 "Google never had to worry about financial discipline until now")
Earlier this year, Astro Teller, a ponytailed scientist and science fiction writer, gave a TED Talk.
It was a first for Teller, but not for X, or Google X, as the research lab used to be known. The lab has been a fixture on the conference circuit for years. In 2011, Sebastian Thrun, X’s founder, took the TED stage and predicted that driverless cars would put an end to traffic fatalities. In 2013, Sergey Brin, Google’s co-founder, showed up wearing X’s wearable computer, Google Glass, and argued that face-mounted devices were a natural successor to the smartphone. In 2015, Chris Urmson, the technical lead of X’s autonomous vehicle program, argued that driverless cars should operate with no human oversight at all. By February 2016 it was Teller’s turn.
“I have a secret for you,” he began, with a self-assured smile. “The moonshot factory is a messy place.”
The comments seemed aimed at a growing sense, among some on Wall Street and within Alphabet, the parent company of Google and X, that Teller was wasting money on crazy experiments. Google spent lavishly to market Glass, but the product flopped and was off the market by early 2015. The self-driving car ran into setbacks both literal (fender benders) and figurative (a handful of top Google engineers defected to start their own autonomous vehicle company). Overall, the Other Bets, the belittling term that Alphabet uses to refer to X and other business divisions not named Google, lost about $3.6 billion in 2015, roughly twice what they’d lost the year before.
At TED, Teller attempted to reframe X’s failures as part of an overall strategy that would ultimately lead to breakthrough successes. He catalogued a handful of unsuccessful experiments — robotic vertical farms, giant cargo blimps — before moving on to one of the more promising endeavours, Project Loon. “We’re trying to make balloon-powered internet,” he said.
Loon has long been a favourite of Google founders Brin and Larry Page, according to several former Alphabet executives. The initial plan, they say, was to send 100,000 balloons into the stratosphere outfitted with transmitters. That massive fleet, plus blimps, drones, and underground cables, would form an all-encompassing worldwide broadband network surpassing anything offered by the traditional telecom companies.
Six months after Teller’s rousing speech, Loon’s Mike Cassidy stepped down as project leader. Around the same time, Urmson, the self-driving car engineer, left Alphabet, as did David Vos, the head of X’s drone effort, Project Wing. Vos’s top deputy, Sean Mullaney, left the company as well. Other recent departures: Craig Barratt, chief executive officer of Access, its telecom division; Bill Maris, the CEO of its venture capital arm, GV; and Tony Fadell, the CEO of smart-thermostat company Nest, who was also working on a reboot of Google Glass. That project, now called Aura, also lost its leads of user design and engineering.
The architect of this reorganisation—known as “Alphabetization” at the ever-sunny Google — was Ruth Porat, the new chief financial officer. Porat led Morgan Stanley’s technology banking division during the first dot-com boom, served as an adviser to the Treasury Department during the bailouts of Fannie Mae and Freddie Mac, and became Morgan Stanley’s CFO in 2010.
She joined Google in May 2015 with a mandate to bring discipline and focus to a company so awash in cash that it never needed much of either. She instituted rigorous budgeting and, according to people familiar with Alphabet’s operations, forced the Other Bets to begin paying for the shared Google services they used. Projects hatched with ambiguous timelines of 10 or more years in some cases had to show a path to profit in half the time.
At most big companies, such financial controls are standard operating procedure, and Alphabet’s investors are pleased. Its stock is up 35 per cent since Porat joined. But within the Other Bets, Porat’s tenure has been controversial, earning her an unflattering nickname: Ruthless Ruth. “She’s a hatchet man,” says a former senior Alphabet executive. “If Larry isn’t excited about something,” the executive continues, referring to CEO Page, “Ruth kills it.”
Critics, including more than a dozen former top Google executives who spoke on the condition of anonymity because they signed non-disclosure agreements, describe a company having trouble balancing innovation and its core business, search advertising. Over the 12 months ended in September, Google’s ad business accounted for 89 percent of Alphabet’s revenue, or $76.1 billion.
As one ex-executive puts it, “No one wants to face the reality that this is an advertising company with a bunch of hobbies.”
“Google is not a conventional company,” Brin and Page wrote in a letter to investors when their company filed to go public in 2004. “We do not intend to become one.”
The document, titled “ ‘An Owner’s Manual’ for Google Shareholders,” is legendary in Silicon Valley, epitomising an attitude known at the company’s Mountain View headquarters as “googliness.” In the letter, Page and Brin noted that Google would never focus on short-term profitability and would instead invest in employee perks, such as giving free meals to staff and encouraging employees to spend 20 percent of their working hours on projects of their choosing. The “Owner’s Manual” noted that Page and Brin, who still control Alphabet through a complicated stock structure that gives their shares more voting power than those owned by investors, intended to invest in lines of business well beyond internet search.
