Google formalized a balanced portfolio approach to business and innovation when they restructured in summer 2015. They created the parent company, Alphabet, which would manage its separate ventures – the core business of Google (search and advertising) and its array of other riskier efforts like robots, X-Labs, and driverless cars. Now for the first time since they split out these ‘moonshot’ businesses, Alphabet (Google) announced their quarterly results.
In Q2 alone, they’ve lost $802 million on these ‘moonshots’ and have for the first time (that I know of), missed their overall earnings forecast and disappointed Wall Street. However, the bigger picture was shared in the company’s earnings release when Ruth Porat, CFO of Alphabet, said, “Our Q1 results represent a tremendous start to the year with 17 percent revenue growth year on year and 23 percent growth on a constant currency basis. We’re thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long term growth.”
This is exactly the time when most CEO’s would announce a ‘refocus on the core business’ to ensure a return to healthy profits and continued near-term growth. I’m hoping it’s a different story with Alphabet, and that they show us the way toward building a non-conventional company that can balance meeting near term financial priorities with creating disruptive future businesses. They’ve taken big bets before that the industry thought were crazy – like acquiring YouTube for a billion a decade ago – that have paid off royally. I’m sure some of Alphabet’s ‘moonshots’ will disappear in coming years, but others will likely reach and surpass expectations, eventually. Transformative innovation requires taking chances and sticking with them through even some painful growth.
I have a great respect for what Alphabet is doing and for Larry Page and Sergey Brin’s focus on keeping Google from becoming the kind of company it’s been disrupting since 1998. In forming Alphabet, the founders stated “Google is not a conventional company. We don’t intend to become one.” (Here’s Larry’s original explanation.) As I discuss in my book, Collective Disruption, all of the things that make big companies great at optimizing today’s business, make them terrible at creating new transformative opportunities. The founders of Google understand that, which is why they’ve taken this balanced portfolio approach.
They’re playing the long game while maintaining the short game, which is what it takes when you’re on the leading edge. The big question is will Alphabet stay the course or bend to the pressure that comes when you miss Wall Street expectations? Only time will tell.
