Google vs. Amazon – Battle for the smart home pt XV

Google has an opportunity that I don’t think it will take.

• Google has opened up a new front in the battle with Amazon by forming a partnership with ADT in order to deliver smart home security to ADT’s 6m US-based customers.
• Google is buying a 6.6% stake in ADT for $450m which is already worth $670m thanks to a bounce in the share price following the news of the transaction.
• The key to this deal was in a Reuters interview (see here) and not in any of the press releases which is that “ADT will exclusively support Nest products”.
• This means that ADT will not be integrating with Amazon’s Ring and I suspect that its other smart security strategies will be quietly put to sleep.
• ADT has already had a go at this sector when it teamed up with Samsung to offer SmartThings products as well as a range of security cameras under its own Blue brand.
• Neither of these have gone particularly well once again underlying that the secret to a decent user experience these days is all about the software and the intelligence that sits behind the hardware rather than the hardware itself.
• This, of course, assumes that hardware is of a minimum level of quality.
• Google has its own problems in this area as its first attempt at a smoke alarm was a disaster and it has struggled with a number of other issues in this area.
• Most of these problems have been hardware and reliability focused meaning that for Google there is also some value in its relationship with ADT beyond its customer base.
• Dumb but reliable products are ADT’s forte and so with ADT making (or at least having input into Nest’s products) and Google doing the brains a decent suite of products could result.
• Although this is a good match, this is much harder to get right than it sounds.
• Google typically provides its products on a best effort basis meaning that if occasionally they don’t work, its not really a big deal.
• This is one of the reasons why the technology industry is having such a hard time with autonomous driving because it has to be very reliable and almost never go wrong.
• The same thing is true for home security because if it fails to pick up an incident then it is worthless and if it has lots of false positives, the user experience will be so badly degraded that the user will throw it in the bin.
• This is pretty much exactly what happened with Nest’s smoke alarm.
• Hence, this needs to be much more than a loose co-operation between the two companies and there may come a time when Google decides to acquire ADT.
• This is what I suspect the market was speculating when it sent the shares to $20 from $8.58 before settling at the end of the session at $13.48.
• On the home speaker front, the battle has long looked like it was over (I haven’t written on this for over a year) with victory clearly going to Amazon but here Google is opening up a new front.
• Amazon is doing reasonably well with Ring but an exclusive arrangement with ADT gives Google an opportunity to rectify the balance.
• Perhaps if it produces an excellent series of products and wins great traction for home security, that might give it a beachhead from which to launch a renewed assault on Amazon in the other areas of the smart home.
• That is a big if because Google has such a bad case of engineering disease (see here), I am far from convinced that it will be willing to take input from ADT to ensure that the reliability of its products is good enough.
• Hence, I think that the default position will be that the opportunity with ADT will be largely squandered leaving Amazon unchallenged in the smart home and smart home security segments.
• However, I will reserve final judgement when we start to see some joint products from the two companies.