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Larry Page Punts on a Chance to Explain Alphabet’s Woes

Google’s founders chose not to pen the company’s annual letter for the first time in 12 years, leaving investors in the dark about Alphabet’s moon shot strategies.
April 28, 2016

Every year since Google went public in 2004, its founders have published a letter explaining their vision of the company’s future and current business—until this year.

Breaking that 13-year tradition neatly helped Larry Page and Sergey Brin avoid having to update the world on how Alphabet, the holding company they created last year, is doing. Lately there have been signs that the company, which shelters the original Google alongside companies working on “moon shot” ideas such as defeating death and self-driving cars, is troubled.

The CEO of Google, Sundar Pichai, filled in for the founders. His letter recaps the company’s investments in machine intelligence, expanding its services for mobile devices, and growing its products for corporations.

Larry Page

In a brief note introducing Pichai as his understudy for this year, Larry Page described himself as “really pleased with how Alphabet is going.” That suggests he expected some considerable financial and strategic headaches.

Leaked figures from home gadget company Nest, the most mature Alphabet business outside of Google, indicate that the company is significantly underperforming against expectations. Nest has also lost significant numbers of staff, including one executive who has aired his concerns publicly, in part due to the abrasive style of CEO and cofounder Tony Fadell.

Verily, a biotech company within Alphabet, is said to be experiencing similar problems retaining talent and choosing its direction due to the style of its leader, Tony Conrad. And X, the research lab formerly known as Google X, is said to be seeking to sell off one of its most impressive projects, working on legged robots.

On top of that, the non-Google companies that Alphabet describes as “other bets” are expensive. That’s putting extra financial pressure on the cash cow powering the whole operation.

Alphabet releases only partial information about its non-Google companies. But we know that last year they burned up $3.6 billion. Alphabet’s latest results, announced last week, included some good news. Quarterly revenues for the other bets companies more than doubled over the same period last year, to $166 million. But those same companies are losing money faster, too: $802 million last quarter, up from $633 million.

Alphabet chief financial officer Ruth Porat said that those cash-consuming other bets would need to make significant capital expenditures in future. The profit machine underwriting the whole operation, Google, will be subject to new cost controls to help come up with the money.

Page might have used his usual founders’ letter to explain what about Alphabet’s first six months makes him really pleased.

Neither conglomerates nor corporate labs have much of a track record for producing era-defining new businesses and technology. When Alphabet was first unveiled, management experts told MIT Technology Review that the structure would likely work only if the non-Google companies could be successful and independent enough to eventually go it alone. Right now that looks like a distant prospect.

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