TIME Silicon Valley

How Google Perfected the Silicon Valley Acquisition

Signage outside the Google Inc. headquarters in Mountain View, California on Oct. 13, 2010.
Tony Avelar—Bloomberg/Getty Images Signage outside the Google Inc. headquarters in Mountain View, California on Oct. 13, 2010.

As tech's largest firms grow in scope and age, acquisitions have become an increasingly important maneuver

Correction appended, April 21

In late October John Hanke and several of his co-workers met for a reunion of sorts at Fiesta Del Mar, a Mexican restaurant near Google’s Mountain View headquarters. Hanke, a 10-year Google employee who led initial development of Maps, was once the founder of a small geodata startup called Keyhole that Google acquired in 2004. The fact that the one-time entrepreneur has stayed with the search giant for more than a decade makes him and his colleagues oddities in Silicon Valley. “There are quite a large number of [us] who are still at Google, and I have to say I don’t think anyone expected that when we first came in,” he says.

Google has used acquisitions to expand its workforce and launch new products since before it was a household name. Recently that strategy has become the modus operandi for technology firms in Silicon Valley. Facebook is using its fast-growing cash hoard to take control over sectors both adjacent to its core product (WhatsApp for $22 billion) and far-flung from social networking (Oculus VR for $2 billion). Microsoft, Yahoo and Amazon are doing the same, making big-ticket bets by buying Minecraft developer Mojang ($2.5 billion), Tumblr ($1.1 billion) and video game streaming site Twitch ($970 million), respectively. Even Apple, which long eschewed splashy acquisitions in favor of much smaller, less public buys, says it bought at least 30 companies during the last fiscal year, including the $3 billion purchase of Beats.

Overall spending on tech acquisitions topped $170 billion in 2014, up 54% from the previous year and more than double the amount spent in 2010, according to PrivCo, a research firm that tracks investments in private businesses. As the core of dominant technology companies get larger, they have come to depend on acquisitions not only to broaden their businesses but also to sustain the pace of innovation. “Companies are buying innovation,” explains Peter Levine, a general partner at venture capital firm Andreessen Horowitz. “As large companies need to be competitive and want to increase their footprints in a variety of different areas, one of the best ways to do that is through acquisition.”

The deals are a boon for startups as well. Venture capital is abundant, and companies can rely on investment rather than revenue to keep growing. If it’s not clear how a startup will eventually convert users into revenue, a buyout from a large firm can render that problem irrelevant—or at least less urgent. While investors and founders insist that launching a thriving self-supporting company is still the end-goal in Silicon Valley, “exiting” via a sale rather than an initial public offering can still net a lucrative payout. “It’s almost a goal for some of these companies as they start, to have that exit event,” says George Geis, a business professor at UCLA whose upcoming book, Semi-Organic Growth, analyzes Google’s acquisition strategy over the years.

But while snapping up a startup is now easy, holding onto its key employees is more difficult. Startup founders, who often think of themselves as entrepreneurs before engineers, are notoriously difficult to keep at large firms long. Partly, this is cultural: striking out on one’s own, idea in hand, is a fundamental part of the Silicon Valley ethos. The widespread availability of funding doesn’t hurt, either. That has left firms struggling to keep the expertise they may have spent millions acquiring. “When a firm is making a tech acquisition, they’re buying the talent as much as they’re buying the technology,” says Brian JM Quinn, a law professor specializing in mergers and acquisitions at Boston College.

A TIME analysis of startup founders’ LinkedIn profiles found that about two-thirds of the startup founders that accepted jobs at Google between 2006 and 2014 are still with the company. Amazon has retained about 55% of its founders over that time period, while Microsoft’s rate is below 45%. Facebook, with a 75% retention rate for founders, is beating its older competitors, but the company only began acquiring companies in significant numbers around 2010 or so. Yahoo and Apple, which have both gone on acquisition sprees under new CEOs Marissa Mayer and Tim Cook in the last two years, now have a similar retention rate to Google.

Google stands out among this cohort in large part because of the massive number of acquisitions it’s conducted. Overall at least 221 startup founders joined Google’s ranks between 2006 and 2014. Yahoo, the next closest competitor, added at least 110 founders to its employee roster in that time. Google’s internal calculation of its overall retention rate for startup founders through its history is similar to TIME’s, according to data provided by the company. Apple, Facebook, Yahoo and Microsoft declined to share any information on the retention of founders; Amazon did not respond to a request for data.

An examination of the ways Google tries to retain employees provides a window into the increasingly ferocious battle among the tech sector’s giants to expand through conquest. “Google,” says Geis, “has done a pretty good job—among the best in Silicon Valley.”

‘The toothbrush test’

Even when Google was small, it wasn’t shy about spending. The company’s first startup acquisition, the 2003 purchase of Pyra Labs, forms the backbone of what is today Blogger, an online publishing platform. Since then, many of Google’s most well-known products, including Android, YouTube, Maps, Docs and Analytics, have originated from acquisitions. “M&A has obviously been a huge part of Google—and, I think, Google’s success—for a long time,” says Don Harrison, Google’s vice president for corporate development, who oversees the company’s acquisitions.

Before any deal is finalized, it has to pass what CEO Larry Page calls “the toothbrush test”: is the product something you use daily and would make your life better? “If anything matches the toothbrush test and relates to technology, then Larry has an interest in it,” explains Harrison.

Typically, Google buys occur in sectors where the company has already been experimenting itself. Harrison points to YouTube as a prime example. Google already had a video sharing service called Google Video in the mid-2000’s, but YouTube’s fast-growing user base convinced the firm to offer a then-eye-popping $1.65 billion for the startup, even though it was barely a year old and earned no revenue. Today, YouTube brings in billions of dollars of revenue per year and is the third most-visited website in the world, according to Web analytics firm Alexa.

But the return on investment on an acquisition isn’t only measured monetarily. It’s important to Google and other tech giants that the founders behind ideas worth paying for stick around as well. Harrison says founder retention is one of the significant factors Google measures as part of the “scorecarding” it does to evaluate its purchases. “We hold ourselves accountable to make sure that the founders are able to be successful within Google,” Harrison says. “It’s something that we’re not only working on at the time we buy the company but we work on for years after as well.”

Cash alone can’t convince the top startup founders to join Google. 2014 was the most active year for IPOs in the U.S. since the year 2000, according to IPO tracker Renaissance Capital, and Chinese online retailer Alibaba had the biggest public debut in world history, raising $25 billion in September. “As aggressive as we’re willing to be, we probably can’t match public company premiums right now,” Harrison admits.

So Google tries to find other ways to lure key talent.

‘A True CEO’

For Tony Fadell, the CEO of smart home company Nest, the decision of whether or not be acquired by Google was really a question of how he wanted to spend his time.

Google had begun courting Nest almost from the company’s inception, ever since Fadell showed Google founder Sergey Brin a prototype of the Nest Thermostat at a TED conference in 2011. At the time, Fadell wasn’t interested in a buyout. “I wanted to keep it as a startup as long as possible,” he says.

But as Nest grew, so did Fadell’s logistical headaches. By 2013, he says he was spending 90% of his time on what he calls “back-of-house stuff”: managing finances, talking to investors, wrestling with taxes and fending off patent lawsuits. “There was a lot of selling to multiple entities that we were doing the right thing,” he says.

When Google came knocking again, offering a big payday and the chance to keep Nest’s name brand intact—a key requirement for Fadell—an acquisition seemed more appealing. Now Fadell says he spends 95% of his time focused on product development and key relationships. Nest, meanwhile, has gotten access to resources that would have taken much longer to accrue independently. The company launched in five new countries in 2014, but Fadell thinks they would have only reached two without Google’s help.

In many ways, the Nest acquisition is the ideal scenario startup founders envision when they agree to be swallowed by a larger company. Harrison, Google’s M&A head, calls Fadell a “true CEO” and says Google execs serve more as a board of directors for Nest instead of supervisors. Fadell says he hasn’t had to get formal approval for anything from Google, though he reports directly to Larry Page and meets with the Google CEO a few times per month. “He’s like, ‘Call me when you need me, but this is for you to run,’” Fadell says of his relationship with Page. “He gives us the freedom, so I run with that. Only when it’s really major decisions do I really touch base with him.”

Some founders who don’t quite have Fadell’s free rein are still granted a certain level of autonomy. Skybox Imaging, a satellite manufacturer that Google acquired for $500 million last summer, reports to the company’s vice president of engineering for geo products but maintains separate offices from Google in Mountain View. “We kind of get a little bit of the best of both worlds,” says Ching-Yu Hu, one of the four Skybox founders that now works at Google. “We’re all Googlers now so we have access to all the infrastructure there, but at the same time we’re semi-autonomous.”

The company has experimented with more direct incentives to maintain an entrepreneurial spirit. For a few years in the mid-2000’s Google handed out Founders Awards valued at as much as $12 million in stock to teams that developed successful new products like Gmail and Google Maps. Today awards are a little less explicit, in the form of more traditional of raises or promotions. Google works closely with founders in their first 90 days on the job to insure they’re getting acclimated well, but check-ins on founders’ progress can continue for years, depending on the acquisition.

At the core of Google’s pitch to founders is the opportunity for bountiful resources. Sure, those can be scratched and clawed for independently, but going it alone requires a lot more time, money and luck than hitching your wagon to one of the richest companies on Earth. “It was a pretty compelling pitch,” Hanke recalls of his own deliberations about whether to sell Keyhole to Google. “We could achieve a lot more standing on the shoulders of all that was going on at Google versus trying to do it on our own as startup.”

When Founders Leave

Still, even Harrison admits that not every acquisition goes smoothly. Because California is an at-will employment state, workers can generally be fired or choose to leave at any time. Tech companies try to ensure founders stick around for a while by offering a stay bonus or using “golden handcuffs,” which often meter out the payday for a big acquisition in company shares that vest over several years. Facebook’s acquisition of WhatsApp, for instance, includes $3 billion in restricted stock for WhatsApp employees, but they can’t fully tap into those funds unless they stay at the company for four years.

In some cases, golden handcuffs aren’t enough to keep founders on board. Kosta Eleftheriou joined Google in October 2010 through the acquisition of his keyboard app BlindType, but life at the massive company wasn’t what he envisioned. Eleftheriou says he was relegated to maintaining Google’s stock Android keyboard rather than envisioning ways to improve the product. He left after one month, leaving half of his compensation package for the acquisition on the table (he says the total acquisition price was in the seven figures). Now he’s a founder again, with a new keyboard app called Fleksy that has been downloaded 4 million times.

“It was a mismatch between what I was expecting and what happened,” Eleftheriou says. “I think that was partly due to maybe some unrealistic expectations on my side on how much creative freedom I would have. I was hoping to be part of a bigger picture than just some engineer working on something by themselves.”

As the founder of a small company that didn’t make huge headlines when it was acquired, Eleftheriou’s experience isn’t uncommon in the Valley. “Unless they’re sufficiently large, very few acquisitions continue to run independently,” says Justin Kan, a partner at the venture capital firm Y Combinator and cofounder of Twitch. “Oftentimes founders are rolled up inside another group inside of the company. They can’t make decisions as freely as when they were entrepreneurs. That affects people’s willingness to stick around.”

Sometimes founders simply crave the excitement of starting something new. Uri Levine was the only one of Waze’s three founders who chose not to join Google when the traffic app was acquired for $1 billion in June 2013. Instead he launched a new startup—his sixth—called FeeX, which aims to help people reduce investment fees in their retirement accounts. “Entrepreneurs, they are driven by a passion for change,” Levine says. “As soon as you become part of a large organization, you cannot change anymore.”

Google’s also had some more high-profile misfires. When it made its largest acquisition ever, the $12.5 billion purchase of handset maker Motorola Mobility, Page hailed it as an opportunity to “supercharge the Android ecosystem.” But Motorola’s phones failed to gain traction, the subsidiary racked up $1.4 billion in losses for Google, and the company offloaded the handset division to Lenovo for $2.9 billion in 2014. Harrison defends the deal as a smart acquisition because of the patent portfolio that Google acquired, helping the company defend itself from lawsuits by Apple and Microsoft (Geis, who has studied the transaction closely, called it “a wash” for Google).

The Spree Continues

At Google, at least, there are opportunities for change for some founders who join the company. Hanke, the former Keyhole CEO, spent several years heading up Google’s geo services, but now he’s in charge of Niantic Labs, a separately branded unit that Google bills as an “internal startup.” Hanke’s team develops apps that increase the opportunity for digital interaction in real-world environments, like InGress, a mobile game that requires players to visit physical locations to gain power ups. Android founder Andy Rubin also took on a role far removed from smartphones when he became the head of Google’s robotics division in 2013. (Rubin eventually left Google in October after nine years at the company).

Google is constantly making these kinds of bets on the future, and it needs new blood with fresh ideas to sustain them. The company is currently wrestling with multiple threats to its core business, search, including a declining share of desktop searches and a mobile market where Amazon is stealing product search queries and Facebook is taking ad dollars. If Google is to maintain its steady growth, it will eventually have to tap into a new revenue source somewhere, and that may well stem from an acquisition. The company may view Nest as the key purchase that ensures its future dominance, given Fadell’s perch. “Founders and everyone else at these startups, they want to be businesspeople,” he explains.

And the big businesses themselves? They want to ensure they don’t miss out on the next big thing. “The ability to move quickly in rapidly changing markets is one of the major drivers,” says Geis of the acquisition spree. “If you want to effectively compete and innovate continually, it can’t all be from within.”

Correction: The original version of this story incorrectly described George Geis. He is a business professor at UCLA.

TIME Gadgets

This Is the Best Smart Thermostat You Can Get

01thermostathead
Nest

The Nest Learning Thermostat is still the best smart thermostat

the wirecutter logo

Three years after the Nest Learning Thermostat’s debut, the second-gen Nest continues to offer the best combination of style and substance of any thermostat. Its software and apps are solid and elegant, it learns your routines and the particulars of your house, and it’s easy to change the temperature from your phone or computer so you won’t have to get up from your cozy spot on the couch. It’s (still) the best smart thermostat for most people, though the competition is catching up.

Why a smart thermostat?

If you upgrade to any smart thermostat after years with a basic one, the first and most life-changing difference will be the ability to control it from your phone. No more getting up in the middle of the night to turn up the A/C. No dashing back into the house to lower the heat before you go on errands (or vacation). No coming home to a sweltering apartment—you just fire up the A/C when your airplane touches down.

The fact is, a cheap plastic thermostat with basic time programming—the kind we’ve had for two decades—will do a pretty good job at keeping your house at the right temperature without wasting a lot of money, as long as you put in the effort to program it. But that’s the thing: Most people don’t.

Get a smart thermostat if you’re interested in saving more energy and exerting more control over your home environment. If you like the prospect of turning on your heater when you’re on your way home from work or having your home’s temperature adjust intelligently without having to spend time programming a schedule, these devices will do the job. And if your thermostat is placed in a prominent place in your home, well, these devices just look cooler than those beige plastic rectangles of old.

01thermostat

Our pick: the Nest Learning Thermostat

The $250 second-generation Nest Learning Thermostat (introduced in 2012) is the leader of this category for a reason. Its learning mode automatically programs the thermostat based on your home and usage, its industrial design is the best, and it works with many other smart-home devices. The Nest offers the best combination of style and substance, and its software and apps are solid and elegant. It’s expensive, but Nest Labs claims the Nest can pay for itself in energy savings in as little as two years.

The Nest is striking, featuring a metallic ring with a black front and a circular LCD screen in the middle. The on-device interface is elegant, with every setting controlled by either a push on the face or a spin of the ring. The display shows red when heating, blue when cooling.

The Nest’s learning mode puts it above its competitors. It keeps track of how you adjust your thermostat over time, and it has an occupancy sensor that can tell when nobody’s around (in theory). The Nest can learn from your patterns and create its own schedule without any work from you.

The excellent Nest app (for iOS or Android) lets you program specific times and temperatures with a few taps. And Nest’s green leaf icon provides motivation to dial the temperature down just a little bit more in order to save energy. Unfortunately, the Nest doesn’t offer any external sensors to measure temperature in other rooms, and if it’s installed in a part of your house that doesn’t get much traffic, the occupancy sensor won’t be very useful.

Finally, Nest is owned by Google and seems to be the centerpiece of Google’s push into the smart-home ecosystem. If you plan on adding more smart devices to your home, the Works with Nest program means the Nest can integrate with a growing number of smart-home devices. Most of the interactions are gimmicky right now, but that won’t always be the case.

The next best thing (for larger homes)

If you have a large home with a single HVAC system, or you want to be able to measure the temperature in rooms other than wherever your thermostat happens to be, consider the $250 ecobee 3. It comes with a wireless remote sensor that monitors both temperature and occupancy, so it adjusts its settings to keep occupied rooms comfortable. It’s not as easy to use as the Nest, and its apps aren’t as stable, but it’s a better choice for people who want to be able to monitor the temperature in multiple rooms.

Wrapping it up

Despite its age, the second-generation Nest is still the best smart thermostat for most people. The hardware is excellent, and the software behind it is elegant and smart. And it works with a growing number of other smart-home devices. Competitors are hot on its heels, but for now the product that created this category is still its leader.

This guide may have been updated. To see the current recommendation, please go to TheWirecutter.com.

MONEY Tech

3 Gadgets to Cut Your Electric Bill

Unlike the rest of your devices, these items will actually reduce your energy consumption—and keep a few extra bucks in your pocket at the end of the month.

  • Honeywell Lyric

    Honeywell Lyric
    Scott M. Lacey

    What it costs: $279

    What it is: One of the latest “smart” thermostats, which claims to save users an average of $127 per year.

    How it works: The Lyric competes with the Nest and other high-tech thermostats but has a unique feature: It taps into your phone’s GPS to keep tabs on your location. That allows you to set up your system to, for instance, begin heating the house when it senses that you’re on your way home from the office. The thermostat also factors in humidity when setting the temperature, displays the day’s weather forecast for easy planning, and alerts you if it senses an HVAC system failure.

  • GE Link Light Bulb

    GE Link Light Bulb
    Scott M. Lacey

    What it costs: $15

    What it is: A super-long-lasting light bulb that can be linked to an affordable home-automation system.

    How it works: The Link has impressive stats: It uses 80% less energy than a typical bulb and lasts up to 22 years. However, to get the most from your Link bulbs, you must connect them to the $50 Wink hub, a Wi-Fi-enabled device that lets you control the lights (as well as compatible items such as locks and blinds) remotely. Use the hub to schedule when the Links should dim, brighten, and turn on and off.

  • Belkin WeMo Insight Switch

    Belkin WeMo Insight Switch
    Scott M. Lacey

    What it costs: $60

    What it is: This switch instantly turns any plug into an app-controlled outlet.

    How it works: The WeMo uses your home Wi-Fi network to communicate with
    a free iOS or Android smartphone app. Say you plug in a lamp. Using your phone, the WeMo allows you to turn the light on and off, monitor how long it’s been on, and see how much energy the bulb is using. You can also use the app to program your device so that, for example, your space heater turns on every day before you wake up, and off when you leave for work.

    Doug Aamoth covers tech news, reviews, and how-tos for Time. To see more of his work, go to time.com/tech.

TIME Smarthome

Google’s Nest Is Coming After the Rest of Your Home

Nest Labs, maker of the “learning” thermostat, is opening its platform to outside developers in a bid to expand the range of Internet-connected home devices it can interact with. Through Nest, which search giant Google acquired for $3.2 billion in January, users will be able to communicate with Mercedes-Benz vehicles, Whirlpool appliances, Jawbone fitness trackers and other gadgets.

Google is among the partners announced as part of the program. Google Now, the company’s personal digital assistant, will be able to set the temperature on a Nest thermostat automatically when it detects that a user is coming home, for example, or through voice commands. Nest said it will share limited user information with Google and other partners. Nest co-founder Matt Rogers told the Wall Street Journal that users have to opt in for each new device.

The move allows partners to link their software and applications to Nest’s thermostat, which will act as a hub for devices in the home. For example, Jawbone’s UP24 band knows when its users are about to wake up in the morning. Now, a Nest thermostat can automatically raise or lower the temperature just before a user gets out of bed in the morning. Likewise, a connected Mercedes-Benz can tell Nest when a user will be home from work, timing the house’s temperature correctly.

Nest is independently operated from Google. But the device maker is leading Google’s charge into the connected home market. Earlier this month, Nest announced it was acquiring Dropcam, a maker of connected cameras, for $555 million. The company’s founders have also said they are looking for unloved or poorly designed devices to reinvent.

TIME Gadgets

After Recall, Nest Smoke Alarm Is Back and Discounted

Nest

Nest’s followup to its nicely designed smart thermostat was a smart smoke detector called Protect (see our original coverage here).

One of the features of Protect — aside from being Internet-connected and able to send alerts to your smartphone — was a trick that let you wave your hand underneath it to silence it.

The thought was that people have a tendency to accidentally set off their smoke alarms while cooking, and getting the alarms to pipe down is more cumbersome than it should be.

However, the company found that the feature might have been at risk of malfunctioning, which in certain cases could have silenced the alarm when it was supposed to be making noise. So in early April — a few months after Nest was acquired by Google for $3.2 billion — nearly half a million Nest smoke detectors were recalled; the wave-to-dismiss feature was able to be deactivated via a software update as well, making physically sending the smoke detector back to Nest unnecessary.

Now, the Nest Protect is back on the market, with the wave-to-dismiss feature disabled altogether. The company had originally alluded to trying to fix it via a future software update, so we’ll see if and when that comes to fruition. The price of the Nest Protect has also dropped from $130 down to $99 as well.

[New York Times]

TIME Gadgets

Smart Thermostats: Honeywell Takes On Google’s Nest

When it comes to the Smart Thermostat Wars (is that a thing yet?), there’s no love lost between Honeywell and Google-owned Nest. The high-profile Nest Learning Thermostat triggered a nasty patent scuffle back in 2012, when longtime thermostat behemoth Honeywell went after Nest over several claimed patent infringements.

Fast forward to today, and Honeywell is rolling out its own smart thermostat, the $279 Lyric. It’ll actually be part of a broader network of home automation devices, also fitting under the Lyric moniker, but the thermostat will be the first device in the line. It’ll be available now-ish from Honeywell’s home contractor partners, and in August from Lowe’s.

 

This isn’t the first of Honeywell’s connected thermostats: The company has a line of Wi-Fi-enabled, voice controlled models. But the new Lyric line will be smart in the sense that it recognizes when you’re home or away, and adjusts the temperature accordingly. Nest sports a similar feature that uses a sensor to detect whether you’re physically nearby; Honeywell’s system uses geofencing technology to detect whether your connected smartphone is nearby. That means it’ll be able to automatically tell when you’re on your way home from work, triggering the temperature to pop up a couple degrees once you get a few miles away, for instance.

Seeing that the Nest is a connected, smart thermostat, it seems like it’d be trivial to add geofencing capabilities in a future update. And certain Nest owners have already figured out how to enable geofencing features — see here and here — though to have such features built into the core of the product would do nothing but enhance the perceived value of Nest.

There’s also the price difference: Nest can be had for around $229, while the Lyric system will cost $50 more. It’ll be interesting to see if Nest answers Lyric by adding similar geofencing features, and if either system starts dropping their respective price tags in order to lure more customers.

[The Verge]

TIME mergers

Mega-Mergers Are Killing Innovation

The latest mega-merger in the telecommunications sector, that of AT&T and DirecTV, would be the fourth largest in history, and it comes only months after the nation’s largest cable operator Comcast announced that it was buying Time Warner Cable, the second largest cable operator. Nor is telecommunications the only sector to see such acquisitiveness. Microsoft purchased the devices and services business of Nokia for $7.2 billion late last year, Google snapped up Nest for $3.2 billion in January, and Facebook bought WhatsApp for $19 billion in February.

Such consolidation can be good for consumers as bigger companies have the resources to innovate and provide new products and services which might otherwise never materialize. However, the vertical integration of the telecommunications and technology sectors can also restrict innovation due to decreased competition and the limitation of research to specific technologies that support existing business lines.

Take, for example, the acquisition of WhatsApp. Facebook’s primary reason for acquiring the company is to utilize the chat technology on its social media platform to bolster its existing messaging application, which currently lags WhatsApp in the smartphone market. Beyond that, Facebook will no doubt try to leverage WhatsApp’s own user base, currently more than half a billion, to promote its social media offering. But either way, the integration of Facebook with WhatsApp is the main goal and driver of value instead of some trailblazing technological development in the chat space itself.

Similarly, Comcast’s acquisition of Time Warner Cable enables the company to enter complementary markets without actually having to build new infrastructure in those markets or to innovate in any way. Such plug-and-play growth engenders laziness and deprives the U.S. of necessary infrastructure improvement and development. The U.S. is currently ranked a pitiable 35th in the world in broadband capacity according to the World Economic Forum, with even smaller nations outpacing us in cutting edge telecommunications.

Even when it comes to ‘pure’ or fundamental science that can form the basis of future technology, the relentless drive for commercialization limits its destiny to whatever fuels profits in the short term and can impede future research that does not support that. True, third parties could conduct research for other applications but the ironclad patents that major corporations hold on their technology can make such efforts unprofitable. In other words, the acquisition of promising technologies by major corporations can actually limit them by forcing them along proscribed lines in the future.

Some of the greatest scientific discoveries that have fueled mankind’s advancement were made in the vacuum of human curiosity without the profit motive that has now become the norm. Today, unless the process of discovery is sponsored by some major corporation or has an obvious application to industry at the outset, there is little motive to pursue it. Even research institutions, which have historically been neutral havens for such discoveries, now require corporate money to survive and are bound by corporate rules. This is a loss for the spirit of innovation that drives human achievement.

That is not to say that all acquisitions are bad or that our biggest companies don’t move us forward technologically, but if the pace of consolidation by major players continues, it could shrink the playing field to such a degree that innovation will become the sole domain of a handful of companies who, for the most part, will only finance targeted research that promotes their own bottom line, and use patents to prevent others from advancing that technology in other directions. That may be a win for commerce but not necessarily for the type of unexpected discoveries that could improve our world in the future.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee.

TIME Technologizer

Nest’s Smoke Detector ‘Recall’ Doesn’t Mean You Need to Send Yours Back

Nest Smoke Detector
Nest Labs

A problem disclosed in early April is now the subject of an official bulletin from the Consumer Product Safety Commission

Nest Labs–a startup recently bought by Google which brings high style and web smarts to mundane household devices–is recalling Nest Protect, a smoke and carbon monoxide detector, over concerns that its alarm might fail to go off in emergency situations. The Consumer Product Safety Commission estimates that 440,000 Nest Protect units are affected by the problem.

Wednesday’s recall news, though important, isn’t quite as big a deal as it sounds like: It’s more of a formality, as the CPSC is officially alerting consumers to measures which Nest took on its own back on April 3. And the “recall” doesn’t involve Nest owners having to send the detectors back for repair; they were designed all along to update their own software over Wi-Fi, a feature which makes this unexpected development less of a disaster.

The risk relates to one of the detector’s most clever features, “wave to dismiss.” If the alarm goes off because of something which isn’t actually dangerous–like a little smoke wafting from your oven as you cook dinner–you don’t need to frantically whip a towel through the air or stand on a chair to turn it off. Instead, you can merely wave your hand and a motion detector inside Nest Protect will shut off the alarm.

Here’s the rub: The company concluded that there was a chance that the feature might malfunction, causing Nest Protect to stay silent in a situation that really is dangerous. There are no known examples of any harm coming to people or property because of the problem, but Nest decided to issue a software update which temporarily disabled the feature while it worked on a permanent fix.

On April 3, Nest disclosed the discovery of the potential hazard, issued the software update which shut off wave-to-dismiss, halted sales of new units and offered a refund to any Nest Protect owner who was unable or unwilling to perform the update.

Why the delay before the CPSC’s recall notice? The agency had its own technicians examine Nest’s solution for the issue and approve it–a process which took a few weeks. It considers the formal notification it published today to be a recall, even though the resolution involves the smoke detector self-installing the update. (And as before, consumers can also return the unit for a refund.)

Nest, meanwhile, says it’s finishing a new version of “wave-to-dismiss” which will bring back the feature while eliminating the malfunction. It’ll be part of another software update which the company plans to push out in the next few weeks, whereupon it will also resume sales of Nest Protect.

MORE: How a Thermostat Can Save the World

TIME Advertising

Google Wants to Put Ads in Your Refrigerator

A Google logo is seen at the garage where the company was founded on Google's 15th anniversary in Menlo Park, California
Stephen Lam—Reuters

Updated 12:53 p.m.

Remember how advertisements were crammed into Tom Cruise’s every waking moment in Minority Report? That, apparently, is Google’s vision of the future.

In a letter to the Securities and Exchange Commission disclosed Tuesday, the tech giant revealed that it has hopes to place marketing messages in currently ad-free objects like refrigerators and thermostats. “A few years from now, we and other companies could be serving ads and other content on refrigerators, car dashboards, thermostats, glasses, and watches, to name just a few possibilities,” the company wrote.

Google was trying to explain to the SEC why it doesn’t need to disclose to its investors the size of its mobile business. Because the definition of mobile devices is changing so quickly, it would be “misleading and confusing” to investors to break out mobile usage and revenue, the company said. When there are ads on our fridges and attached to the ceilings of our homes, it will be even harder to define “mobile,” according to Google. “Our expectation is that users will be using our services and viewing our ads on an increasingly wide diversity of devices in the future, and thus our advertising systems are becoming increasingly device-agnostic,” the company wrote. Other tech companies such as Facebook, Twitter and Yahoo regularly disclose figures related to mobile growth.

The disclosure, first reported by The Wall Street Journal, illustrates exactly why Google is so gung-ho about the “Internet of Things,” the move toward turning previously “dumb” gadgets like watches into connected devices that can interact with other computers. The company is already placing its Android mobile operating system into cars through a partnership with automakers and pushing it into smartwatches through an optimized OS called Android Wear. Earlier this year, Google also bought Nest, a company that manufactures smart thermostats, for $3.2 billion. At the time, Nest said that it would not broaden its privacy policy, which currently limits use of users’ personal data to “providing and improving Nest’s products and services.”

A Google spokesman clarified the implications of the SEC letter. “We are in contact with the SEC to clarify the language in this 2013 filing, which does not reflect Google’s product roadmap,” the spokesman said. “Nest, which we acquired after this filing was made, does not have an ads-based model and has never had any such plans.”

TIME Tech

The Reason for Apple’s Massive $3 Billion Beats Deal? Spotify

The era of digital downloads is coming to an end and Apple is still without its own streaming music product. That's why it looks poised to buy Beats for $3.2 billion, which would be its biggest acquisition ever

Why would Apple want to buy Beats Electronics?

It’s a question many tech observers have been asking since the Financial Times reported Thursday that the Silicon Valley behemoth is “closing in” on a $3.2 billion acquisition of the “high quality” headphones maker founded by music producer Jimmy Iovine and hip-hop artist Dr. Dre.

The FT suggested that Apple might be interested in Beats in order to recharge its “cool” factor at a time when streaming music services like Spotify, Pandora and Rdio have become increasingly popular with young people.

Apple’s iTunes service long dominated digital music sales, but the company never quite figured out how to present a streaming music product. Apple’s flagship music brand iTunes has been criticized over its user interface — so it makes sense that the company would be eager for outside help.

At $3.2 billion, the Beats deal would be more than three times larger than any acquisition in Apple’s history.

Apple can definitely afford the transaction — it’s sitting on more than $150 billion in cash and investments — but the company has traditionally preferred to build from within. Apple’s late co-founder Steve Jobs was fiercely proud of that fact. Unlike other tech giants, Apple has never made an acquisition larger than $1 billion.

Until now, perhaps.

Bolt-on acquisitions are in vogue in the tech world these days: Recent examples include Facebook’s acquisition of WhatsApp and Oculus (not to mention Instagram), as well as Google’s purchase of Nest and Waze, and Yahoo’s Tumblr buyout.

Dr. Dre, a musician and producer who co-founded the seminal Compton, Calif.-based hip-hop group NWA, has said that he was inspired to create Beats by the poor sound quality in many headphones. He teamed up with legendary producer Jimmy Iovine, a veteran music industry executive, to launch a brand that has proved remarkably popular.

“I knew people were going to dig it, but I didn’t know it was going to be this big,” Dre told TIME in a recent interview. “I didn’t know it was going to be at this magnitude. I know that people really care about the way their music sounds. So did I know it was going to work? Yeah, but I had no idea it was going to be this massive.”

For Apple, the streaming music service that Beats recently launched may be the most attractive part of the deal. Apple revolutionized digital music with the iPod and iTunes, but the company has yet to find a new formula to challenge Spotify, the streaming music darling of the moment.

“This is a reactive move — at best,” writes veteran tech journalist Om Malik. “Steve Jobs’ Apple would have pushed to make something better, but even he struggled to come to terms with the Internet and Internet thinking. That hasn’t changed.” (TIME’s Harry McCracken also poses some good questions about the deal.)

Subscription services are growing faster than any other area of the music industry. Music subscription revenue increased by 50% to $1.1 billion in 2013, according to a report by IFPI, the global music industry association, cited by my colleague Eliana Dockterman. Downloads fell 2% last year, in the first annual decline since Apple launched the iTunes store in 2003.

Spotify is valued at more than $4 billion, and the Swedish company is among the most high profile candidates likely to go public over the next few years. A Spotify IPO would likely blast the company’s market value into the stratosphere, so it would make sense for Apple to make a run at the company now.

But why has Apple been unable to develop a credible streaming music service internally? After all, the company has a multitude of talented software and hardware engineers.

Three reasons.

First, Apple was late to the streaming music game, perhaps because its iTunes franchise was built around buying individual music tracks. Simply put, the iTunes business model is not about streaming music.

Second, Apple’s specialty is hardware and software design, not media. The company has run into trouble in its negotiations with big media companies.

Third, Apple CEO Tim Cook is an operational wizard — and a genius at managing Apple’s supply chain and inventory — but he’s not a product visionary like Jobs.

Cook failed to anticipate that music streaming would become the new industry business model. As a result, Apple simply wasn’t set up to launch a successful streaming service of its own. And it’s not because Apple didn’t have the resources or Los Angeles connections to secure the necessary rights. It’s because the company failed to anticipate a major consumer entertainment trend.

“The age of digital downloads is basically over,” Aram Sinnreich, a media professor at Rutgers University who studies the intersection of technology and music, told Bloomberg. So now, Apple reportedly wants to buy Beats for $3.2 billion.

This situation raises a now-familiar question: What’s up with innovation inside Apple? The company makes the best consumer hardware and software in the world, but it hasn’t launched a new product category since the iPad launch in 2010. Incremental improvements to the iPhone, the iPad and the Mac computer line have been impressive, but what’s next?

One possible explanation for Apple’s interest in Beats might be the booming “wearable computing” space. After all, Beats’ signature product is the high-bass headphone unit. If Apple can incorporate the Beats product into its wearable computing system — think Internet connected headphones — then the deal could pose a threat to Google, Facebook, and other companies that are forging ahead on smart glasses and watches.

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