Google founders give up on being the Warren Buffett of tech
Financially, Alphabet was a win because it showed investors that the company wasn’t spending too much on ambitious “moonshot” projects, while highlighting the huge profitability of the main Google business.
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.
On Tuesday, the Google founders effectively unwound this structure by making Pichai chief executive officer of both Google and Alphabet. Pichai was already busy running Google's gargantuan digital advertising businesses and responding to antitrust probes, political assaults and protesting workers. Now the self-driving cars, health-care projects, digital cities, delivery drones and internet-beaming balloons are his problem, too.
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. They asked not to be identified discussing private matters.
Financially, Alphabet was a win because it showed investors that the company wasn't spending too much on ambitious "moonshot" projects, while highlighting the huge profitability of the main Google business.
But 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.
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.
Some current and former Google staff interpreted Pichai's ascent as a sign of stronger corporate governance coming to the company's nascent enterprises. Page and Brin, revered for their visionary technical ideas, were rarely praised for their managerial skills.
"Within Alphabet, Google was always the tail that wags the dog. That's where all the money and employees are," said Vineet Buch, a partner at Firebolt Ventures who was a product management director at Google for more than eight years until late 2018. "This may mean that the Other Bets have to start really functioning as businesses and there won't be a two-tier system where Google is run as a business and the other projects have infinite time horizons to reach profitability."
Buch cited Nest as the best example of how Pichai will run Alphabet and Google going forward. The smart home device maker was initially hailed as a prototype of an independent Alphabet business, with its own CEO, marketing department and even email addresses. But it struggled to release products on time and the CEO left. "When Nest was brought back within Google, the rate at which Nest shipped products, and the viability of those products, went up," Buch said.
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.
"Going forward, the story is much simpler: Sundar is the only sheriff in town," analysts at Evercore ISI wrote in a note on Tuesday. Drummond will now report to Pichai as the head of Alphabet.
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.