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by chollida1 710 days ago
This isn't true.

The market tracks how profitable you are as company. Tech companies get higher multiples on their valuation because they can be more profitable than a manufacturing company.

This was one big reason why the trend is for conglomerates got broken apart, it lets their high profitability companies get valued higher.

Google focusing on products that are break even or slightly profitable hurts them for this very reason.

So if you are the CFO of google the decision you make is do we keep some of these low profitability companies around and have them drag our multiples down or do we cut them when its clear they won't become high margin profitable businesses.

Given that the CFO of google gets most of their compensation in stock its not surprising that they chose to have a higher multiples applied to them, and therefor higher stock prices, than lower ones.
2 comments
gmoore 710 days ago
agreed - there is also opportunity cost. While that particular project - may be earning that dollar - putting those resources somewhere else might be more profitable....
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office_drone 710 days ago
A lot of what you said is accurate, but then the ideal play would not be to shut down non-core projects, but rather to sell them or spin them off into their own companies.

...which partly-happened via licensing in the article, but they didn't realize the full value of the working operation.

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toast0 710 days ago
Spinning them off has a cost too; at least to Goog, potential sales proceeds don't seem to justify the sales costs, so they shut everything down.

Also, it may be slightly profitable when run under the umbrella, but not once you consider the cost of separate administration. That's especially true for things like Google Reader --- that project benefited enormously from living on Google Infra, behind Google Login, and you'd have to do a lot of refactoring and rebuilding to get it to run elsewhere, and then you'd have to get people to create new accounts, etc. And there wasn't much revenue there, certainly not enough to make it a viable standalone business.

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