years already, and it’s not good for the rest of us.

  2. Yoda says:

    “Some morning in the not-too-distant future, you could be” Mmm, you could do that yesterday.

  3. Snack Dog says:

    100% agreed. Google seems a lot less benign since the conversation on privacy started.

  4. Sounds to me if you have a pile of cash and don’t need to worry about market consequences, you can do exactly the kind of thing that Google is already doing – create “moon shot” products that might not be immediately viable, but can radically change our future for the better. This is a good thing. Self driving cars, quantum computers, diabetes monitoring lenses, google glass. We need more or these things – not less. And it’s only possible because Google is diversifying and has a huge cash pile. Good for them I say!

  5. HotelQuebec says:

    Major difference is Google is partnering with other companies like Nest, Waze, Motorola, etc. and let them run independently whereas Apple makes acquisitions to kill competition and consumer choice along with patent trolling and litigation abuse.

  6. DisquisTL says:

    Apple has $40.5B cash, I don’t see you complaining about them, and they are backing up all the data stored on your smart phone and computers to the iCloud, subject to the same court orders.

    Google does have a pretty terrible track record of integrating new companies, and they tend to end up being an acquisition of new Google employees more than they tend to be an acquisition of technology. But their inability to effectively integrate acquisitions, unlike Cisco Systems, argues strongly against your dystopian future.

    Their internal organization and heavy internal recruiting is going to continue to mean that their engineers can pretty much work on what’s interesting, and when something stops being interesting, and doesn’t get retrofit over a back end update, it’s going to die. Most of what has died is uninteresting, and managers in Google have very little power to have people work on things which are not fun or are uninteresting, since the people can just go elsewhere in the company (usually two groups present opportunities for this every Friday at the all hands meetings, and solicit people to come work for them).

    I have to admit that the effective inability to bring a product to market (Android is always productized by the partner companies; Google only delivers prototypes and beta code to them) was one of the factors in me leaving them, after having worked for Apple and having products I’ve worked on used by 1/7th the worlds population on a daily basis. But that same inability is going to prevent the dystopian future you’re trying to paint.

  7. Adam Smith says:

    XOM has ~$450B in revenue and controls much of the energy supply of the United States.
    WMT has ~$400B in revenue and controls much of the grocery trade in the United States. IMHO, they are currently far more dangerous than GOOG due to their economies of scale and supply-chain dominance. Total US GDP is $15.68T (2012) so if all their revenue was in the US, it would mean each would control 2.5-2.8% of total GDP. But, both these companies are global which means their “US” GDP footprint is actually smaller.

    What’s more fundamentally important to the US economy? Driving & shipping goods or selling ads? Even with self-driving cars, you have to fuel them somehow. Electric & Hybrid are coming up, but XOM will be around for many, many years controlling a key input to production and transportation. If the internet somehow “died” tomorrow, XOM and WMT would be there happy to sell you fuel or groceries.

    GOOG, at the end of the day, is a media company. They have “channels” that have space and buyers bid on these spaces to place ads. There is only so much advertising in the world that they can control and if the government feels threatened (in some way, shape, or form) they can start anti-trust litigation. There are other competing search engines (Bing, Yahoo), other competing email (hotmail, yahoo, Facebook), other competing browsers (IE, Firefox, Opera), other competing video services (Netflix, Hulu, Amazon Prime), other competing wallets (AMEX, MasterCard, VISA), and so on. I doubt the US government will do anything until Google’s US sales becomes >2% of US GDP or Google maliciously uses its size to squash the competition (e.g. Apple). Read these articles for historical aspects

    With regards to privacy I think are 2 schools of thought. The representative members of the US government that supports the NSA likes GOOG (and previously MSFT) because they only need to break into “one” company to get the data they need. The representative members of the US government that support privacy & controls on consumer data do not like GOOG because they have too much data. If the US believed privacy was important, they could enact rules similar to that of Germany. GER government has rules that protect consumers’ privacy quite well.

  8. JKO says:

    Google what Bell Labs used to do, vis-a-vis pure research (see what I did there?)

    I was lucky enough to have a college internship at Bell Labs back in the day, and I distinctly remember asking my manager how on earth they justified their huge budgets for (what seemed to me like) uncommercializable projects.

    My manager then rattled off a handful of simple innovations they’d come up with over the last decade that had literally saved the company billions of dollars.

    The modern day equivalent of the old, monolithic phone company is Google. The sheer scale of what Google does opens the door to little things being worth a lot of money, and with the number of projects they are funding they can take a shotgun approach to R&D.

  9. JoeS54 says:

    My primary problem with Google is not that they represent a threat to privacy (although they do), it’s their business model. They’ve done a good job of blinding people to the fact that they’re basically the ultimate practitioners of what used to be called “adware”. Just think of every single Google service as one of those browser toolbars that some dodgy download tries to sneak past you on install, and once you accidentally install it becomes almost impossible to fully get away from it. Once you understand that that’s what Google is and does, everything else becomes clear.

    Outside of their search algorithm, every one of their services are junk of far lesser quality than something produced by Apple, Microsoft, etc., given away for free to sell advertising. Android is junk compared to iOS and Windows Phone. Chrome OS is junk compared to OSX and Windows. And on and on. Google produces cheap junk for people who don’t want to pay for quality, and are willing to give their personal info to an andertiser in exchange.

    • Shomo says:

      Why is it junk? Works fine by my standards, and Gmail trumps Outlook or any other of MS’ mail clients any time.

    • SortingHat says:

      People LOVE cheap junk though because it’s less work then researching!

      Americans especially think work is evil and something to be avoided.

  10. AMR says:

    Waaa! Why the whining about a company that has made a positive difference in our digital lives?

  11. Jaqian . says:

    Great article but most it describes every 21st century future most ppl wish for not something to fear. Google gave us 1gb email accounts when MS was still pushing 2Mb with hotmail, GPS navigation (don’t rely on Apple for that) android is an amazing OS giving us freedom from the arrogant design of Apple, its horrible iTunes and stupidly priced devices. I look forward to what Google bring out next, they seem to be the only company doing blue sky research anymore. As the old saying goes you cant make an omellette without breaking some eggs; they get some things wrong but they more right than wrong.

  12. Adam Williamson says:

    Great article. Want to do something concrete about it? Contribute to open platforms that implement the kind of services that give Google a massive advantage in the sectors in which it operates.

    Run MozStumbler – – on your phone to help Mozilla build an open location services platform. Contribute to OpenStreetMap – – to help build a perpetually-freely-licensed source of mapping data for anyone who needs it to compete with entrenched players like Google and Apple.

    If you’re involved in the tech world, make your products use open services and platforms like those described above, and OpenID – – or Persona – – and Mozilla Sync, and WebRTC – . If you’re a geek, look into hosting your own stuff with Owncloud – – instead of letting someone else do it for you.

    There’s a lot of us out there trying to help build all the stuff needed for you to have all the cool services you enjoy, and more, without handing the world on a plate to Google and/or Apple. Come join the party.

  13. sfumatoxxx says:

    There was once a happy time, when it used to seem a bit hypocritical to me, when a person who had never taken part in an “innovation” nodded sagely & spewed the cliche dictum “big cos = death of innovation” ad nauseum. Being habituated quickly got rid of me of that feeling.

    And this is all I am going to bother about this propagandist B.S.

  14. SortingHat says:

    Ever since Google Books were stopped and their *News Archives* stopped they seem to be a *mobile phone* company basically now only focusing on apps and mainstream stuff.

    I remember when Google used to be *geeky* if there is such a word and now they are a sterile corporation which is NOT capitalism.

    Capitalism allows for competition and price wars. Corporations and monopolies DO NOT allow room for growth and continue to be like leeches sucking the life out of you.

    Google needs to be allowed to fail so other companies have a chance to pick up where Google left off.

    Unfortunately Microsoft also chose to go the mobile phone route when they forced Windows 8 to be a phone on a PC. Windows 10 is actually worse having the Metro UI combined with the start menu in an ugly mess.

    Do they think only phone users exist?

  15. SortingHat says:

    What killed the computer industry was actually the switch over from 32 bit to 64 bit machine language.

    After that software vendors threw their hands up in the air and gave up which leaves only crappy ports from game machines to enter the PC Market via electronic downloads.

    When the software vendors still existed you would see at least two aisles of PC Software in most stores including Sears before it was Kmart.

    Heck Target and Kmart used to carry computer software in a section all by itself.