Alphabet Reveals the Growing Cost of Its Moon Shots
The conglomerate that owns Google burned up nearly $4 billion in 2015 on its wildest technological bets such as self-driving cars.
Making dreams come true isn’t cheap.
Alphabet, the holding company that houses Google and a string of companies working on more speculative ideas such as extending human lifespan, revealed today that those far-out projects collectively burned up $3.6 billion in 2015.
That number was disclosed in Alphabet’s earnings report for the fourth quarter of 2015, which broke out results for Google separately from the rest of the parent company’s subsidiaries for the first time. The non-Google companies were lumped together in a category dubbed “Other Bets.” The report says that category’s losses of $3.6 billion for 2015 were a jump of more than 80 percent over the previous year, when they were $1.9 billion.
Larry Page, who cofounded Google in 1998 and is currently Alphabet’s CEO, said last year that he created the new company to make it easier to take on big problems using technology. He has dubbed such efforts “moon shots” (see “What Will Alphabet Be When It Grows Up?”).
The new conglomerate has not disclosed all the projects that make up the Other Bets. But they include X, a research lab working on self-driving cars and balloons for Internet access; Nest, which sells Internet-connected home appliances; Fiber, which is building broadband networks in U.S. cities; Verily, a company focused on health care with such projects as an electronic contact lens for diabetes patients; and Calico, working on medical treatments to extend lifespan.
After Alphabet’s last quarterly earnings report, chief financial officer Ruth Porat told investors that spending on these long-term efforts would rise throughout 2016 (see “Alphabet Prepares to Spend More on Its Riskiest Projects”). She didn’t update that prediction on a call with investors today, but she did advise that the losses on Other Bets would not rise at the rapid pace seen last year.
Porat singled out Fiber as one of the most expensive of the Other Bets. The project, which has built out gigabit broadband infrastructure in three U.S. cities, was responsible for most of the $836 million in capital expenditures by Other Bets companies, she said. Big outlays will continue to be needed, said Porat, since the service is due to expand to six more cities soon.
The financial engine underwriting Alphabet’s Other Bets is healthy. Google had $17.3 billion in revenue in the last quarter of 2015, not including payments made to partners to drive traffic, an increase of 19 percent that exceeded analysts’ average predictions. Profit was nearly $7 billion.
Some of the Other Bets are making early steps toward being self-supporting. As a whole the category took in $448 million in revenue in 2015. Porat said most of it came from Fiber, Nest, and Verily. While Fiber and Nest have revenue streams from consumers, Verily gets its revenue from biotech companies interested in getting access to new technology. For example, Dexcom has committed $40 million to work on new glucose-sensing technology for diabetics, and Johnson and Johnson is collaborating with Verily on surgical robotics.
Porat highlighted Verily’s partnerships as “a great example” of where Other Bets revenue can come from. Alphabet has previously indicated it is interested in using that model for other projects in the category, such as self-driving cars and high-altitude Internet infrastructure. It could be easier for Alphabet to work with large, dominant companies such as automakers and cellular carriers than to try and build businesses competing with them.