[zaroth]

I don't think it's right to equate R&D spending with "losses". Google makes a profit, not a loss, so technically it does not have losses. It has expenses, and among those, investments in future technology.

If all Google could do with their cash flow was pay a dividend, that would be very sad, and it would call for a much lower P/E ratio. This article completely misstates the facts.

Perhaps the way they break out their financial statements is confusing to someone without an accounting degree. Just because "Other Bets" is negative, a growing negative number in this case is a good thing. This is showing Google has more free cash to invest in growth and has good ideas they believe in and want to pursue. I would be worried if instead they were stockpiling cash. You would then have to ask, why can't they put it to work effectively?

Of course, everything they do that is making money is no longer an "Other Bet" by definition.

[ktRolster]

  >I don't think it's right to equate R&D spending with "losses"

Especially since they are still working on them. Can't really call them a loss if it turns into billions in the next few years.

Better to say "Alphabet spent $859M on...."

[taneq]

Maybe even "Alphabet invested $859M..."

[AnAfrican]

In some contexts, not all Spending is Investment even if it can be defined as investment in layman terms.

[mathgeek]

I'd consider all R&D spending to be investments. Can you provide an example of one you'd consider to not be?

[Nicholas_C]

If it's not capitalized (turned into an asset) then it's not an investment from an accounting perspective. Although R&D may be considered an investment by the layman, as the OP pointed out:

>even if it can be defined as investment in layman terms.

[SiVal]

It is an investment from a managerial accounting perspective (how the business really works), no matter what it's called by financial/tax accounting (how the business formally reports its status). Expenses, such as taxes or the electric bill, pay for things you use up. You can't keep them, keep using them, or resell them. But R&D is an attempt by management to produce IP assets, some of which will be used for years and can even be embodied in patents and sold, like land or machinery.

Financial accountants can't deal with the unpredictable outcome and the fact that even success is hard to quantify. They can't put the million-dollar payment in one column and the specific million-dollar asset that was purchased in the matching column, which is required to make the books balance, so they call it an expense.

It's not a case of something that is really an expense but is mistaken for an investment by "laymen". On the contrary, it is really an investment in IP asset creation by management that financial accountants have to treat as an expense, like paying taxes, due to limitations in the accounting "technology" they are required to use.

[Mtinie]

Can you provide an example? I would not consider reasonable overhead costs to be "investment" dollars, but you may have something else in mind.

[nibs]

Spent: verb, to spend, you could spend money settling a lawsuit but it would be a stretch to call that investment.

Investment: to allocate money in the expectation of future benefit, so that could mean administrative expenses, which would cover and include a lot (but not all) spending.

My vote would be on invested.

[rm_-rf_slash]

It's all about the perspective. A manager might consider test-driven development or security-driven development a matter of "spending" - in that it costs time and money and doesn't provide an immediate tangible benefit compared to making the thing that makes the money - but the engineers see it as an investment.

Both sides are right. If the company is never hacked, then it could both validate the security model as well as give a reason why not to bother in the first place. If the software runs smoothly throughout development (give or take a bug here and there), then all that testing was indeed a waste of time.

The difference between investment and cost is the ability to look into the future and analyze the past.

So there really isn't a straight answer.

EDIT: it also matters to the perspective of those outside of the organization. A bullish analyst might call Alphabet's moonshot projects an investment, while a bear would likely label them a cost.

[taneq]

I define 'investment' as 'money spent in the pursuit of future benefit'. In this case, money spent settling a lawsuit to avoid a significant chance of later spending a far greater amount paid as damages (and why else would you settle?) is most definitely investment.

[drawkbox]

I agree the market has a hard time justifying R&D and that is a problem. That is why small companies/startups can disrupt and innovate faster.

Another way is like Amazon, they just spend all the profit back on R&D and prevent much of this profit/growth talk, it stays focused on competition and future goals. They are in a constant state of R&D by reinvesting profit.

Spending on R&D should be seen as good in a tech world where you must stay ahead, not as losses. If you are a big tech company and not spending on R&D, expect that to be short-lived.

[TheOtherHobbes]

Spending on R&D should be seen as good if it generates useful results and eventually turns into a revenue stream - no matter how indirectly.

Amazon is great at this kind of R&D, because Bezos seems to spend all of his free cycles asking himself if there's something else Amazon can do to make money. So Amazon R&D is primarily return-led.

No one else works quite like that. Google seems to have thrown a lot of money at R&D, but it's not obvious how much of a return it's going to generate. Apple and MS are in the same boat.

MS does very cool research, but mostly lacks the management to turn the research into viable products. There's a huge disconnect between the products MS could be shipping, and the products MS is shipping.

Apple has been spending more on R&D, but seems to be marketing and image-led - possibly based on the assumption that's how Jobs worked. (He didn't.)

Alphabet R&D seems engineering-led - which is great for engineers, but isn't a famously effective way to find new customers and generate more income.

[jahnu]

Playing devil's advocate here (a little) but imagine they took a few dozen million of that and, say, improved their development tool chains for Android (which are disappointingly flaky). Or another few dozen millions and extended the security updates for Nexus phones by a couple of years. That could grow their market share of both developer mind-share and consumers.

Moonshots maybe should come once you've mastered all your core products?

[Normal_gaussian]

> Moonshots maybe should come once you've mastered all your core products?

Then they'll never come.

[jahnu]

They mastered search. They mastered mapping.

[redthrowaway]

Search has stagnated. Google has gotten scarily good at anticipating what I want to know, but conspicuously bad at answering hard questions. There's tons of room for improvement.

Similarly, Google Maps has added features that make it a better map, and it's a great place to find what time a store closes and what their phone number is. But it's been essentially the same service, with iterative improvements, for years. There's a world of possible uses for that data beyond what we imagine when we think of a map.

[sievebrain]

I suspect Google Search has not actually had quality regressions, but rather that your expectations have gone up over time without you realising it.

[redthrowaway]

Yes, I might have phrased that poorly. Google Search still finds relevant web pages just as well as it did 5 years ago, perhaps better. It certainly has leveraged the data it collects on me to suggest search terms in a way that's almost eerie.

But it's still a tool to find relevant pages, not a tool to find answers. It's made some progress with the semantic web and knowledge graph, but that still provides basic facts about people, places, and things. At its core, it's still a portal. It's still just a much better version of Excite. Search today feels like it did in 1997: a "solved problem" ripe for disruption. Google has the talent, technology, and data to produce something an order of magnitude better.

[matwood]

This. It used to be the first page of results was good enough. Now if it is not in the top 3-4, I refine my query.

[Vexs]

I think the biggest issue with google right now is they have so many simple answers available. If I google some even slightly in depth problem, I'm bombarded with quarter explanations from "popular" sites like howtogeek, cnet wikihow, etc, which as far as I remember have never helped me one bit.

They seem to rely too much on site popularity, and not enough about quality of result, and god help you if you try to google a higher-level math problem.

[Roedou]

Some of the updates over the last year or so will put Google in a better position to increasingly put quality over popularity. There's still going to be a problem that people seem to trust Wikihow, etc...

Regarding the math problems: do you have an example of a query for which there's a good result on the internet, but Google doesn't return it?

[tudorw]

I agree, I think search is ripe for disruption, Google is the old guard in this respect, I think they reached a crossroads where improvements in their search experience did not translate to increased revenue, and they stuck with this 'good enough' solution which made a predictable amount of money. I still show many users the 'filter by date' drop down and it's the first time they have seen it, it still does not offer me any way to restrict my searches to categories, though it certainly seems to have 'knowledge' based data in reach when it shows me adverts. There is surely much more that can be done, most competitors seem to want to match reach rather than innovate on the UI, I'm sure there are lots of startups out there, so if anyone wants to point me in the right direction feel free :)

[Lordarminius]

>Search has stagnated. Google has gotten...

Who downvoted this and why?

[_pmf_]

> Google has gotten scarily good at anticipating what I want to know, but conspicuously bad at answering hard questions.

Well, 98 percent of the market is not asking hard questions, so by dropping support, they are actually making their search product more tailored towards their market.

[slmyers]

Is anything truly "mastered"?

[lorenzhs]

Just yesterday I got a blank result page for a sensible query, seems to have hit some rarely visited bucket combined with a busy machine somewhere or the like, and the background request timed out. Of course a refresh fixed it, but software is never perfect.

[iopq]

It's not "perfect", it's just "mastered"

[ZenoArrow]

What's the difference?

[ryporter]

Google is perfectly able to invest a few dozen million in the Android development chain, if they so desire. If they don't, and if you're right that it would be a good investment, then that's simply a bad decision made by Google proper.

Alphabet is trying to learn from the mistakes of their predecessor tech giants, who continued to focus almost exclusively on their current money spinners, only to wind up completely missing the boat on the Next Big Thing (tm).

[yoz-y]

I think that they are already investing quite a lot into the Android development toolchain and probably more investment would not make things go faster.

That being said, it does indeed need a lot of improvement.

[on_and_off]

TBH, it feels like they are already ramping up the Android team.

The support lib development pace seemed to have really picked up some steam this year.

Of course they could do more, for example :

- a really open support lib repo where you can really easily push contributions on something like github, gitlab, etc..

- start working on a replacement for Java .. Java 10 is better than what we have right now but still way behind kotlin or swift..

- do even more in the support lib. They are dozen of points of the material specs not covered by the platform right now.

- do something about android updates. It looks like a political issue though, so not sure there is a solution.

I don't feel like they are not investing in Android though, all the contrary.

[matwood]

The Android tool chain has improved A LOT over the years. I used to want to throw my computer every time I was forced to do something in our Android product, now it is only a mild annoyance. Compared to iOS it still has a ways to go though.

[wastedhours]

Since Other Bets are separate in Alphabet (compared to Google), these aren't technically Google's investments offset by revenues, so would actually be losses for Alphabet as an org, no?

[landryraccoon]

A lot of world class engineers would leave Google to go to their competition. The promise of maybe getting to work on self driving cars is a big recruiting carrot. Improve ad revenue by 0.01%? Will that motivate a top 1% engineer to sign or stick around?

[markcerqueira]

> Improved their development tool chains for Android

A true moonshot! :) and :( at the same time...

[kalleboo]

> improved their development tool chains for Android (which are disappointingly flaky).

To compete with what, Xcode?

Strategically they're almost better off inspiring others to make better third-party Android dev tools to open up the space

[whack]

Genuine question: Has Google ever achieved financial success with a moonshot project?

Google Glass seems to have come closest to becoming an actual product, but it eventually crashed and burned as well.

The self-driving car was a great technological success, but I really wonder how Google plans to monetize it. Years ago, when Google was the only major company doing self-driving-cars, there was a lot of buzz and potential. But they didn't seem to capitalize on that in any way. Now that Tesla and every other major car company has achieved near-parity, I really wonder what Google's end-game is for self-driving cars.

In general, a lot of these moonshot projects sound so zany, that I wonder if the division will ever recoup its investment.

[corobo]

I believe Android was (technically at least) a moonshot

Page writes: “Having exceeded even the crazy ambitious goals we dreamed of for Android—and with a really strong leadership team in place—Andy’s decided it’s time to hand over the reins and start a new chapter at Google. Andy, more moonshots please!” [1]

The "more moonshots" implies that Android was itself a moonshot. Whether it was declared one at the time Android Inc was purchased I don't know!

As for financial success, in a recent lawsuit with Oracle it was disclosed Android had a profit of $22 billion [2] if I'm reading into it right (admittedly very quick research, not at all reliable!)

[1] https://techcrunch.com/2013/03/13/andy-rubins-next-moonshot-...

[2] http://www.bloomberg.com/news/articles/2016-01-21/google-s-a...

[amelius]

I think the term "moonshot" is reserved for exploring new technical frontiers. Android is "just" another OS.

[eli]

Easy to say that now. They started developing it before the iPhone came out, right?

[NzNz]

This is what it looked like before the iPhone: http://www.technobuffalo.com/wp-content/uploads/2011/10/Scre... So, yes, it was "just another OS" in the grand scheme of things. A blackberry and symbian competitor. A footnote. An explorer of new frontiers it was not.

http://appleinsider.com/articles/14/04/14/exclusive-android-...

" The change log of the planning document conveys the rapid change that occured in April, when suddenly there was a "major update." Among the changes were section 3.11.2 Touchscreen, which now read, "a touch screen for finger-based navigation—including multitouch capabilities—is required. Stylus-based navigation is not supported."

The iPhone had the android team sweat bullets. They were working all this time on a Blackberry clone, and had to re-purpose their UI to become 100% multitouch friendly before releasing it.

Android might have been released earlier than it did if the iPhone hadn't been a thing. It had to be remade to not become a laughing stock. It still was a laughing stock at release though.

" When it was released, Android still lacked support for touchscreen typing by finger. And while the phone shipped with hardware support for multitouch, its software was patched to remove support for the feature. In late 2009, Google released Android 2.0, adding software support for multitouch. "

[burkaman]

Yeah, but Andy Rubin and Android were a separate company that Google bought. They sort of acquired someone else's moonshot.

[amelius]

Also, there was Symbian OS, and probably a bunch of others. So not even someone else's moonshot.

Imho, Android was more about exploring a new business strategy for Google.

[stevetursi]

From a different nytimes Article this week:

'Arguably the biggest success, Google Brain, is the one people know the least about. It was an artificial intelligence effort that was spun back into core Google in 2012 and is now embedded in products like voice search and the Google Photos app, in which users can search their albums for images like “dogs” or “mountains.”'

http://www.nytimes.com/2016/07/24/technology/they-promised-u...

[Retric]

In terms of internal projects gmail, and local maps comes to mind. If your going to call everything that did not work a moonshot then by definition no. However, it's only a failure when they give up so self driving cars are rather undecided at this point, and theses projects help recruiting which has non obvious benefit.

[whack]

By moonshots, I'm referring specifically to projects that came out of the "Other Bets" division. That division specifically invests in projects that are "out there." From what I hear, realistic products like gmail and maps came out of the 20% time and other product-divisions, not the "Other Bets" division.

[kgwgk]

Considering that the Other Bets division (and Alphabet itself) was created one year ago, maybe it's too early to evaluate what has it produced.

[eli_gottlieb]

The important question is whether something was designated a "moonshot" before it succeeded or failed, thus giving us an unbiased sample.

[zaroth]

I think moonshot, by definition, means 15+ year timeframe to full realization. Google is a very young company, they just haven't had piles of cash to invest in moonshots for long enough for us to have seen the results. X was founded just 6 years ago, Alphabet was founded just last year!

To be asking 6 years in where are all the moonshot successes already? I think this demonstrates exactly how problematic and pervasive short-term thinking is.

The question to ask is in 50 years, how many different $10B+ revenue streams will Alphabet have?

If we really think this R&D isn't going to pay off, at the scale Alphabet operates, that's almost like losing faith in humanity.

[eli_gottlieb]

I didn't say moonshots were a bad thing. I just stated the basic standard for collecting a sample of something in a halfway unbiased way.

[flylib]

would be careful to say "near-parity", google is still ahead of everyone in level 4 autonomous cars at the moment, not only that the gap may be larger then the other car companies lead you to believe.

[virgilp]

This.

I mean, Apple is investing into cars, changing the original goal from "car" to "self-driving car"... and we are seriously questioning whether google's effort was a good idea? WTF, people?

[diydsp]

I don't know about your personal definition of success...

but R&D like this is excellent PR. It helps the buzz keep going, attracts smart people, keeps the stock up.

It also intimidates other companies and can be used strategically to mislead them and keep them on their toes.

[amelius]

> Genuine question: Has Google ever achieved financial success with a moonshot project?

Just shows once again how risky it is to run a startup in SV, putting your eggs in one basket. Lots of otherwise very intelligent people think they can be smarter than Google.

[outworlder]

> I don't think it's right to equate R&D spending with "losses".

I was baffled by that. Is this just because they called it "Other Bets" instead of plain old boring R&D?

If anything, that would make me want to buy Alphabet stock. We need more companies willing to invest on "moonshots", as the article calls it. We need to get back to the Xerox PARC times.

[Amygaz]

That story was written by someone at AP covering the tech industry. He has consistently showed terrible analytical acumen and reporting of major and minor events. http://bigstory.ap.org/content/michael-liedtke

[bachback]

yes, absolutely. they do have 75B$ in cash and another 60B$ in short-term investments. So they have 135B$ to spend. judged by that number Google is too conservative.

[adventured]

That's incorrect. They have $75 billion in total 'cash.' $15 billion is listed as cash and $60 billion is listed as short-term investments (as of Q1 2016).

http://finance.yahoo.com/quote/GOOGL/financials?p=GOOGL

[bachback]

right, thanks. 90B$ in current assets and 150B$ in total book value.

[t3f]

I agree with where you're going. If you're not familiar with the DoD/Govt Lab TRL Model [1], that is how I mental model this type of "Other Bets" and similar group work.

Catapulting a TRL1-3 concept to product is certainly a moonshot, _but_ they cant afford to take a long comfortable stance to incubate all ideas over an indefinite period of time. The beauty of trying to fund/productize TRL1-3 Moonshots is so many great bits and nuggets fall out of it during the course of maturation that you get to reiterate on.

In my view you are right that they are thinking long term, that they have a positive P/E and still are funding Moonshots along with the safer higher TRL items is encouraging for their investors, that's good long term planning.

[1] https://en.wikipedia.org/wiki/Technology_readiness_level

:edit: Formatting

[maxerickson]

There's a long history of using terms like loss to describe such segmented financial results. It's also typical to talk about them on an operating basis.

A vaguely topical example would be Xbox. Microsoft (and the press) reported losses on it for years, years were it would be reasonable to say they were investing in building up the division.

[jeffreyrogers]

Capital can still be poorly allocated even if it goes to R&D. If investors think that that capital would be better allocated by being returned to them through dividends then it should be. This may or may not be the case, but just saying that it's R&D so more spending is good is the wrong way to look at it.

[anjc]

It's an accounting loss. Their revenue is less than their costs. Nobody gauges the state of a company by just looking at one line on an income statement though.

[KKKKkkkk1]

Google's core business (search-powered ads) is at this point a cash cow that does not require R&D investment at a $1B/pa level, so it's not fair to label these as investments either. That was the whole reason behind the creation of Alphabet - now investors can see that Google is acting as a VC that's being powered by its ad earnings, and they can judge how successful Google is as a VC. (So far, not very successful.)

[melling]

Company X invests billions into the "future". This continues for 5-10 years without results turning into profitable products or direct improvements. Shareholders begin to question the value of those investments. "Is the R&D being well spent?" Google hasn't turned any moonshot into a profitable product yet, right? They're going to need a winner or two to convince investors.

Apple will be in the same position in a few years because they are ramping up R&D.

[eru]

Doesn't matter too much what Google/Alphabet shareholders think. The controlling majority is with the founders, and the company is not going to the markets anytime soon to ask for more capital.

[melling]

"any time soon" What exactly does that mean? The next two years? If people start dumping your stock, I'm sure there will be repercussions.

[eru]

What kind of repercussions? Please elaborate.

The only result of a lower stock price that I can see is that Google employees might demand cash instead of stock for compensation. (But Google still does make enough in cash.)

And by 'demand' I mean: get unhappy, be more likely to leave, and for new hires, be more likely to take up alternative offers instead.

[knowaveragejoe]

Well, to be fair, people probably won't be dumping their stock over this news.

[melling]

To be really fair, I didn't say they would. I was addressing the long-term impact of spending large sums of money without any clear benefit.

People are usually content while a company is growing fast enough.

[manarth]

On the other hand, if research for a particular moonshot ends up creating something that the other products can use (and become more profitable/successful as a result) - such as Google Brain - the moonshot itself doesn't need to succeed for the project to be considered worthwhile.

[melling]

Yes, that would fall under direct improvements, right? You can link the research to a profit use.

[brador]

The question is can these moonshots pay off their expenses in the long run.

Given how little Google is known to actually ship I question if they can.

[bitL]

Moonshots are called that way because they bear both immense risk of failure as well as a potential to bring in billions. So individual moonshots are almost always failures; the ones that are successful pay the other ones. Google is doing the right thing to remain alive in the future without enforcing lock down on their users (like other companies not producing moonshots do).

[usrusr]

> Moonshots are called that way because they bear both immense risk of failure as well as a potential to bring in billions.

Which is kind of funny because the original moonshot was a rather predictable thing (build bigger rockets until one is big enough) and success only meant that you could stop spending billions.

[corecoder]

Well, predictable in the sense that they would either reach the Moon and come back, or reach the Moon and die trying to come back, or reach the Moon and die there, or die along the way to the Moon, or explode in the air, or explode on the ground.

[brador]

They're only good investments if they tap that well someday.

If you sit around moonshotting all day and never shipping they're worth $0.

So far, no moonshot by a big corp has paid off. Maybe it's too early, or more likely Google is hoarding tech and filing patents like a rational engineer running a business using machine learning would do, and while that's good for Google it's bad for Society to have so much cool tech locked away in a damp basement when it could be changing lives and being iterated on.

[mike_hearn]

No moonshot by a big corp has paid off?

I used to work at Google. I remember the term "moonshot" being thrown around, it started with Larry and Sergey. If there's a definition for what this means, in the Google context, it's in their heads and nowhere else. But the way I interpreted it was "really really ambitious project".

One thing I do remember is that several projects that were described at the time as moonshots did pay off. The one that comes to my mind immediately was Street View. The idea of driving a car with a spherical camera down every road in the world seemed completely insane at the time it was first proposed, the idea it might make money even moreso. But Street View worked, and whenever we switched on SV in a new country usage of Maps in that country permanently increased. It really increased the value of the product, and in turn I guess it also raised ad revenues (or it'd be odd if increased usage didn't correlate with increased ad revenue at all).

There were others I remember. Rewriting the web search indexing system more or less from scratch was a big one. You don't hear much about that, but it was a big risky effort to rewrite the core of your product from scratch.

I think people tend to take past successes of radically ambitious projects for granted. Android was a moonshot at the time. We don't think anything of it now, but it wasn't clear at all it'd be so successful.

[redthrowaway]

Self-driving cars look poised to pay off in a big way in the next 5-10 years.

[ghaff]

Except Google is exclusively focused on full Level 4 autonomy which is likely to be a number of decades out.

[na85]

Maybe in the Southern US. Here in Canada they're a lot longer from solving the snow and ice problem.

[crottypeter]

> So far, no moonshot by a big corp has paid off.

What about that mobile phone apple launched in 2007?

[brador]

I wouldn't call the iPhone a moonshot, more an extreme iteration.

This was around before the iPhone: https://en.wikipedia.org/wiki/IPAQ (HP IPAQ)

Combine that with a phone and update the software and make it designed and you have an iphone.

[eru]

The iPhone went without keyboard and put all real estate towards the touch screen. That was a big change back then.

[manarth]

> no moonshot by a big corp has paid off

Does SpaceX count as a moonshot?

[drusepth]

I'd say yes, quite literally.

[zaroth]

If the article was titled, 'Will Google's moonshots pay off'? With a list of the top projects and cumulative spending on each one. Some analysis on each of the markets and what their potential size could be in 2020. Who are the biggest competitors in the space? Now that would have been interesting to read!