I thought the entire purpose of "other bets" was to pursue ideas that have the potential to become $XXB/year revenue streams. So of course they want 'moonshot' companies.
That's the thing though, it isn't a waste of time.
One can hear very similar logic from people with investments. They will say "The stock market is returning X% / year and is way better than those bonds with only 3%/year. Investing in bonds is a waste of time."
They say that because they have yet to internalize the value of having a diversified their investments. Not everything goes up all the time.
It only makes sense for Google if the Search Ads business were to never ever lose its profitability. And yet, it is losing its profitability. As a result, Google has to aggressively cut back on expenses, remove projects, end of life products, etc as that cash cow slowly deflates.
Consider then the alternative where there are 10, 20, even 30 business lines within Google generating $10 - $30M of profit each. 30 businesses at $30M is only $900M, less than 5% of their revenue, but those businesses are SOLID and provide a supply of management talent, consistency, and some bucks to keep the lights on elsewhere.
That is diversification of execution risk. It works the same way investment diversification works, it adds other, less high margin, businesses to the portfolio that are all revenue positive.
A company like Google can use those businesses to experiment with alternate user support models, management schemes, policies, and communications. All of that helps the "main" company to mature in its thinking about how to be a business. Sadly, executives who have never had any experience other than one wildly successful business tend to think exactly like you do, "Why would I waste time on piddling little products when I've got more cash than I know what to do with being pumped out by my main business?"
Short answer: "Things change."
Even with the weight of the Google brand, creating new businesses is HARD.
It'd be roughly 1,000X easier to squeeze an extra $900M in revenue out of search than it would be to incubate 30 new mid-size companies.
Instead of going on an insane boondoggle where your brand image is trashed by creating literally thousands of failed companies (the only way you're going to end up with 30 successful ones over the $30M hurdle rate)...why wouldn't Google just buy those 30 companies? They have enough cash on hand to buy 99.9% of Silicon Valley startups outright.
And even then, would the 30 companies they buy grow faster than their core business...or even the S&P 500 at 9% a year? Because otherwise they might as well just dump that money in existing products or return it to shareholders.
If Google buys a bunch of businesses that grow slower, then their valuation and stock price drops dramatically. If investors wanted to own a random sampling of 100 mid-size companies, they'd buy the appropriate index fund! They buy Google because they want a concentrated bet, not an index fund.
This is nowhere near as easy or simple as you think it is.
For all of Google's PR efforts around moonshots and only hiring "the best talent," a vast majority of their revenue still comes from only one product they incubated on their own, the google search engine. The next biggest bucket comes from external acquisitions (DoubleClick, YouTube, Android).
I think the fact that Google hasn't incubated any big success in the last decade is a good thing! It leaves more room for others to take their place. Why would we want one company to dominate everything forever?
First, you have all of the infrastructure for a business already in place. Even when I was there it was straight forward to get resources allocated to a project.
Next, you have billions of "seats" in that users the world over are already using Google branded services every day, have a reasonably good impression on the brand, and typically a low barrier to "trying out something new."
Finally, you have a tremendous amount of smart, experienced, people you can call on for advice for free! I know a lot of people have left but when I was there it wasn't uncommon to have the argument about a thing settled by the person who invented the thing weighing in on the argument. While it became clear to me that Google and I were not compatible long term, it was still intoxicating to walk around bounce ideas of some really really sharp people who could trim months off idea research and development.
As a result of that, starting businesses within Google was akin to scoring in baseball where you got to start at third base (or maybe second base if it was a longer stretch). That is significantly easier than starting from scratch.
If something happened to their core business, it's unlikely that those tiny projects (<1% of revenues combined) would save them. The more likely thing is that many of those small projects fail over time and it becomes death by a thousand cuts.
What you said is mostly correct and is exactly what they are doing. The only problem is that at the scale of a trillion dollar company, they need 10, 20, even 30 business lines generating $XB - $XXB of revenue each.
Their reasoning was that the resource usage to net profit numbers wasn't "good enough." The comparison was always search advertising.
Thanks!
They could not even succeed with one of their messengers, there are so many of them out there. What makes you think they will succeed with 30 business lines?
There is as much reason to shut down a profitable company as to throw away gold. That's literally what you are doing, and no one is too big to throw away money.
But these companies were founded inside Alphabet, and grew within Alphabet's infrastructure. This is how they gained a decent chunk of their initial bootstrapping advantage, as described upthread by Chuck. To decouple them out into something suitable for sale is extra time and cost, and beancounters never like time and cost.
So, ironically, part of what makes these attempts possible at all is part of what ends up killing them.
For example, I doubt the AirBNB founders early-on and/or 5-10 years ago even imagined they'd have multiple billions of revenue.
You accurately describe the Other Bets climate when I left X in 2015, and I hear it's even worse these days from friends who recently left when Loon shut down.
Well, when Larry page wrote “we also like that it means alpha-bet”[1], a lot of readers in tech probably mistook him at his word. When it comes to investing, “alpha” means winner. As in somebody else loses. As in what gets optimized is _the investor_, not necessarily the community. The analogy to investment return above benchmark is a trademark Googley delusion—- it’s rationalizing a position using math or science even when the position (applauding investing culture) is exclusionary or even toxic to a substantial segment of the population (e.g. the 99% who either don’t invest or who form the ETF benchmark). Larry isn’t talking about excellence, he’s talking about dominating, and slipping that through with a cute abc.xyz domain name.
While it’s very interesting to hear these stories about Google, perhaps the lesson learned is just how blind people are to Google’s greed when technical adventures are dangled in front of them.
It’s too bad CEOs don’t write their PR like you have done. Like when they drive companies into the ground, lay everyone off, and then they exit with millions.
In the case that the successful business is Ads/Search... it's tough to compete. I'd imagine even within Ads/Search there is a resource curse between AdX/AdWords/Youtube and every other ad business.
The kind of people drawn to "chief" positions are not interested in shrinking their empires.
And yes, splitting is part of a solution. I think discipline is another part.
The challenge is that market cap isn't durable. Specifically businesses that just provide net revenue, even if it is only a "small" amount relative to the overall company, are helpful in mitigating shocks to the market.
So it may be intoxicating that the stock going up 10% adds a few billion dollars to your net worth, but it can also go down 10 or 20% and that wealth goes poof![1]
[1] The reality is that paper wealth is not worth anything, only after it has been diversified can you really count it as part of your net worth. Again, this is my lived experience :-).
Over that long time, I'm sure there are benefits for the executives' personal stock(don't CEO's diversify every few years?) , and for Google in general(for ex. Better talent).
It's the "I stumbled onto this giant pile of cash, and if you don't stumble onto one too, you obviously aren't stumbling hard enough" attitude of management.
In fact, all my emails and communications are written in this style all the time with everyone - what shall I do now wise one? (serious question)
You wanna start a band or whatever. Maybe we can start like an Elks club thing?
I've job hopped looking for a place where people don't engage in the Kabuki but apparently all the worlds a stage. Maybe I'll make one of those lil ships in a bottle this year.
Given my experience and my interest in systems I have become something of a 'journeyman' engineer in the traditional sense. I like helping folks and I like figuring things out. I charge money for that because it weeds out the freeloaders but I don't charge a lot of money. My terms are that if its not working out, we'll part friends, but we will part. As a result I've managed to meet some manager types whose only tool in their manager toolbox is "I'll fire you if you don't do that." (which is a pretty weak toolbox).
It is an exceptional thing to be where you are, at the age you are. How you choose to spend the years can be very satisfying and impactful, or a source of anger and regret.
Google demands a lot of its "other bets" companies. Some might say it asks too much. Mostly it seems to me that they want a 'moonshot' company that has the original profitability of search advertising, full stop. And while it would be great for them if they found it, there is a lot to be said for having a bunch of businesses that just make anywhere from a few million to a billion dollars a year in revenue.
I don't know if the attitude has changed since I was there but people creating $20M/year business revenue streams were not considered "successful" back in the day. I found that somewhat self defeating.
[1] https://gist.github.com/ChuckM/ff5fc8c800c7fe9160483b68ec45a...