How many stars does it take for Constellation Google?  We know the search/advertising juggernaut, but incubator Google?  Or is that incubator “Other Bets” a thunderdome–life to the survivors?  Stand up or starve.  Who is Dome Master?   You remember Ruth.  “Ruthless Ruth” dons the luchador life and people fly. StockJaw unscrews the view on all that now much harder Googlie center.

 

Google is wonderful, and fabulous.  But so what?  We don’t claim to comprehend fully every marvel hidden within spiral Google.  Do you?  StockJaw goes hunting and gathering.  Sit tight.  Bodies are flying at Google.  They’re flying out the door.  Goggle “disruption.”

 

 

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Inside Google not all is Googliness.  That’s good, we think.  That word, “Googliness” refers seemingly to some transcendent state of mind or being which has no limits.  What’s in a word?  Empowerment.  Perhaps this special sauce is more some super-powered perspective.  For this company the stars are at arm’s length, and they appear to have more money than we do.  O.K.  Is Google super-human, simply perpetually pumped, or undisciplined.  Either way, the sprawling enterprise we experience as Google continues to enjoy a very special elite status reserved solely for miracle workers–think Musk, Musk or Bezos.

 

 

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Any moment any of these phenom firms could bust a serious move leaving a chasm of disruption in their wake.

 

That possibility exists, clearly.  The aura of stars surrounding such market darlings can dazzle and deflect.  Alphabet could lead the list of darlings, along with Amazon, Tesla, Facebook, and Netflix.  Protected by halos, criticism strikes less deeply for these best-in-class companies–for now.  For these high-fliers normal market metrics mean less as glorious panoramic futures await all.

EPS and revenue are not exactly the same taut cables of shareholder control seen in most other stock stories.  Shareholders instead choose their seat on a rocket ship powering directly into a new and sparkling destiny.  The soundtrack appears to be Donald Fagen’s “Kamakiriad.”  Nonetheless, Alphabet is a profit/loss company.  All market rules will fully apply, eventually.  So what is Google now?

 

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In 2015 Ruth Porat, once CFO of Morgan Stanley, was brought in armed with a mandate to impose financial discipline at Alphabet’s “Other Bets” segment.  “Financial discipline” means “make cuts.”  Cuts mean change.  As we all firmly know, people love change–especially at work.  Actually knowing what your’re expected to be doing becomes tedious, while corporate culture change produces fresh wholesale fear, or resentment, disgust, or disbelief.  Ruth launched into low orbit around all far-flung baby stars bubbling inside constellation “Other Bets.”  She can take the heat–no problem.  No real shortage of cash exists at Alphabet, yet “Ruthless Ruth” a title many at the company believe she has already earned, roams and leers with hatchet in hand.

The drafting of Porat signals a clear shift in what’s known as “corporate culture.”  Wells is working that angle.  Attempting to shift corporate culture is at best difficult, worst case a full-out trench war.  Why you ask?  Corporations are comprised of people and most people prefer predictability.  To change means to think.  To think means to work.  Work requires effort.  Has nothing really to do with laziness, not exactly.  It’s just human really.  Yet, Goggle can and is creating a new vibe.

 

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Corporate culture is like black mold.  When dealing with black mold there is no talking, only exterminating.  Corporate culture is also like grooved vinyl–enjoy the sound or melt it down.  Many have already departed.  As the unavoidable stress sweat of budget cuts continues sweeping through the vast moonshot development hangers, engineers are leaving.  Project leads are leaving.  Projects scramble to regroup atop a playing surface roiled by rapid, dramatic change.

A superb article by Max Chafkin and Mark Bergen, “Google Returns to Earth,” Bloomberg Businessweek, Dec, 12, 2016 features the company’s opposing segments in stark relief.  One segment makes money, the other loses it.  “Other Bets” FY2016 revenue contribution -3.8 billion.  The segment has always lost money.  Will the drafting of Porat truly reshape the reality of a group of efforts whose very nature appear unruly?

 

Alphabet seems a story of two wildly disparate sides–a search/ad business hosting a science project circus.  The article goes on to quote a former Google executive “No one wants to face the reality that Google is an advertising company with a bunch of hobbies.”  That stark statement becomes crushingly clear when coupled with hard fact; “Over the past 12 months ended September, Alphabet’s ad/search business accounted for 89% of Alphabet’s revenue, or $76.1 billion.  “Other Bets?”  Big losses, of both talent and cash.

 

Other Bets seems two screws away from psychedelics in the desert.  Unleashed thinking is great.  At what precise point does one focus that?  Now.

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“Other Bets” rolls like this:  Waymo means self-driving cars; Nest means groovy IOT homes;  Fiber means super-fast connections even they can’t afford; Verily means life sciences and living longer/better; Glass means connected wearables; Loon means loony balloon-network-delivered internet for rural/remote.  It seems remote.  Maybe not.

 

Therein lies the confounding problem of Alphabet.  Their aspirations embarrass by audacity, yet so does their delivery.

 

Amid what can only be viewed as an operational shift requiring a shift in corporate culture, the company is foot-working the resultant chaos of that new harder discipline.  Budgets are being scrutinized, beneath bright light.  BYOH–bring your own helmet.  Slashing pens carve the sharper lines of a new Betting profile.  Ruthless is no doubt roaming the ranch, even at night, hatchet in hand.  Can anyone afford to meet that depth of gaze?  Chafkin and Bergen highlight a splintering hoedown of defections, again of project leaders, engineers, and “Other Bets” talent.

 

Performance pressure is the keynote now?  Right.  Then you read this; “But Brin and Page…were focused on the company only  insofar as it made even more ambitious technological efforts possible.”  Hum.  Then on August 10, 2015 Page  released a letter to investors; “Alphabet is about businesses prospering through strong leaders and independence.  The whole point is that Alphabet companies should have independence and develop their own brands.”

 

Translation: Mother Alphabet really does love this bubbly baby thing, right up snug to their monstrous juggernaut search/ad steam shovel.  “Hey, did ya know that the phone you’re using right now is made by people with a sprawling, unwieldy, unprofitable, baby unit?”

 

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So Google runs what can only be seen as a business incubator.  We knew this but do we truly grasp how experimental some of this work is.  Hard to say.  Does Google need more businesses in order to excel?  Not really.  Chafkin and Bergen provide a compelling snapshot of an incredible American company leaning into itself.  We think well and Alphabet isn’t the first firm to face that struggle between innovation and core business.  Does this tension takes on a special significance at Alphabet?  So many ideas bump around in the Bets, fairly big bets actually.

 

Additionally, it’s innovative ambitions are audacious and panoramic and costly.  Morningstar  states that their dominance in search/ads will not last.  No real barrier to entry exist which would block other players such as Amazon or Microsoft.  Digital advertising is not rocket science–is it?  Not precisely, not yet.  Not even Alphabet’s monstrous data ball will be able to block out all evil.

 

 

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For entirely too long Google, Alphabet, has been lauded and loved and cooed over.  It has sparkled and shone with stellar luminosity.  Yet Google, yes Google, is neither mystical nor magical.

 

This vast stunningly-creative company could be viewed as a crazy-precocious, long-undisciplined child.

 

Too harsh?  Is play-time over?  Again too harsh.  But it’s hard not to consider the costs of degrees of unmanageability?  Conglomerates are difficult to know and track.  Google is an unwieldy semi-secret conglomerate.  When Page and Brin insist on running a science project empire, they also adopt all the headaches of running a ten ring tent show.

Alphabet both makes and loses money at the speed of light.  It seems to possess no desire at the leadership level  to do anything fundamentally different.  These co-founders have made no secret of their disdain for conventional business models.  This disdain appears to include the very business providing the cash to pursue “innovation.”  Investors may be pleased with Porat, and the new push toward discipline, yet are Page and Brin truly prepared to lead a search/advertising mega-force into our hairy complicated future?  They will require help.  Everyone does and some even talk about their helpers.  “Ruthless Ruth” is for real, but probably nice…as you can be, maybe.  Right now Page/Brin look a lot more like a couple of aging kids endlessly amusing themselves in search of themselves.  We’ll see.

 

And what’s all the fuse over 3.8 billion dollars?  It’s proportional.  They made many stacks more.  And Brin/Page have essentially led so far.  Google is our perhaps beloved long-time search leader.  We know them–a little.  No, more–remember Android, Youtube, and their growing cloud?  All three are very real assets.  Does anyone actually use Plus or Play?  A change of day will come, even for this darling, someday some how.  Until then–

“Ya goin’ on the moonshot yo?  You Bet.”

 

 

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StockJaw

Images sourced from Pixabay.

https://pixabay.com/en/photos/

Additional resources:

http://www.investopedia.com/

https://www.schwab.com/public/schwab/client_home

 

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