Google is bleeding cash trying to take on Amazon in the smart home

Google's parent company, Alphabet, reported first-quarter earnings for 2018 today, surpassing Wall Street's estimates of sales and profits thanks in large part to its huge search advertising machine that continues to grow year after year. But an interesting highlight of the earnings announcement was the amount of money the company's smart home company, Nest, makes in revenue and reports losses.

Because Nest successfully rejoined Google earlier this year, Alphabet reformulated its quarterly earnings figures for 2017 to explain the fact that Nest's revenue and losses would be moved from the "Other Bets" section of the Alphabet business to the Google standard. income line item. Comparing the differences in quarterly income and operating income, we can see that Nest earned about $ 726 million in revenue, but ultimately contributed a loss of $ 621 million in the "Other Bets" section during the year. In other words, Google spent more than half a billion dollars last year to establish Nest in sectors such as security cameras, alarm systems and video doorbells.

As noted Variety & # 39; s Janko Roettgers is likely Google You're also spending hundreds of millions of dollars, if not billions, on your other hardware efforts like Google Home and Pixel phones, headsets and laptops. With each of those product categories, Google is competing with a different technology industry monster. With the phones, Google is taking Apple and the iPhone. With the Pixelbook and other laptops with Chrome, Google is facing Microsoft. But perhaps most importantly, with Google Home and Nest, the company is taking over Amazon, the clear market leader in the smart home thanks to its Echo line and the omnipresence of its digital assistant Alexa.

Google has shown that it is more than willing to spend the money necessary to establish itself in saturated markets such as laptops and smartphones. But nobody expects that the Pixel phone line will ever outlast the iPhone, let alone Google's leadership. However, where the company has a clear advantage and an opportunity to catch up with Amazon is in artificial intelligence devices, such as smart speakers.

That's precisely why Nest folded back to Google so that its smart home devices could make better use of the AI ​​features that were built exclusively for Google's hardware and software products such as Pixel 2 and Google Assistant. . "All of Google's investments in machine learning and artificial intelligence can very clearly benefit Nest products, it just makes sense to develop them together," said Rick Osterloh, head of Google's hardware division, CNET in a interview at the time of the Nest announcement. "It's the natural thing to evolve."

Of course, Google has the money to spend. The alphabet generated about $ 31.15 billion in sales during the first quarter, compared to $ 24.75 billion in the same period last year. In terms of profits, Alphabet earned $ 9.4 billion, compared to only $ 5.43 billion last year. Therefore, the core business continues to perform surprisingly well, giving Google enough capital to make this type of long-term hardware investment based on an increasingly symbiotic relationship between the smart home and artificial intelligence. But as we can see in these new numbers, an unusual vision of one of the most auxiliary businesses of Google, it is clear the battle against a company as big and formidable as Amazon costs a lot. And it will not end soon.