Corporate Strategy

Alphabet Eyes New Frontiers

Case Analysis

Group members
No. Roll No. Student Name Email
1 2116004 Sumitra Ajith sumitra.ajith21@iimb.ac.in
2 2116059 Ajay Koushik Ramachandran ajay.ramachandran21@iimb.ac.in
3 2116065 Dhruv Sapra dhruv.sapra21@iimb.ac.in

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Were Nest’s problems evidence that the new corporate form was incompatible with the ambitious
innovation agenda set out by Google’s founders, or would it in fact make it easier to deliver
breakthrough innovations to market?

The ambitious agenda set out by Google’s founders for some of the “moonshots” was incompatible
with the new corporate form and is clear through the examples of Nest and other such emerging
projects within Alphabet. Page himself remarked in 2011 that they had a lot of interesting projects
going on and each of these didn’t have enough investment to be truly great. The new structure
pressured the non-core divisions to “tighten their belts” while pushing costs for corporation wide
services like computing, recruiting, and marketing, and held them accountable for numbers that in the
early stages of product or market development could stifle growth and even led to some projects
acquired like Revolv to shut down. Page himself believed that a lot of such projects had the
characteristics of taking longer than average VC bet but then management became impatient with the
slow pace and separated them out, spinning out them into independent companies or changing
leadership if progress was slow are some of the characteristic things Alphabet did to some of these
startups.

And did it make sense to host such a large and diverse set of “moonshots” under a single corporate
owner?

Yes, it did make sense to host such a diverse set of moonshots under a single corporate owner,
given their intense capital requirement, different levels of risk vs returns and thus their
potential to increase shareholder value in the long term. These bets could gain from the
shared corporation wide resources (talent, talent and computing-recruiting-marketing) and
maintain a portfolio balance between today’s cows and tomorrow’s stars.

Was it important to give the companies independence or would the strategy empower
divisive leadership?
Inspired by Berkshire Hathaway’s decentralized structure, Google’s restructuring would lead
to divisive leadership for the following reasons:
• Unlike Berkshire, Google’s investments were primarily in technology and were mostly
developed internally (which required longer R&D with higher risk).
• Each of Google’s moonshot projects were diverse. Projects ranged from home
automation to autonomous cars, healthcare, farming etc. and were not linked to each
other and required different levels of investments, timelines, risks and decisions to be
taken.
• The focus of restructuring was to bring in more financial discipline to various moonshot
projects making the subsidiaries more accountable for their spending.

The Other Bets at Google were running at an operating loss of $3.6B as of 2015. Given the
strong focus on results and generating shareholder value, individual segment leaders took
decisions respective to their portfolio rather than inclusively looking at the overall objective
set by Alphabet. This was evident from how Niantic Labs and Verily announced
independence from Google and the sale of Boston Robotics.

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How long should other bets be allowed to experiment before producing a viable,
profitable product?
Google time and again iterated that Other Bets were long term projects with the time
horizon of 4-5 years. The focus was on generating long-term value rather than looking at the
short-term gains (as expected by shareholders). The incubation period for these projects
was longer than typical VC bets given their characteristics of taking longer time to realize.
However, looking at the segment level financial report, the operating loss from these big
bets has increased from $527M to $3.5B from 2013 to 2015. This would mean that Google
would have to incur these losses for a longer time horizon without any substantial clarity on
the outcome of those projects leading to loss of shareholder confidence. Hence other bets
should also operate like typical VC bets since the focus of VC bets is both on innovation and
generating shareholder value.

Was Alphabet providing the resources startup ventures desperately needed to succeed, or
would the conglomerate structure stifle innovation?
Although Alphabet provided the resources required for startup ventures to succeed, the
structure stifled innovation. The Googlers who left felt that there was a corporate-
mandated focus rather than a place to explore and innovate. In addition to this, in early
2011, Page attempted to increase capital expenditure which resulted in a lot of pressure
from the shareholders as they were getting restless. The shareholders were not paid any
dividends either. Another instance that is indicative of how Alphabet stifled innovation is
how Google treated Boston Dynamics, a robotics firm. Google executives started getting
impatient with the slow pace of their progress, and eventually put them up for sale.

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