Narrative: Alphabet Lacks Focus
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Narrative: Alphabet Lacks Focus (Jan 9, 2017)
Written: January 9, 2017
Alphabet (formerly Google) has long shown itself to be willing to invest in many businesses that had tenuous links to the core Google business. Indeed, the very Alphabet structure is a recognition that the ties between some of these businesses are so loose as to resemble a conglomerate more than an integrated business. This lack of focus has been a source of concern for some investors and observers.
It now appears that CFO Ruth Porat was brought on to bring some needed discipline to these various activities, which had flourished under Larry and Sergey’s Montessori-inspired dabbling in whatever has excited them at various times. The Alphabet structure highlighted the heavy losses being made in the Other Bets collectively, and made explicit what many had suspected: only three of the Bets were generating meaningful revenue, and even those were likely still unprofitable.
What we’ve seen since that target was placed on the Other Bets’ back is an increasing financial discipline. Nest has been refocused and its CEO pushed out; General Dynamics was put up for sale; Google Fiber has been pared back and refocused. There has also been evidence of general belt-tightening at other subsidiaries. suggesting that patience with long-term loss making is wearing thin. This has caused discontent among employees of those subsidiaries, who were accustomed to being treated as academic researchers rather than employees of a public company, and the cultural disconnects between the various subsidiaries has also been brought to light.
The increasing financial discipline is resulting in slightly better financials from the Other Bets over time, and may also result in earlier revenue than anticipated, as the companies push more urgently towards monetizing their research. There is more focus than there was, but the fundamental nature of the Alphabet business, with its loosely connected pieces, is still an oddity in the industry.
After years waiting for Google Fiber, KC residents get cancellation e-mails – Ars Technica (Mar 20, 2017)
In some ways, this story is far from surprising – Google has publicly announced a scaling back of its Fiber activities, supposedly in favor of new technologies. However, in theory it’s also still committed to the small number of markets where it’s actually rolled out service, including Kansas City. And indeed a statement towards the end of this piece suggests Google is still rolling out fiber in new areas. What I suspect is happening here is that Google is cherrypicking the most attractive neighborhoods while scaling back on others, just as other providers have done (just in the past two weeks, I’ve commented on stories relating to AT&T and Verizon around this very problem). Selectivity about where to roll out was always a facet of Google’s Fiber strategy, and for every provider who does this that’s based on a calculus on how much rollout will cost, what percentage of households will buy the service, and how much they’ll spend on average. That then leads to a determination about which houses are worth serving based on some pre-determined threshold for profitability over a certain period of time. I’m guessing that what’s happened here is Google has just raised that threshold by another notch, putting some homes that once made the cut out of the running now, hence these cancelations. Which would make it another symbol of increased financial discipline and belt-tightening at Alphabet.
via Ars Technica
Uptime is a goofy video sharing app from Google’s Area 120 startup incubator – The Verge (Mar 13, 2017)
Google was once famous for the 20% time it gave its employees to work on passion projects, but then word started to spread that this wasn’t really happening anymore. And then last year Google announced the creation of an incubator for employees’ projects, which seemed to be trying to resurrect the spirit of 20% time if not the details. The first app from that incubator just launched, and it’s a co-watching app for YouTube videos. On the one hand, there’s an obvious fit with an existing product at Google, which is a good thing, and on the other it’s not clear why the YouTube team didn’t build this. I’m not sure what value is added by having this be a separate app that doesn’t carry any Google branding (even in the App Store, it’s listed as being offered by Area 120, the name of Google’s incubator). If the main purpose of Area 120 is to keep entrepreneurial employees onboard, then perhaps this will serve its purpose, but on the evidence of this first app, I’m not sure it’s going to lead to anything all that compelling. Having tested the app briefly, the overwhelming impression I was left with was that it was incredibly privacy-invasive – it kept prompting or reminding me that everything I was doing would be shared with friends and/or publicly available.
via The Verge
Given the brevity of Moore’s tenure at Loon, it looks like things didn’t turn out so well, which is a bit surprising given he was thought to be the kind of business brain who would align well with Alphabet’s new, more focused strategy. It’s also a bit surprising because Loon had recently announced that it was making progress in streamlining its technology and therefore getting closer to the point where it might make money. In the end, Moore seems to be either another executive who didn’t jive with the way Alphabet is being run now, or perhaps merely had conflicts with other managers around him.
Twitter’s former head engineer Alex Roetter lands at Larry Page’s flying car startup Kitty Hawk – Business Insider (Mar 7, 2017)
The details of this story aren’t all that interesting unless flying cars are a particular obsession. What’s most interesting here is actually that Larry Page is now doing in separate (often secretive) entities things which in the past might well have been done by divisions of Google. I’ve often said that a lot of what now sits in the Other Bets segment at Alphabet began life as a twinkle in Larry or Sergey’s eye, or as a passion project of sorts, and that’s always struck me as a rather inappropriate use of shareholders’ money. So, it’s interesting to see that not only is Alphabet paring back the Other Bets and exercising greater financial discipline around them in general, but the Google founders are also starting to make those bets with their own money. Both feel like progress.
via Business Insider
Google has a long history of working with carriers – after all, Android was originally presented as a partnership with carriers to create an open mobile operating system, and in the last few days it’s deepened its carrier push around the RCS technology for messaging. This announcement, though, is a bit different, because it’s pushing Google where historically only specialized network equipment and OSS/BSS vendors have gone before, deep into carrier networks to help with software defined networking (SDN) and network function virtualization (NFV), two of the hottest buzzwords in this fairly arcane world. This is a big departure for Google, which has a somewhat contentious relationship with at least some carriers around the world, not least in Europe. But some carriers are also far more willing than others to outsource key technology to others – Bharti Airtel in India is one of those, and is one of Google’s two launch partners here, though I’m less familiar with SK Telecom’s historic stance on this issue. At a time when Alphabet’s focus overall has seemed to be narrowing, this is an interesting counter-example.
Android Messages will be the new default texting app Google wants you to use – The Verge (Feb 24, 2017)
There are two separate stories here – firstly, a reminder that Google has two separate messaging apps on Android, and it’s still actively pushing both; and secondly, that Google is doubling down on its commitment to the RCS standard and working with carriers and device makers to spread its use on Android. The former is a long-standing story: Google has always had several different apps for the same use case on its devices, a problem that only gets worse when OEMs and carriers add their own. To some extent, though, this standardization around RCS should help with the OEM / carrier side of that, by consolidating the SMS apps into a single standard Android app. But this is also about the richer features enabled by RCS, which is a telecoms-driven standard for richer messaging which is always at least several years behind the feature set offered by third party messaging apps at any given point in time. This is Google’s effort to create an equivalent to iMessage, but one which is far more open and inclusive than iMessage itself is, for better or worse. Google doesn’t control the standard, which is basic in its functionality, and that makes it a tough differentiator for Android, but it may be the best Google can do in this space.
via The Verge
I think the framing here is exactly right – this is part of the broader crackdown at Alphabet on some of its longer-term and less financially viable projects. The new approach – targeting balloons at specific regions rather than trying to blanket the globe – always seemed like the more obvious way to go, but of course balloons are inherently hard to navigate, so I’m intrigued to know how they will manage that. Two big questions remain: firstly, whether Internet access delivered from the sky can ever be really good (see existing satellite-based Internet access, which tends to be slow and bandwidth limited), and whether Alphabet should be in the access business at all (see also yesterday’s Google Fiber item). At least it sounds like this particular project might generate revenues sooner rather than later (and eventually even profits!) but it’s still not clear that it’s going to benefit the core Google business much.
Google Fiber and Alphabet’s broader Access unit within which it sits has been somewhat in limbo since late last year, when it lost its leader and canceled all its expansion plans. The story the company told then – and still seems to be telling today – is that it intends to pursue the same goals in new ways, principally through wireless. The fact that a new head has actually been appointed means that it’s at least somewhat serious about that goal, and isn’t just going to sell off or shut down the whole business, but it’s still possible that it might sell its fiber assets even if it pursues wireless technologies in future. Meanwhile, I still don’t think there’s a good reason for Google to be in the access business at all at this point.
One Reason Staffers Quit Google’s Car Project? The Company Paid Them So Much – Bloomberg (Feb 13, 2017)
That’s an interesting hook for the article, but far more interesting than the ease of hiring away Waymo employees is the fact that Alphabet had such a kooky compensation scheme in place at all – more evidence that the Porat era has introduced much-needed financial discipline in the Other Bets. Long story short: Alphabet paid massive bonuses to employees in its autonomous driving division based on “project milestones” which had nothing to do with financial performance (since the division won’t generate revenue for years). This, in turn, has apparently loosened up some employees who have enough financial security to take risks on leaving for competitors. It really is remarkable how the Google/Other Bets split has shone a spotlight on some of the crazy largesse in the latter businesses.