Neener, Neener, Google Won't Stop Moonshots

Brian Santo
10/27/2016
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The Company Formerly Known As Google today announced its third-quarter revenue grew to $22.5 billion, up 20% from the like quarter a year ago. Mobile search, video, sales through Play and Google Cloud all contributed to the growth.

Under pressure from investors who loathe research and development, Google a year ago rebranded itself as Alphabet Inc. , and formally separated its fabulously successful ad business -- still called Google (Nasdaq: GOOG) -- from its more venturesome endeavors, which are now in a separate bucket the company cheekily labels "Other Bets."

There isn't much that Google is doing with its core business that requires justification. During their call with analysts today, Alphabet CFO Ruth Porat and Google CEO Sundar Pichai instead spent much of their time offering assurances that the company's investments in things such as machine learning, cloud and broadband are worthwhile, as are its latest forays into hardware like the new Pixel phone and the Google Home device. (See Google's New Dream: Pixel, VR & an AI Assistant With Smarts.)

Porat said Alphabet will remain flexible about investment opportunities, that it will be smart about its investments, and that the new corporate structure provides a clear view into these projects for ample oversight.

She then offered a reminder why these are called Other Bets. "As we reach for moonshots that will have a big impact in the longer term, it's inevitable there will be course corrections over time, and some efforts will be more successful than others," she said. But, she continued, "We are laying the foundation for a stronger future."

Combining a robust and expansive cloud with artificial intelligence and an active presence in both home and office to amplify core businesses is a common strategy for Google and its biggest rivals, but investors focusing on direct sales opportunities within every P&L unit remain unconvinced and unmollified. (See Amazon Unlimited, Alexa, AI & How to Cut Off Google at Its Knees .)

In his prepared comments, Pichai wove a story of how online ad sales, video (YouTube), machine learning, the cloud, the new personal assistant called Assistant, older services like Google Maps, new consumer hardware devices like the Nest line of home automation products, the new Pixel phone and the new Google Home device all overlap.

"We’re very focused on our core mission," Pichai assured, adding that Google sees a huge opportunity to improve its core business with machine learning. He said Google Assistant plays into that effort.

Asked if Google can point to any specific improvements machine learning has brought to the search business, Pichai said the company is still in the early stages of applying machine learning to ad sales, while expressing confidence that there will be a long-term impact. He reiterated that whatever advantages ensue, the company’s customers will have access to them.

With regard to its cloud business, Pichai said the company is pursuing a hybrid strategy that includes on-premise computing with not just Google Cloud, but all public clouds. "Customers don't want to be locked in. The want workloads that will run in containers on any platform. Our containers provide that," he said.

Prior to reporting its earnings, Google revealed major decisions about a pair of Other Bets businesses. It decided to scale back Google Fiber, at least temporarily, and it announced that it has been setting up its autonomous car operations as a standalone endeavor with profit-and-loss responsibility. (See Google Fiber Hits Pause Button, Scales Back.)


Want to know more about the latest developments in the video services business? Check out our dedicated video channel here on Light Reading.


Since Google Fiber was first established, the company never stated definitively whether it intended to become a competitive multichannel video programming distributor (MVPD). If it ever intended to be, it's been lackadaisical going about it. Critics also say the company always underestimated how difficult and expensive the endeavor would be.

Google did have a clearly stated desire, however, for gigabit broadband to become more commonly available. Google Fiber unquestionably goosed other service providers into accelerating their rollouts of faster broadband, so by that measure, it was an unambiguous success.

Given yet another opportunity to comment on the company's intentions with Google Fiber, Porat said the impetus behind the effort was always to evaluate innovations in broadband and how Google can take advantage of those innovations. To that end, she said, Google remains committed to the dozen cities where Google Fiber is now operating or building all-fiber networks.

Asked directly if the company decided to suspend the expansion of Google Fiber in favor of rolling out wireless (the company bought wireless provider Webpass earlier this year), Porat dissembled.

As for the autonomous vehicle program, its finances were separated from Google's research lab, X (the "moonshot factory") in January. The company is now going through the process of standing up the endeavor as its own operating unit with P&L responsibility. The company announced some layoffs in the unit.

But where Apple shut down its autonomous vehicle program completely, Google plans to keep its up and running. Astro Teller, the head of X, said the plan is to introduce self-driving cars gradually and incrementally. The group's focus is on safety, he said.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

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danielcawrey
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danielcawrey,
User Rank: Light Sabre
10/31/2016 | 7:32:49 PM
Re: Locking in to moonshots
The media is going to continue to criticize Google's bets outside of what makes money. That's simply what the media does. 

Then, when something outside of the core business does hit, there will be glowing stories. That's the optics of being such a successful company. 
KBode
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KBode,
User Rank: Light Sabre
10/31/2016 | 1:16:38 PM
Google Fiber...
"We're making great progress in those cities and we remain committed to growth in those cities," Porat said. "But very much to your question, it's to better integrate some of the technology work we've been developing."

Seems pretty clear the goal is to use Webpass and ongoing millimeter wave tests to pivot to wireless and supplement fiber. Seems like a lot of the claims of Google Fiber finding broadband "too hard" aren't really warranted.

That said, you can easily see them selling this whole experiment in a few years if execs continue to bicker about the direction....
inkstainedwretch
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inkstainedwretch,
User Rank: Light Sabre
10/30/2016 | 2:30:41 PM
R&D
There is such a thing as synergy. Synergy-synergy, not layoffs-synergy.

What seems to be the prevailing model for R&D is to let startups do it. If they succeed, the companies that need the resulting technology vie with each other to buy the startup. The model does work. 

But not always. Even people who can't abide anything that doesn't show up as its own line-item on a financial statement understand that there are a lot of reasons an acquisition of this sort can fail. Sometimes, it's just too hard to integrate a technology that is too foreign. Other reasons are more squidgy -- anything from the acquiring company not fully understanding what it's buying into, to "culture clashes."

Which is why there can also be extraordinary value to bringing up a new technology yourself. And there's no line item for that. 

Beyond that is synergy-synergy -- when a new technology bolsters/aids/amplifies an ongoing business -- which likewise has no line item.

-- Brian Santo
Michelle
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Michelle,
User Rank: Light Sabre
10/29/2016 | 7:46:18 PM
Re: Locking in to moonshots
1) ¥ , the company formally known as Google

2) Do you also think claims of interoperability is overplayed? A lot of cloud services make a lot of noise by saying you can move elsewhere easily because they don't lock your data+appplications behind proprietary operators

3) I'm with you on this one at least 1000%. This is the bucket for all the really interesting research that may or may not lead to something really big, but we're not counting lost dollars because this is really really interesting work...

 
jbtombes
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jbtombes,
User Rank: Light Sabre
10/28/2016 | 3:22:40 PM
Re: Locking in to moonshots
Long live Skunkworks! Lockheed Martin's old R&D effort, name derived from the "Skonk Works" moonshine factory in the L'il Abner cartoon. Btw, does Elon Musk's plan to colonize Mars qualify as a moon shot? (Was he sipping moonshine when he dreamt it up?)
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
10/28/2016 | 12:46:26 PM
Locking in to moonshots
I have many reactions to this.  Here are but a few:

1) > "The Company Formerly Known As Google"

Love this.  Going to use it any reasonable chance I get.  (Does Google have its own "love symbol"?)

2) re: lock-in...

This is such a vendor-manufactured red herring, IMHO.  What they're really saying when they criticize vendor lock-in is that you shouldn't be locked in to their competitors.  And lock-in isn't so bad sometimes!  That's why it's called a contract.  It's ultimately about ROI -- and sometimes it does make sense to enter into a "lock-in" contract -- and it even sometimes makes sense to break that "lock-in" and pay the penalty, and it also sometimes makes sense to stick with it despite new options.

3) re: "moonshots"

This is the new, vertical-agnostic buzzword.  It caught on with the "cancer moonshot" and has is gradually becoming an excuse to do just about damn near anything where the ROI is questionable at best because the word "moonshot" sounds a lot more noble than "like skunkworks, but with far less likelihood of producing something valuable or useful."

(As for the "cancer moonshot"?  Despite all the buzz, booze up a cancer clinical researcher enough and he or she will admit that we're still a MINIMUM of 20 years away from anything even *close* to resembling a cure for cancer.)
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