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If you are reading sources like IT World, you are much more aware/engaged in online privacy issues than 90% of the population. Most people don’t even think about the privacy implications of their choices. Ever seen Facebook? Ever seen the insanely personal stuff many people share on there? Think those people are thinking about privacy? Me neither.
It is more likely that this will accelerate the spread of the Smart Home model. Google has the resources to develop more products that people (probably) want and the talent to make them well. Plus, Google has proven that they will give something a try, and if it doesn’t work, come back with a new approach until it does. It will be interesting to watch and see what they do with Nest.