 Hi, this is Jeff Frick and the Cube Silicon Angles office in Palo Alto. We've got some breaking news. I'm here with John Furrier, founder of Silicon Angle. John, we just read that Google's first acquisitions coming through of 2014, $3.2 billion in cash for Nest. What does this mean? First of all, it's a great news for Google. I think Nest is a startup that made a thermostat that some are calling the future of internet of things, internet of things, essentially a connected device that does things on the internet with an IP address, in this case, a thermostat that can be programmed. And so I think the big story here is it's only a three-four-year-old company, concept to market, and to sell for $3.2 billion in cash makes it a very, very rich deal for the founders and their team, certainly a new talent for Google, which is making its bones from a search engine to Android phones, to really going into a much more larger marketplace of internet of things, Google Glass, self-driving cars. This is one of those 10x moonshot-like projects that fit into the mainstream with Google. So why Nest for the limit? What appears to be a relatively simple device providing a relatively small service is such a big opportunity? Well, this speaks to the market opportunity of what's happening in society today, and that is the internet of things, or the industrial internet as General Electric or GE calls it. And that is that everything is being connected. Really, I look back at 2007 as that seminal moment of the iPhone to consumerize it. A phone connected, everyone's connected. But if you go look at a tech industry like Cisco and others, the internet of things has been happening really since there's been an internet connectivity. So anything with an IP or internet protocol address is now connected, and one of them being a thermostat. So the marketplace for connected devices is going to be thermostats, toasters, refrigerators. Anything with a sensor, anything with a connection, will be connected to the internet. That's the market opportunity, and this is going to be a huge space. So you're going to see everything starting to be radically disrupted with the access to internet computing technology, certainly cloud, mobile, and software is the key to success here. So where do they go next from being able to know what the temperature is in your house they've got now, an IP address directly into your house. They already have those with your computer and your iPad and your telephone. How's this one different? And then where are they going to go next with it? Well, I think the market opportunity is clear internet of things. This is the future for the world. I think the business opportunity for Google in particular is that this is the home. A thermostat represents one element of a connected home device. Anyone with a large family like ourselves at the furrier household or other families, or even if you're living single. You have computers in your house. Some have multiple laptops. You have cable. You have now TV. You have access points. So if you think about your home, everything will be connected. That's going to require a whole new set of software services, low power, more connectivity, more throughput. This is going to radically change the user experience and the expectations of the service. So Google could have that thermostat that could also be an internet access point. It could also be a balance between signal, managing your Instagram, managing your AT&T bills, everything. All those things are now possible for Google. So this is just a more of a mainstream high-tech device that could put in their arsenal with Google Glass, self-driving car, your search engine, all about personalization in the connected home. So what about the dark side, which is the privacy issues? Because as there's more and more access to more of my activities and everything I do now is easy to be seen and easy to be read and easy to be exposed, is there going to be pushback from consumers about letting just another point of presence into their homes? There is going to be a freak-out section of this whole entire announcement. I'm going to give it a few days to battle down. You're going to see a huge argument around the policy, the privacy. Will this Nest thermostat be programmable? Can I see anything? If I have a Nest device, is it snooping? Is there privacy? How do I know if I'm a consumer? These are the questions that everyone is going to be asked. Do I want a Google thermostat in my house, even to begin with? That's going to be a whole other question. That's the business challenge for Google. Yeah, and it brings up just the very specific issues around smart metering. And some of the IP intersection into utilities hasn't gone so smooth. So has Nest cracked that? Have they done a better job than some of the horror stories you read about smart meters? Well, if you look at some of the products and technologies coming in this area, I've talked with the CEO and chairman of GE in Chicago this past year. And you're seeing things around the internet, things in the industrial internet, where these connected devices are adding major value. Billions of dollars of value. I talked to the vice chairman of United Airlines. And he told me that a small 1% savings is just billions of dollars in just gasoline and charges. So you're seeing this technology being very relevant. The issue is is ease of use. The guys who built the Nest, the same guys who built the iPhone. And that is about usability. So you're looking at the usability of devices that are connected to the internet, making them usable for humans, not just for geeks. So this is why the space is hot. Look for the internet of things to be more user friendly. And Larry Page gets that. Larry Page lives in Palo Alto here in our town. They're buddies. I'm seeing them in there all the time hanging out with the Nest folks. So he's very much aware of, I'm sure Larry's house has Nest in it. I'm sure he sees the future. He's kind of a geek himself. So I think he saw the opportunity to take this off the table and getting a talent in Tony and the team over at Nest. This is clearly an acu-hire at a $3.2 billion cash deal. What are you seeing on the internet today as the story has broken and you're watching some of your social channels that you monitor? What are some of the things that you're seeing come across the wire? Well, I think you're seeing a lot of the folks take some of the analysis. Like it's obvious it's huge deals. Cash Larry Page is involved. This is coming from the top. This is a game-changing statement. This is a statement from Google that this is something mainstream that they like. It fits into their wheelhouse of what they call a 10x project, one that was going to create and kind of be what they call a moonshot, one of these deals where it's going to set the agenda for the future. Certainly it does. Usability and Internet of Things is one. That's the easiest commentary. You're seeing some of the low IQ journalists go there. And they're seeing some of the more smarter journalists and commentary going, oh, OK, Internet of Things. Putting that together. And I think you're starting to see the real smart alpha geeks go, hey, privacy. What about the packet level? How's it going to work in the home? So you're going to start to see a range of commentary from, oh, wow, huge deal. What does it mean? And this is going to play out beautifully for the technology industry, in my opinion. Great move by Google. I give them props for that. So one more thing though, John. Google has had a lot of different product innovations they've taken out. And really, most of their hardware-based innovations haven't been that successful. They had an AV device, a little circle with a little colorful wrap. I don't even remember what it was called. They've got the Chromecast out there now, which is a $35 substitute for Apple TV that just really hasn't got great pickup. So with a lot of very successful companies that are successful in a category, they find it harder to execute well in their hardware space. $3.2 billion. They're obviously planning for success. What does it take for them to build successful large businesses outside of their core? Well, they've had struggles in the past, but they had some successes. Obviously, Gmail's one that grew organically. But they've had a lot of misfires. But Google's not stupid. They know money when they see it. Nest was clearly off the platform in terms of, in the early adopter, the folks inside the industry saw Nest as a huge success. They saw that Nest cracked the code on usability, making software at the heart of the value purpose of taking a $50 device, $50 in bill of material costs, turning it into a high-value ad product for consumers that's usable. That's about software, and that's the key to success here. So Google grabbed it. Now, what you see Google doing is doing things like YouTube. YouTube was critically acclaimed. Some were saying, oh, this is great. What the hell is video? Consumer generated media. And oh, we overpaid for YouTube. YouTube turned out to be one of the best acquisitions in Google history. Nest is along those lines. Look at Nest to be the YouTube for the Internet of Things. What YouTube was for video and media, Nest will be the beachhead, the place where Google starts building up and adding their additional resources. And Google should really take this to the next level. They have all the assets. And Google is a deep powerhouse when it comes to writing real software. And they've proven it with Google Glass, self-driving cars. The list goes on and on. Those guys have their act together when it comes to software. So let's talk about a little bit different challenge. And theCUBE has done a great job of covering the Internet of Things. And one of the items that have come up in the number of those interviews is basically the IP system. And when they initially set up IP addresses, it really was never intended to be. Or they didn't perceive it to be to the scale of the Internet of Things. So now when you start adding all these devices and then you get into factories and all these sensors and the proverbial GE jet engine, what are some of the next technical challenges that have to be overcome as fundamental as, say, an IP address system for the Internet of Things to start to realize its promise? What's the next one that's gonna be taken down? Well, I think, first of all, you need actual physical addresses. And one IPv6 is promising there. I think the naming infrastructure, in general, is a challenge. But you're gonna see workarounds to that. And so I think virtualization, virtual addresses, you're seeing all kinds of new software being developed. There's workarounds to that. But ultimately, you have to have an addressable unit of physical access, whether it's a MAC address on the hardware or an Internet protocol. So that ultimately is gonna be worked itself out. I think you're gonna see two levels of innovation, one kind of under the covers encapsulated away with software so the user don't even see it, and one that's gonna be publicly debated along the lines of ICANN and DNS and IPv6. These are the kinds of things that you're gonna see. So I think we're in a good spot, still scarcity in terms of that, but not a real critical path problem. The advances in software will overcome that, in my opinion. So last question, anytime a big rock drops in the pond and sets off $3.2 billion waves in a number of directions, right? It's gonna have an impact on the market. So it's gonna have an impact on existing companies that are out there, it's gonna have an impact on Intercapitalist and where they put their next dollars. What do you see as kind of the short-term impacts of this event on some of the companies and ecosystem that are out there right now? I think there's gonna be a big impact. Obviously, 3.2 billion dollars in cash wakes everyone up. That gets a lot of attention. It's a cash deal. Larry Page obviously closed the Tony here in Palo Alto area in Silicon Valley, so they know each other, so it's still a great deal. Great liquidity, great wealth creation for Nes. Congratulations. I think in general, this is gonna open up a huge battle front in the tech business around the home. This is an area that's waiting for disruption. We're seeing it going back a decade or two around the phone companies owning the last mile, they call it the local loop, internet connectivity. That battle's been fought and won and lost in Washington DC. You're seeing companies like Google leading the way. What Google's doing has been fantastic. They got free Wi-Fi in downtown Mountain View they're doing the fiber projects in Kansas City. Google is going doing everything they possibly can to just inch by inch, move the ball down the field to create internet freedom and ultimately freedom creates innovation. The more you open things up, the more values created. So I think this is the beginning, possibly of a whole new generation of devices where it's easy to use, where end users can compute and have fun and configure their homes. I think that's the opportunity. If you just think about the complexity in today's home. I mean, our family, like I said, the family of four kids, six total in the household, we have a combined, I gotta think, half a dozen or at least a dozen different machines, multiple boxes, set top boxes, access point problems, who's got what access point, security, AT&T bills off the charts with the Instagram. So modern family in today's world needs a modern infrastructure. I think what Google's doing here at the beginning of that and that's the internet of things, all things connected. Well, John, thank you. Thanks for the opinion on short notice. Again, we're coming to you live from Silicon Angle Palo Alto office. Big news today, Google spends $3.2 billion cash. That's with a B on Nest.