Google Vs. Samsung: The Race For The Smart Home

Google Inc GOOG GOOGL and Samsung SSNLF are vying for smart home supremacy, but will either firm dominate this burgeoning market?

Google first entered the race when it paid $3.2 billion to acquire Nest Labs, the startup from former Apple Inc. engineer Tony Fadell.

Samsung has purchased SmartThings, another company that specializes in smart-home technology. Unlike Nest, SmartThings was not started by a famous engineer with impressive credentials. The company started with a Kickstarter campaign that ultimately raised $1.2 million. That campaign eventually got the attention of investors, who started by giving SmartThings $3 million. In a later round, they poured $12.5 million into the company.

Related Link: 3 Reasons Why Samsung Wants To Buy SmartThings

"We've seen both companies getting involved in the smart home even before we saw the big-name acquisitions," IHS Director Lisa Arrowsmith, who covers smart homes and smart cities, told Benzinga. "The industry [had] been speculating about Google's involvement in the smart-home industry ever since the Android @Home announcements that were made a few years back. We were hoping to see a little bit more from Google at that time. Android @Home just didn't really materialize in the way that many in the industry expected it would."

Nest reportedly raised $80 million before being acquired by Google, but it did so without the help of Kickstarter.

In the end, investors benefited greatly from entering the smart-home space. Will Google and Samsung be equally as lucky?

Big Connections

Nest has teamed up with a number of notable companies, including Jawbone, Whirlpool and LIFX. With a Chamberlain garage, Nest can automatically go in and out of Away mode (which reduces heating and cooling) when the garage is opened and then closed. When it re-opens, Nest will know that the user has returned.

"Google is investing in a lot of different areas," Pivotal Research analyst Brian Wieser told Benzinga. "They're effectively diversifying its business activities. Some view it as -- it's a stretch, in my view -- a continuation of what they're [already] doing. But at the end of the day it's pretty immaterial in the context of the total enterprise."

New Mercedes-Benz vehicles can actually communicate with Nest and tell the device when a user is coming home. This will allow Nest to adjust the temperature accordingly. Jawbone's UP24 wristband offers a similar function, allowing Nest to make adjustments before the user wakes up.

LIFX bulbs interact with Nest by flashing red to let users know if smoke or CO is detected. Whirlpool washers can enter "refresh" mode to keep clothes fresh and wrinkle-free when the user is away.

Outside of lighting adjustments, Nest does not offer a robust security application. The company recently acquired Dropcam to help fill this void.

Smart Developments

SmartThings may not have as many big-name partners as Nest, but the company is making progress in this regard.

In April, SmartThings announced that it had added support for TCP's connected LEDs, the Ecobee thermostat and the Pivot Power Genius by Quirky. SmartThings also added support for Belkin's WeMo platform, Sonos music system and Philips Hue (the color-changing bulbs that started the smart-lighting craze).

Related Link: Honeywell Turns Up The Heat On Nest's Thermostat

One clever techie also figured out how to get his Nest Thermostat to work with SmartThings.

Who Will Come Out On Top?

"Right now it's an easy call: Google has a lead start in the smart home automation category," Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga.

Arrowsmith, on the other hand, does not see this as a competition.

"Google, with Nest and Dropcam, doesn't own elements across the whole vast smart home ecosystem," said Arrowsmith. "To have a truly smart home, you can imagine a scenario where you have tens of different nodes, whether that's your smart appliances, your security-based system, your thermostat, door locks, etc."

"I think we're not necessarily going to see the industry being wholly competitive using only closed systems," he continued. "Instead, we're going to see a lot more use of collaboration and cooperation in order to drive an open ecosystem where multiple devices from multiple vendors can be integrated into systems from a wide variety of service providers."

Wieser thinks it is simply too soon to state a verdict.

"It's incredibly early and an incredibly small piece of [Google's] total business," said Wieser. "You never want to doubt the potential of any one entrepreneur's ability to develop successful commercial endeavors. In that sense, anything is possible. But it's so small and so early at this point in time that it's really difficult to say."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.