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.