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

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

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 … Next Page »

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The Author

Wade Roush is a contributing editor at Xconomy.

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  • Anmolr

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

    • neighborhood cat lady

      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.

  • Yoda

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

  • Snack Dog

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

  • http://www.bhagwad.com/blog/ Bhagwad Jal Park

    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!

  • HotelQuebec

    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.

  • DisquisTL

    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.

  • Adam Smith

    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
    http://en.wikipedia.org/wiki/Standard_oil#Monopoly_charges_and_anti-trust_legislation
    http://en.wikipedia.org/wiki/United_States_v._Microsoft_Corp.

    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.

  • JKO

    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.

  • JoeS54

    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

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

  • AMR

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

    • Q

      Yes i agree with you 100%

      :)

  • Jaqian .

    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.

  • Adam Williamson

    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 – https://f-droid.org/repository/browse/?fdid=org.mozilla.mozstumbler – on your phone to help Mozilla build an open location services platform. Contribute to OpenStreetMap – http://openstreetmap.org/ – 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 – http://openid.net/ – or Persona – https://login.persona.org/ – and Mozilla Sync, and WebRTC – http://www.webrtc.org/ . If you’re a geek, look into hosting your own stuff with Owncloud – http://owncloud.org/ – 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.

  • sfumatoxxx

    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.