Step one: open smartphone. Step two: turn on WiFi-enabled shredder with smartphone. Step three: shred models for Google's gross margins. Google continues to go from super-high return, pure internet businesses into the capital-intensive business of making things. These things, it is hoped, will soon control ttheir owners' souls – or at least their data, if there is a difference. This may mean more growth for Google but will take a toll on margins.
Google may have paid too much for Nest Labs, maker of a thermostat that learns how warm you like your home (yes, you can turn it on with your smartphone). Still, most tech valuation is insane these days. The $3.2bn all-cash deal offered for Nest – more than 10 times sales, as inferred from shipments – could not buy Snapchat at recent valuations. Nest's pricetag also includes a likely bounty for its chief executive, Tony Fadell, who fathered Apple's iPod.
But Nest offers Google more than that, and more than already tiresome “internet of things” hype, given other big Google acquisitions. The biggest to date, Motorola Mobility, also once baffled investors. Three years on, supermarkets are selling extremely cheap but well-designed Moto G handsets, tying consumers into Android software. This means low margins – but profits come in dollars, not percentages.