(Bloomberg) -- Alphabet Inc.’s Google is buying a $450 million stake in home security firm ADT Inc., forming a partnership that could get the tech giant’s smart-home products in front of millions of new customers.
The deal gives Google a 6.6% stake in the Boca Raton, Florida-based ADT, the largest home security company in the U.S. with about 20,000 employees and more than 6 million customers. Google’s prowess in hardware design and software will give ADT access to technology it wouldn’t be able to build on its own. ADT will begin distributing Google’s Nest home products exclusively. Shares of ADT skyrocketed as much as 100% before pulling back somewhat. They were up 57% to $14.40 at 11:17 a.m. in New York. Google shares were little changed.
Distribution is key for Google because it doesn’t have a network of retail stores like Apple Inc. and doesn’t own its own marketplace like Amazon.com Inc. The three tech giants are locked in a battle for prime placement in people’s homes, designing appliances centered around their unique voice assistants. Google has many distribution deals with home builders and utility companies, but the ADT agreement is notable for its size and the fact that Google is taking an equity stake.
Until now, ADT hasn’t favored one company’s products over another. This deal changes that.
“The partnership with Google is us no longer pursuing a path of product agnosticism and aligning with someone we think is the best in the business,” said ADT Chief Executive Officer Jim DeVries. ADT will still integrate with Amazon’s Alexa voice assistant if customers ask for it, but in hardware categories where Google has an offering, it will be the exclusive partner, DeVries said in a phone interview.
The smart home market is experiencing “explosive gains” DeVries said, and is projected to grow 20% annually. “Together the smart home and security market represents a tremendous opportunity for ADT and Google,” DeVries said on a conference call with analysts.
Both companies will commit an additional $150 million, subject to the achievement of certain milestones, for marketing, product development, technology and employee training, they said. The deal would make Google ADT’s second-largest shareholder, behind Apollo Global Management Inc., the private equity firm that took over ADT in 2016 and helped organize an initial public offering.
Google entered the smart-home market when it bought Nest in 2014 for $3.2 billion. The unit has become one of the largest makers of internet-connected thermostats, smoke alarms and locks. In the security space, it has about 40% of the market compared to Amazon’s 35%, according to a 2019 research report by Rakuten Intelligence.
Amazon’s home security system Ring has been criticized by privacy and civil rights activists for working too closely with police. The company has formed partnerships with police departments to make it easy for them to request footage recorded by Ring devices. Some police forces have subsidized Ring devices for residents to expand their potential surveillance network
DeVries said ADT doesn’t give cameras to police and doesn’t have hardware deals with law enforcement. On the monitoring side, ADT does work closely with police forces, who often respond when a security alert is triggered by an ADT alarm system.
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