Why Alphabet's Smart Home Strategy Is Still a Gamble

Relatively high costs means pricing for consumers is an issue, especially as concerns remain about usefulness - and the understanding in the wake of the various Facebook scandals - that the devices are recording and reporting much of what they see or hear for future re-sale and other uses. JL

Ashley Rodriguez reports in Quartz:

Nest, the internet-connected devices company acquired for $3 billion in 2014, posted a $621 million operating loss against $726 million in revenue in 2017. 40% of Nest’s 2017 revenue came in the fourth quarter, the holiday shopping season. Losses were relatively flat during period compared to the quarter before, which suggests expenses were leveling off. Nest may see more savings now that it’s been folded back in Google’s broader hardware business.
Google’s attempt to take on Amazon in smart-home technology has yet to pay off.
According to company financials released Monday, Nest, the internet-connected devices company acquired for $3 billion in 2014, posted a whopping $621 million operating loss against $726 million in revenue in 2017. The figures for Nest, which makes smart thermostats, security cameras, and other devices, were revealed for the first time because of a reorganization of Alphabet’s businesses in February. Alphabet is Google’s parent company.
Alphabet rolled the internet-connected devices company into Google and merged it with Google’s hardware division, which makes products like smartphones, streaming media players, and the Google Home smart speaker. Industry watchers expected that move to help Google compete against Amazon, a smart-home market leader. In its financials, Alphabet had listed Nest as a separate company with its “other bets” segment of businesses, which included internet service Fiber, car-sharing platform Waymo, and health-service company Verily. With the move of Nest to Google, Alphabet restated its segment financials for 2017 to reflect the 2018 shift and allow like-for-like comparisons.

Nest sold more devices during the year than the previous two years combined, Sundar Pichai, Google’s CEO, added on the earnings call.
Nearly 40% of Nest’s 2017 revenue, or $278 million, came in the fourth quarter, the big holiday shopping season. Losses were relatively flat during period compared to the quarter before, which suggests expenses were leveling off. Nest may see more savings now that it’s been folded back in Google’s broader hardware business.
While Nest is still a gamble, it also appears to have been one of Alphabet’s more lucrative “other bets.” Its losses were about 18.5% of the total losses originally reported for the “other bets” segment last year, and 60% of the revenue.
Google did not immediately return Quartz’s request for comment and confirmation.