Tuesday 12 December 2017

Google organised the Web, parent Alphabet must organise itself

Alphabet’s early days have seen more pruning than expansion of its holdings.
Alphabet’s early days have seen more pruning than expansion of its holdings.

Julia Love

Google's self-professed mission is to organise the world's information. But a company known for engineering excellence is still trying to solve the very human problem of how to organise itself.

In many ways the problem overshadows even this week's €2.4bn EU competition fine.

Nearly two years ago, Google co-founder Larry Page announced the tech giant would be remade as Alphabet, a holding company whose units would include Google and an array of unrelated pursuits in healthcare, self-driving cars and urban planning.

Wall Street cheered. Previously those riskier ventures had been lumped into Google's overall financial results. Investors would now see Google's performance independent of its so-called 'Other Bets', an eclectic collection of 11 ventures. They include Nest, a maker of wifi-enabled thermostats; Calico, which seeks to prolong the human lifespan; and X, the company's secretive research lab. Alphabet's top management also aimed to boost accountability by appointing chief executives to head each of the Other Bets.

Few people in Google's constellation of ventures had ever held the title before that.

But so far Alphabet has failed to show it can convert its Other Bets from experiments to businesses comparable to Google's core search and advertising operations. Interviews with two dozen former Alphabet executives and employees reveal an organisation grappling with how much time and resources Other Bets deserve in the pursuit of profitability.

In the first quarter, which ended March 31, the ventures lost a combined $855m (€748m); that's on top of a collective $3.6bn loss for 2016. As a whole, Alphabet generated $90.3bn in revenue in 2016. Google's share of that was $89.5bn, while its 2016 operating income was $27.9bn.

Alphabet's early days have seen more pruning than expansion of its holdings.

The company has skinned back plans for Google Fiber, which delivers rapid internet service in 10 US metro areas. This month, Alphabet agreed to sell robotics company Boston Dynamics to Japanese multinational SoftBank Group Corp. It unloaded its Terra Bella satellite imaging business in February.

At one point last year, it was even looking to sell Nest, the largest of the Other Bets, three people familiar with the matter told Reuters. Google paid an eye-popping $3.2bn for the startup back in 2014.

Meanwhile, a series of executives have departed since the reorganisation, including the heads of Nest, an internet operation called Access and a venture capital firm known as GV.

An Alphabet spokeswoman declined repeated requests for comment. Supporters of the restructuring frame the early struggles as typical growing pains. For now, Wall Street isn't worried. Ruth Porat, the no-nonsense chief financial officer who has steered the restructuring, has won rave reviews from investors for enforcing financial accountability across Alphabet. Some Other Bets have made notable strides. Life sciences initiative Verily recently attracted $800m in outside investment.

Self-driving car project Waymo is considered among the leaders in the burgeoning industry.

Still, it's not yet clear the structure will enable Alphabet to do what most companies cannot: conceive the next wave of innovation in-house or through the development of key acquisitions. That goal is central to both the company's mission and investor expectations, analysts say. (Reuters)

Irish Independent

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