Mark Bergen and Alistair Barr have a little bit more for us on yesterday’s news that Google’s founders are out and Sundar Pichai will be CEO of Alphabet.

The Google founders’ decision to step down ends a multiyear effort to turn their company into the Berkshire Hathaway of technology by embracing Warren Buffett’s hands-off management style.

Larry Page and Sergey Brin created the Alphabet Inc.holding company in 2015 to give themselves more time to invest in new tech businesses and handed responsibility for Google to Sundar Pichai. The model was inspired by Buffett’s approach of allocating capital to disparate businesses and letting independent CEOs decide how to run the operations.

Bloomberg

Yeah, Alphabet ended up creating so many great businesses like uh… you know… the… Waymo?

On Tuesday, the Google founders effectively unwound this structure by making Pichai chief executive officer of both Google and Alphabet. 

Bloomberg

So… they’re still two companies but Pichai is the CEO of both? Is this just some bizare accounting scheme designed to hand-wave around the fact that other than Google, the rest of Alphabet is losing billions of dollars a year?

For many at the company, Alphabet’s purpose and structure was never really clear. Placing the head of Google, which contributes more than 99% of Alphabet’s sales, at the helm of it could call into question the entire purpose of Alphabet, one former Google senior employee said. Another former Google executive said the change will mean Pichai is stretched even more thinly.

Bloomberg

“Calls into question” implies that people knew what the purpose of Alphabet was before Larry Page resigned.

Operationally, the structure has been in near-constant tumult and has struggled to produce a new business remotely close to Google in size and scope. Collectively, the company’s “Other Bets,” which include Waymo driverless cars and Verily health-care tech, lost $3.4 billion in 2018 and almost $1 billion in the latest quarter.

Bloomberg

$3.4 billion is 340 million $10 self-driving rides. And each Waymo car costs $250,000+ so they should be able to make the investment back very quickly before pure vision-based self-driving systems make their technology obsolete… right?

Nest, a smart-device maker, started out as a standalone Alphabet company but moved into Google’s hardware division last year. Pichai also brought many of DeepMind’s ambitious artificial intelligence projects into Google’s fold. Chronicle, a cybersecurity project, debuted with considerable fanfare as an independent Alphabet business last year — only to be subsumed into Google’s cloud division in June. Fiber, once a high-profile Other Bet, is no longer expanding.

Bloomberg

Basically, they’re losing all their bets.

Within Alphabet, Google was always the tail that wags the dog. That’s where all the money and employees are.

Vineet Buch, Partner, Firebolt Ventures

I haven’t heard this expression before but I like it.

The fact that Page and some of his deputies active in the Other Bets group — such as Alphabet’s longtime lawyer David Drummond — have avoided speaking to shareholders also created some confusion on Wall Street.

Bloomberg

Yeah, if I blew $3.4 billion in shareholder capital in one year with nothing to show for it I probably wouldn’t be eager to talk about it either.

The new sheriff was keen to downplay his larger role. “I want to be clear that this transition won’t affect the Alphabet structure or the work we do day to day,” Pichai wrote in an email to staff on Tuesday.

Bloomberg

What’s the point of the Alphabet structure then?

My Take

It’s all a big shit on a plate. For all the hand-waving about “innovation”, Google is fundamentally a large digital advertising business. That’s where more than 90% of their revenue comes from –– that’s what they do.

With competition from the likes of Facebook, Snapchat, and the next new kid on the block, Alphabet doesn’t want you to start thinking they’re just a digital advertising business. Hence the money-losing “other bets” like Waymo: investors need to believe that Alphabet is a large diversified tech company working on new technologies that will change the world, and be very profitable. They need to believe that some of these other bets could one day become as big as Google is today.

The only really high profile other bet is Waymo, and I think the public is going to be very shocked by the failure of that project. For some reason, people just accept that Google has been working on their self-driving car project for 10 years and yet has very little to show for it. People still consider Waymo a “leader” in the space, ignoring the fact that the cost of the vehicles and technical issues make it very unlikely they will be able to deploy the technology anytime soon. If vision-based systems surpass Waymo’s LIDAR-based tech at a lower cost, Waymo may never be commercially viable. An entire decade of work would be useless.

Page didn’t want to stick around to face the music on this. He wants to protect his reputation. Someone else will take the blame for Waymo’s failure. But what comes next?

For more on Waymo, make sure to check out this roundup of user feedback on Autopilot and Waymo.

Read the full story at Bloomberg