Currently, as I stated in my presentation, Google is attempting to apply machine learning to everything that it does. The most interesting and innovative example I found of this was Google Duplex. Google Duplex allows Google Home to make appointments over the phone. I have attached a video demonstration below, make sure to check it out as it really seems to come out of another world. This demonstration really made me curious both about how the structure of Alphabet (Google’s parent company) affects Google and also how this structure fosters innovation and entrepreneurship within Google. Maintaining an innovative atmosphere is a goal for most large tech companies as disruption is always a threat. Other firms have initiatives like “always day One” at Amazon to try and keep employees on their toes and geared towards innovation. The corporate structure of Alphabet is supposed to have a similar effect.
In 2015, Google announced that it was rebranding. Google would be under the umbrella holding company of Alphabet Inc. According to Larry Page one of the main goals of this move was to both improve transparency into the R&D occurring at Google, and also allowed Google itself to be slimmed down and somewhat separated from “far afield” projects. When talking about far afield projects, Larry Page is referring to things like the Life Sciences division and moonshot projects. This separation allows Google to function with maximum efficiency and also shields innovative ideas from the rest of Google’s operations. When the rebranding happened, Larry Page became CEO of Alphabet Inc. and he then appointed individual CEO’s to each company within Alphabet. For example, Sundar Pichai became the CEO of Google. This structuring allowed Alphabet to have two distinct divisions, Google and Other Bets. Housed under Google is YouTube, Android, Search, Maps, Google Cloud, and Hardware. This is essentially Alphabet’s core business. When one thinks of Google, typically what they are thinking of falls under the Google division of Alphabet. The Other Bets division is much more diverse, housing Verily(which focuses on disease prevention research), Waymo(Alphabet’s self-driving car unit), and X(this a secretive R&D division that focuses on moonshot projects). There are many more projects housed under this division, many of which are pictured below. Essentially in rebranding itself as Alphabet, the core division of Google is able to remain intact while also allowing for a diverse set of companies to be a part of Alphabet.
As I mentioned earlier, one of Larry Page’s main motivations for rebranding Google as Alphabet was to increase transparency to investors. This is apparent when comparing revenues between Google and Other Bets. Other bets only represent about 1% of Google’s overall revenues, and consistently perform at an operating loss, lowering Google’s overall net income. Prior to the reorganization, many of the expenses contributed to Other Bets would have just fallen under R&D expense. This caused investors to be unsure of how Google was performing. This is no longer the case, as both are clearly displayed on Alphabet’s financial statements. The added transparency to investors was very well received as Google’s stock rose 6% on the announcement. Not only is this transparency an added benefit to investors, but also to Alphabet as a whole. The new structure allows Larry Page to focus less on the day to day operations and more on helping the company innovate. It also allows Google to invest heavily in moonshot projects and innovation without scaring off investors, a benefit to everyone.
While Alphabet’s restructure was a benefit to investors and the company as a whole through increased transparency, another large benefit comes in the form of innovation. In organizational behavior, they teach that in order to foster innovation and entrepreneurship at a large company it may be necessary to have a separate division from the rest. This is exactly what Alphabet has done. By separating Other Bets from Google, the companies housed in Other Bets are incubated from expectations and potential conflicts with daily operations at Google. This move has also allowed Alphabet to expand its research and offerings significantly. Within Other Bets, Alphabet houses two venture firms GV, which focuses on early-stage investment and CapitalG, which focuses on later stage investment. These two divisions have investments in companies from Airbnb to Uber to Slack. Other Bets also houses wild companies like Project Loon. Project Loon initially started as an X moonshot project but was spun off into its own company. Project Loon’s goal is to bring web access to 2/3 of the world using internet-beaming hot air balloons. Another example of the “far afield” companies under Alphabet’s Other Bets is Calico. Calico has the ambitious goal to “cure death”, and has invested millions to develop drugs, and research cures for diseases like cancer and Alzheimer’s. Clearly, Alphabet’s organizational structure has helped provide the resources necessary for some truly innovative and potentially disruptive companies.
Certainly, the innovation taking place at Alphabet is astounding, but the question remains, how does this affect Google? One great example is Nest. Nest was acquired by Alphabet in 2014 for $3.2 billion. As I’m sure most have heard, Nest uses AI to more effectively regulate home temperatures. When Google restructured in 2015, Nest was placed under the Other Bets category. In February 2018, however, Nest was moved from Other Bets into Google’s division. This leads to the conclusion, companies and projects can move between the two divisions. Nest was moved to Google to help recognize synergies between engineering teams working on Google hardware and Nest engineers. While Google and Other Bets remain two separate divisions, they still benefit each other. Nest isn’t the only example of work being done in the Other Bets category transferring to Google. DeepMind, an AI startup housed under the Other Bets category of Alphabet has also contributed research and projects to Google. DeepMind has developed AI algorithms to improve the efficiency of Google’s data centers and has helped Google Play develop algorithms to make better app recommendations. DeepMind even worked with the Google Assistant team to develop an entirely new speech algorithm that sounds much more like a human voice. I imagine this is what Google Duplex uses. It is apparent that Alphabet’s corporate structure helps foster innovation in Other Bets. This structure allows these companies access to Google’s immense resources while still maintaining autonomy. Alphabet’s structure also benefits Google by helping Google obtain and create the innovative technology seen in things like Google Duplex.