By Oren Laurent
President, Banc De Binary
Refrigerators that tell you when food expires and televisions that switch on your favorite show as you walk in the door are no longer the realm of science fiction; welcome to your future home of app-controlled devices as envisaged by the tech world. Google’s $3.2 bln purchase of Silicon Valley based Nest Labs last week brings that future a little nearer.
Thanks to the investment, Nest will be able to expand its portfolio of smart home devices and take advantage of Google’s global reach for business and marketing purposes.
And what does Google gain? The company’s stock rose 0.53% after the announcement amid investors’ speculations about its long-term goals. It is increasingly apparent that Google’s recent string of purchases and areas of interest, from self-driving cars to Google Glass, and now home devices, contribute to its single vision of connecting previously unrelated items to control and monitor all aspects of everyday life.
Google’s interest in this new field makes sense given that most of its revenues are generated from advertising and not its products themselves. Smart products work by processing data from the environment. Nest’s thermostat for example will be able to heat your home automatically as you return from work thanks to a combination of sensors and algorithms. It will learn your preferred temperature from experience and will track your location using your smartphone GPS. The more Google knows about you, the better it can target its advertising, and the more relevant future products it can make.
Yet this is not simply about the resulting advertising revenues, nor solely about Google. According to Gene Munster, an analyst at Piper Jaffray, the global market for connected home products could be worth $40 bln in the next five to seven years.
Several tech giants and internet companies are now competing for a share of the market and for the privilege of controlling of our daily lives. AT&T are already offering connected home systems including appliances and lights, while Apple’s Airplay system enables the iPhone to become a remove control.
Small companies are also looking to leave their stamp on our future and become the next big household name. Several tech start up in Silicon Valley and worldwide have been developing a wide range of home devices connected to apps, and will be excited by the implications of the recent news. Venture capitalists have already invested $500 mln into such companies since the start of 2012. No doubt further funds will flood in and push this new industry forwards.
Currently just 1 or 2% of people own an app-connected device, meaning that potential for growth in this market is phenomenal. A third of people polled say they would be interested in a connected device, and it is a fair assumption that many of the rest will change their minds once technology becomes more readily available, they understand what is involved, and the trend catches on. It is highly likely that the sector will take off, and by getting in now, investors could maximize returns later.
As is generally the case with apps, many start-ups will fail to succeed, either due to a weak product or competition. Yet it is clear that the tech giants are now marking their territory and are keen to buy the right small companies to expand their empires. The industry as a whole offers several great investment opportunities and will be one of the most interesting sectors to follow this year.
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