[dealforager]

I understand the sentiment, but $20M/year really is a waste of time for a $200B/year business. I have a hard time thinking of a way it wouldn't be a loss given the added organizational complexity having those kinds of projects would bring.

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.

[ChuckMcM]

> $20M/year really is a waste of time for a $200B/year business.

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."

[pembrook]

Do you have any idea how insanely hard it is to create 30 separate $30M businesses from scratch?

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?

[ChuckMcM]

I am aware of the difficulty. Google X is hardly "from scratch" however.

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.

[dealforager]

$900M/year is <1% of Alphabet's yearly revenue. I know you mentioned profits, but the OP mentioned revenue so I want to keep the same units because they're very different things. It could very well be that if it was $20M/year in profits, then those projects would not be considered failures.

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.

[ChuckMcM]

In the case that I am completely familiar with the business was returning $20M/year in net profit margin on roughly $180M/year in revenue. Google threw it away.

Their reasoning was that the resource usage to net profit numbers wasn't "good enough." The comparison was always search advertising.

[mrshu]

Would you be at liberty to describe at least generally what sort of a business it was?

Thanks!

[ilrwbwrkhv]

Yup this is also the final thrashes of a dying company. Slow but surely Google will die and I can't wait to see other companies which are born. It's just evolution.

[sumedh]

> Consider then the alternative where there are 10, 20, even 30 business lines within Google

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?

[rsj_hn]

I think this is the wrong approach. If you don't want to deal with an X$M/year company, you can sell it. Google isn't too big to sell stuff are they? They still sell advertising space, afterall. So take it to an IPO, collect the proceeds and use them to re-invest in more moonshots.

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.

[exmadscientist]

Selling off is the obvious — and correct — answer.

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.

[cobookman]

How many XXB/year companies start off making XXB/year or have clear visibility to XXB/year near-term?

For example, I doubt the AirBNB founders early-on and/or 5-10 years ago even imagined they'd have multiple billions of revenue.

[pchristensen]

Amazon would disagree. They have built a decent company out of a bunch of $XM-$XXM businesses.

[solutron]

I give it less than 5 years before Google offloads or shutters Waymo entirely.