Will M&D acquisitions drive the development of the Internet of Things?

“Honey, the dishwasher’s broken.  We better call Google.”

In January, Google raised the last holdouts of unraised eyebrows in the technology community by purchasing a hardware/thermostat company called Nest for $3.2B.  This move followed their notably aggressive acquisition strategy of 2013 which saw them purchase eight different robotics companies.  Meanwhile, Samsung, the king of the smartphones, just announced a new smart-home computing platform that will allow people to control home hardware (e.g., washing machines, televisions) from a single app.  What should we make of this trend of technology giants buying their way out of their core competencies into manufacturing by betting on the future of the Internet of Things?  And as the tech giants vie for pole position in the race into the manufacturing sector, should investors and M&D firms be looking to technology for partnership and/or capital?

One Is an Incident, Two Is a Coincidence, Three Is a Trend, So What Is Eight?
A Closer Look at Google’s Recent Moves

Google’s recent strategic moves into M&D, and more specifically robotics, has raised some questions in the tech business and investing communities.  In 2013, Google acquired Boston Dynamics, Perception, Redwood Robotics, Meka, Schaft, Holomni, and startups Bot & Dolly and Autofuss.  In addition to 2013’s activities, if you also consider Google’s significant investments in other M&D initiatives like Google Glass, Google Fiber, and self-driving vehicles, then Google’s moves can only be characterized as a direct, explicit strategy to move into hard goods.

You Don’t Sell Ad Space on a Robot, Right?

Lest we all forget, Google sells ads.  They wield an undeniably powerful and omnipresent search algorithm, and their Android operating system continues to be a successful revenue stream for the company. So how do robots and hardware fit into the plans?  Perhaps the whispers heard in the C-suite at Google are about robotics and other sectors of M&D becoming new and unexpected breakthrough industries in their own right, not unlike search engines.  Or maybe, in the arms race of technology giants, these moves are more about grabbing talent than about the businesses themselves.  After all, Nest employs 100 ex-Apple employees, including co-founder Tony Fadell who is considered by many to be the “father of the iPod.”  The prevailing suspicion, however, is that the above are worthy and meaningful fringe benefits that come along with what is expected to be the true prize of recent M&D acquisitions: the Internet of Things.

What Google, Samsung, and surely others are endeavoring to accomplish is to create a market for their current technology platform products by investing in a vehicle through which it can continue to deliver its more core offerings.  In this sense, the next battlefield for technology will be fought not on phones or computers, but on interconnected standard goods, and the race is now on for prime position on the battlefield.

In a previous blog post, I spoke of M&A to Innovate in the context of M&D firms looking outside of M&D (e.g., into technology). This Google/Samsung theory is the exact same – albeit in the opposite direction in that technology companies may be trying to create a new market outside of their core competencies as they are currently defined by acquiring their way into M&D.

Call Me a Safe Bet, I’m Betting I’m Not

As consumers, we should eagerly look forward to the day when robotics and our artificially intelligent Android home operating systems anticipate our needs and better control the necessary evils of day-to-day life.  As investors and business people, these new market shifts are fascinating, but anticipating who will be atop the throne when the music stops is a bet difficult to make.  One group with particularly piqued interest regarding these moves is leaders at M&D firms, as tech firms may now represent a new partner group never before considered.  For investment bankers and M&D CEOs looking for capital, the suddenly hot, and deep-pocketed corporate developers of the tech giants should be put on speed dial.  Meanwhile, COOs, operators, and strategic and operational consultants like me need to continue to expand the scope of what we call “operations” to include technology; conversely, CIOs and our technology teams will be well served to begin to familiarize themselves with shop floors, distribution, and all other related nuances of M&D hardware businesses.  The only safe bet at this point is that moves made by tech giants into M&D have not been made at random, nor are the moves and mergers between technology and M&D anywhere close to slowing down.

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