Nest’s Acquisition Of Dropcam Shows Google's Attempt To Dominate ‘Smart Home’ Segment

Nest Labs, which was bought by Google Inc. (NASDAQ:GOOGL) in January, announced Friday that it would acquire Dropcam, a San Francisco-based company that makes home-monitoring cameras, in a move that is considered by many as the search engine giant’s latest attempt to become a bigger part of consumers’ homes and lives.

While Nest and Dropcam did not specify the deal's price tag, media reports have said that the Google-owned home automation company sealed the acquisition for $555 million in cash. The move is considered by many as Google’s attempt to gain an early edge in the fast-growing “smart home” segment, which is also on the radar of other technology heavyweights, such as Apple (NASDAQ:AAPL) and LG Electronics Inc. (KRX:066575).

The smart home market “is so nascent – this is really a hobbyist market today. It’s not mainstream at all and it’s extremely fragmented. Apple could galvanize the market,” Jan Dawson, a tech analyst with Jackdaw, recently told Financial Times ahead of Apple’s Worldwide Developers Conference, or WWDC, earlier this month.

At WWDC, the iPhone-maker introduced a new iOS 8 feature called HomeKit, which will allow people to use iPhones to control aspects of their household such as indoor lighting, garage-door openers and security cameras.

In May, LG launched HomeChat, a messaging service that uses LINE, a mobile-messenger app, to allow users to control the settings on the company’s various home appliances such as refrigerators, microwave ovens and washing machines. HomeChat also comes with a “Quick Button” feature, which allows users to easily access the appliances' most commonly used functions.

In addition to Apple and LG, many other companies, such as Samsung Electronics Co. Ltd. (KRX:005930) and Panasonic Corporation (TYO:6752), too are eyeing the potentially lucrative smart-home market with new products and services, which means Google has its work cut out in taking the lead.

Meanwhile, the latest buyout of Dropcam by Nest also has raised security and privacy concerns because Dropcam cameras can see anything that is going on inside a house -- information that could potentially be broadcast over the Internet. It's also feared that Google, which earns a majority of its revenues from advertisements, could potentially provide such data to marketers to target customers.

However, Matt Rogers, co-founder of Nest, said that Dropcam would operate under Nest’s privacy policy, which states that the company will share customer data with third parties, including Google, only if users agree.

“Like Nest customer data, Dropcam will come under Nest’s privacy policy, which explains that data won’t be shared with anyone (including Google) without a customer’s permission,” Rogers wrote, in a blog post. “Nest has a paid-for business model and ads are not part of our strategy. In acquiring Dropcam, we’ll apply that same policy to Dropcam too.”