Can You Put a Price on Innovation?

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Jan. 24 (Bloomberg) -- Bloomberg's Cory Johnson and Bloomberg View Columnist Barry Ritholtz discuss the price of innovation on Bloomberg Television's "Street Smart." (Source: Bloomberg)

We will hear more from barry on that.

Also joining the conversation from san francisco, cory johnson.

Barry, let's get back to your thesis.

What is it?

Google is criticized when they do these big acquisitions.

They bought youtube for $1.65 billion.

People screamed.

The stock price paid for the youtube acquisition.

Youtube now throws off $5 billion in revenue according to "variety." we heard the same thing about google buying android.

Their thought process was we do not want our core business of monetize and search with advertisement to be eclipsed by somebody else moving into the mobile space, so we want a footprint in that.

This has worked out fabulously well for them.

Some smaller acquisitions worked out well.

Some of the more technical technologies they bought, all have served a purpose to not allow them to be eclipsed by a third-party.

Cory johnson, jump in.

The smart home market is promising, but it is unproven.

What is google's intrigue going to do?

Is a promising?

I do not think we know that.

They have spent a lot of money on acquisitions.

Some have worked out fabulously.

They paid relatively little for android to get what they wanted.

One of google's strategies is they point to a couple of successes far back in the rearview mirror such as youtube and so on.

They say that turned into something for us.

They spent so much money over the years.

The other part of the strategy is they say we were not buying the technology, that was a "manquisition." i have talked to the people at google about this.

They tell us we are basically paying $1 million per engineer.

It seems ridiculous.

They all have very different ideas.

What is interesting about the nest he'll is -- nest d ise they are looking at the data that comes out of the homeal.

Look at the nest, the self driving car, and google glass.

Two or three of those are interesting.

The self driving car makes a lot of sense.

I think the google glasses are ridiculous.

But they all give google data about how people use information.

That is what they are after.

Do you acquire it or build it?

That is a good question.

We look at things google has tried to build themselves.

The google dongle, nobody even knows what that is.

You can spend billions of dollars and years building something out or you make this acquisition.

The guys who built nest are behind the ipod and ipad, so you're getting the cream of the engineering talent in silicon valley.

That is number one.

Number two, this is a known product.

I agree the data is interesting.

But i also think google is playing defense saying at some point in the future, smart homes, smartphones, smart cars will be important.

This may tie in with the robotics acquisition they made in boston.

They want to have a footprint in the future.

This is the classic dilemma of build it or buy it.

Google has wrestled with it.

Google had a huge center in australia they shut down.

Those 10050 people released are creating startups.

I think what they are looking at is a much bigger vision of a couple of places where advertising will be relevant.

They recognize it will not be on the desktop anymore.

These things are going out the window.

You have to be on phones.

They will try to figure it out early.

This is a $3 billion acquisition selling off more than $5 billion a quarter in free cash.

It is pocket money.

That is where you are wrong.

You are saying the nominal cost does not matter because they're rich.

I have relatives who make less money than me who say the same thing about me.

It matters.

If you waste money, you will not have full pockets.

I do not think they are paying too much for nest, but i do not think they can pay anything for anything just because they have a lot of cash.

But in the grand scheme of things, $3 billion to have what looks like the most promising technology years and footprint in the smart connected home already up and running, proven,

This text has been automatically generated. It may not be 100% accurate.

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