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JUAN ALCACJ?R
lAFFA8LL A SADUN
OLIVIA IIULt.
KEllRY fflltMAN

Alph abet Eyes New Frontiers (A)

Wt'd like to havt a b1ggtr impact on lhc world by doing more Ihmgs.
- Larry Page, Cofounder and CEO ofAlphabttl
at the helm of
In June 2016, Tony Fadcll aMounc ed that he was "leaving the nest" after six years
househo ld applianc es. "I'm a guy who's at the
Nest Labs, an Alphabet subsidiary that made smart
Times. "I don't like to do maintena nce mode. It's not what
beginning of things," he told the Nall Yorlc
2 news followed press rq>orts that revealed turmoil at Nest and raised
gets me out of bed." The
company .
quesbons about Google's recent decision to restructure into Alphabet, a holding
Nest would be
When the reorganization had first been announced in August 2015, experts said
freedom to spend money, acquire other
among the main beneficiaries. ''Nest and the rest gain more
how such costs are benefitin g the core ad business
companies, etc. without having to try to explain
3 "[Alphabet's) new stand-alone companies will have
when they clearly were not," one analyst noted.
4 problems at N~t and
more freedom to take risks," another observer commented. But when internal
zation. Google co-
11

other subsidiaries surfaced in the press, observers began to fault the reorgani
engine's success across a range
founders, now Alphabet honchos, really want to,replicate their search
wrote. "To do that, though, they have to
of industries with operations run like startups," one observer
is, they must find execs willing to work within
face a dilemma inherent in their structure. That 5
teams willing to work with their chosen execs."'
Alphabet's corporate umbrella, and
been in flux since
The makeup and management of Alphabet's diverse collection of subsidiaries had
ement In August 2015, a day after Google announc ed that it would
the restructuring announc 6 said 1t
under Google,
reorganize, gaming subsidiary Niantic, an early .,autonomous business unit"
subsidia ry Verily announc ed
would beco1ne an independent company.1 In December 2015, life sciences 8
off. Also that month, Bloomberg
the creation of a new surgical solutions venture that would also spin
's self-driving car
reported that Alphabet would soon create a separate subsidiary to house the company
X Iab. 9 News outlets reported on a growing
project, which had been the founding project of Google's
to pay the parent
culture of fiscal discipline at Alphabet, where subsidiaries were now being asked
10 And in March 2016, Alphabet's robotics subsidiary, Boston Dynamics,
company for shared services.
was reportedly put up for salc.11

Hull &nd Aaoclale Director JC.rry HfflNI\ (Case R.n.arth l.c

~ Prolttwrt J~n AJdcer and R.lffadl.15.1dun llOd Alk>C~te use ~ d v r Olivia
WrtbnC Group) prepared this case. ~ case wu developed from publi.sht'd eources.. Funding for the dtveloprnent ot this c.ue was provided by
by ll~ com~ny, HDS cue, are dn-eloped lolely II the ba1b for du, dJscussion. Oates •rt not intrnded to aerve
H.,rverd Business School and not
as •ndorsements, 50U.ICfl of pnnwy data, or llluatntlorw o( elfecdvt or fneffdw
rNNpmenL

CDpynght Q 2016, 2017, 2018, 2024 .P~ltknt and fl!lluwi of HuvuJ CotJece. To
onJu copia or requc,,l permwlon to rrproduce cmlfflAl,, c.il
1-800-545-7685, wdtc furvard Bwincss School Publlshl.ng, Boscon, MA 021'3, or go to www.hblp.h.Jrv,rd.edu. This publlcatJon ,nay not be
diglbz.ed, photocop!Nf, or ollvrwl1e ~produced, J>nl~ or tnmsmJtted, without the permissJon of Huv;ud Business School

~
• .
Corl)O(lte Slrale9Y, 2024 (DC) at Indian Institute of Mtnagement. Bangalore rrom May 2024 10 h/9 2021.·
This document ,s 1uthonZed for un only In Prot O..pak Chandralhek.ar's PGP-
 Alphabet 2~• New Fron tias (A)
n1-4 11

wer e N6t ' s problems

-lime Google ob5UVers won dere d,
Aga inst this back drop of change, long the amb itiou s inno vation agen da set out
was incompatible with
evidence that the new corporate form mak e it easier to deliver brea kthr oug h innovations to market1
fact
by Google's foun ders , or wou ld it in ts" und er a sing le corporate
did it ma.ke sens e to host such a larg e and diverse set of w moonsho
And
own er?

Go ogl e's Ris e

first, they called their
met at Stan ford University in 1995. At
Founde_rs L:" J' Page !!1"d ~rg ey Brin om. The nam e referred to
they registered the dom ain Google.c
sear ch engi ne BackRub, ~ut m ~ 997, 0. In 1998, Goo gle, Inc. filed for incorporation in
~oo gol, whi ch JS eqmv~lent to lxt_0,....10 me
the .n~ ber
in a ~ar a~ in Men lo Par
~ California. By 2000, Google had beco
California, with he ad ~~ base d and in 2006 , goog te• beca me
ld, with an mde x of 1 billion pages, u
u

the larg est sear ch eng ine m the wor of the U.S. mar ket shar e of sear ch;
the Oxf ord Eng lish Dict iona ry, 13
In 2015, Google h.ld 64% l as~ ts
a verb in
20% . H Tha t year, reve nue s cam e
in juat und er $75 billion, with tota
othe r com peti tor had even t's finan cials .)
no tion on Alp habe
15
(Ex hibi t, la and lb prov ide info rma
of $147 billion by Dec emb er 2015.
a few mon ths later. He
rma n in Mar ch 2001 and beca me CEO
Eric Sch mid t cam e to Google as chai rise n to prominence during
with the two founders. Schmidt had
shar ed man age men t responsibilities Nov ell sinc e 1997 . Brin and Page were
tenu re at Sun Mic rosy stem s and had been runn ing
his succ essf ul the professionalism and
mid t and felt he wou ld be the righ t fit to roun d out
imp ress ed by Sch company's IPO in 2004
l leadership team . Schmidt oversaw the
man agem ent expertise of their you thfu on into several new products
and , in his first few year s at the com
pany, saw Google thro ugh its expansi
Earth, Google Maps, and
and services, including Google N'ew
s, Blogger, Goo gle Books, Gma il, Google
the acquisitions of YouTube and Dou
bleOick.

Inv est or Re lati ons

al public oHering
traded company in a controversial initi
In August 200~ Google became a publicly 16 e of $85 and dem and for the
(IPO) that lagg ed many investors' exp 17
ectations. Both the initial shar e pric t, the founders
ons. Firs
d. The IPO was unusual for two reas
stock were lower than Google expecte erw riter s from setting an
fonnat, which precluded the und
opted to run the I.PO in a rare auction on th~ tran sact ion. ts ln
behalf of Google, and earning high fees
opening price, marketing the IPO on s' que sti?n s, sue~ as how
criticism for falling to answer investor
marketing its own IPO, Google faced gle had ahe nate d mve stors
ey it raised.19 Some felt that Goo20
the company planned to spend the mon eir man tra 'Tru st
standard Wall Street IPO process. "Th
\\'aS
inve stm ent ban ks by esch ewi ng the e if you have
and high pric
at doesn't wor k for a company with a
us,"' said one hedge fund manager. .,Th 21 Also unconventional was Goo gle' s elec tion of a dual stock
t the futu re ,vill bring. "
no idea wha rved for Google
,vhi ch Gas s A shar es carr ied one vote each while Class B shares, rese
structure, in
22
insiders, carried 10 votes.
e and Brin explained that choice:
In a letter to prospective investors, Pag
ce and
ersh ip may jeopardize the inde pen den
[The) stan dard structure of public own ess and that we
t imp orta nt in Google's pas t succ
focused objectivity that have been mos d a corp orat e
re. Therefore, we have imp lem ente
consider most fundamental for its futu in its mos t
Google's ability to innovate and reta
structure that is designed to protect benefit Google
fident that, in the long run~ this will
distinctive characteristics. We are con 23
and its shareholders, old and new.

2
- 8angalore from ~ 2024 \O ~
cnte Slrlttgy, 2024 (DC) at Indian lnstlwte of Management
Prof. O.epak Chandruhekats PGP- Corp
This ~ • aulhorized b UH only ,n
 Alphabet Ey. N~ &.ati~n (Aj
71.7-UI

On the first day of h··:M·Hft~ f .

above $100 per £hare.u The
stock jwnped l,29,t" ~-~ ollowm g the a.uction. Google stock d1m.bed stocks during the .same
period u (See . . over the ne~t 10 y ~ o~orm ing all but 10 other
~ Exhibit 2 for Alp~be t share pricing &om August 2004 to June 2())16.)
its a.pproac h Ile
By many accounts, Google' s relationship with investors tu.d two sore spots:
after Google' s IPO, the
:~o~t e govema nce and its large, opaque resea.n:h budget. Shortly y a lower
nal mvesror sr gave the compan
titutiona J Shareho lder Services, which advised institutio
Fortune 500 firms~ 26 Corpora te governa nce experts said the
corpora te governa nce rating than all the
27 In fue 2004
atic"' and amounte d to "'benevo lent despotis m.."
dual class structur e was "'problem
outside pllties t.o take
prosp« tus, Google itself admitte d that the structur e ... will make it ha.rder for
ble for activist inves:ton to
over or influenc e Google.--2.1 The structur e made it diffkult if not impossi
watchln g," one analyst sud.
gain traction. •1he attitude Google has toward outside investors is worth
29
trunk they are ~ble or you don't
uBut in the end, you are basically buying manage ment You either
If Sergey and Page don't make it ~re, there won't be anythin g left-~

after a 10-year ru.atus, announc ing vla

In early 2011, Schmid t brought Page back as CEO of Google
longer 31
needed! h Schmid t became execuhv e dwrman ,
Twitter, ... Day-to- day adult supervis ion no
on deals, partners hips, custome rs and broader business
announcing he wouJd focus external ly
II

to increase capital expendi tures and significa ndy expand

relationships."" lb.at April, Page moved
32
d that these investm ents would make shareho lders impatien t..
Google's worldorce. Some predicte
33
to build oat beyond
"Havin g a Google that's a little more willing to invest in what they hav~ in order
create shareho lder value, "Mone analyst comme nted .... But that's not going to
search, \vill ultimate ly
make the next few quarter s look how they'd like.".15
36
In March 2014, Google introdu ced a new share class, Class ·C which earned no
\"Oti~ J)O\-Vtt.
ensured equ.al voting
Shareho lders bied to prevent the change with a resoluti on that w·oulci have
the shift would ettate
rights, but a resoluti on introdu ced by Brin and Page defeated ilTl Some thought
future problem s for shareholders. •What comes out of Google
ten years from now JS probably
said.31
d ysfuru:tional," one technology investor
lders. 39
Unlike other technology companies, Google did not pay dividen ds to shareho

Innov ation at Googl e

innovation.
Google embraced unconventional human resources practices in the interest of fueling
as "20% time." ln thetr 2004 letter, the founders
One of its most famous employee perks was known
regular pr<Jjeds , to spend 201» of their-
expwne<L "We encourage our employees, in addition to their
ful Google product s lad
time workin g on what they think will most benefit Google."''° Several success
AdSense ~ 41 the advems ing
been invented during 20~ time, including Google's autocomplete system,
that transpo rted
technology bchlnd Gnw1 (Ad Sense); Google News; Gm.ail; and even the buses
one.Jou rth of Google 's annual revenue s. 43
Googlers to work.'2 Ad ~nse alone brought in about
numbered in the
There was no shortage of ideas at Google; projects born dwmg 20~ time
thousan ds." In 2011, Page began an annual campaign to offload the projects that
had failed to catch on
..,There so many interesting
or had been made redWtdant by other products on the market 6 \Vere

projects going on that almost nothing had enough in\~tm ent to be truly great," said CEO of People
4
Operations Laszlo Bock. 6

Tn.a ooa.rnen, es auih:Jr12.eO lot u» ordy in Pro/. Oeepak Chin<nSheka(s PG~• Corporate Sera~ 2024 (OC) It 1ndlan lns«tuta of u ~ . ~ law M~ 2024 "D ~ 232
 717-418 AlpM bet Eyee New Pron liua (A)

• l on-s ite laun dry, free

In add ition to 20% time • , Googlcrs wer e offered five-month materruty eave 1

e-no ble but was tefu l

mea ls s Goo gle's largesse can soun d exce ssiv
fro , ~nd cven deat h bcnefits.47 nAt time
rver noted .48
rn a otto m-li ne P~rspective,., an obse
ote wha t Bock termed
es at the "Go ogle plex 'I in Mou ntai n View were desi gned to prom
.., Wor k spac from Bell Lab s, the
l coll ision s
11
betw een cowo rke.r s.49 The 1.I1.Sp1ration for t1u.s choice cam e
~u~
hi ston e rese arch arm o f AT&T. Bock expl aine ci
s whe re
Labs wer e in, they set up the buil ding
Whe n they buil t the buil ding s that Bell e off to~ side s.
building, and all the offices wer
ther e's a long corr idor dow n this Jong bum p into each
of stum ble out of thei r offices and
And the thesis was people wou ld kind from that to the way , for
tion s. There's a due ct line
othe r and hav e inte resti ng conv ersa e roun d tabl es and long tabl es
re we have thes
example, at Google we run our cafes, whe ping into them . And \Ve try to
gers and bum
whe re you end up sitti ng next to stran 50
of sere ndip ity 1n muc h the way Bell Lab s did.
man ufac ture thes e mom ents
y's public failures
ip embraced failure. One of the com pan
To enco urag e risk-taking, Google leadersh on doc ume nts in real
form that allowed users to collaborate
was Google Wav e, a hve messaging plat pull ed the pro1ect due
time . Less than six mon ths after intro
ducing the service in Mar ch 2010, Goo gle
d. risk . And failed. So
"Th e team ... took a mas sive , calculate
to low user ado ptio n. Bock explainedi
51
rew ardi ng sma rt failure
He add ed, ''Th e bigg est lesson was that
we rew arde d them ," with bonuses.52
ing."53
was vita l to sup port a cult ure of risk-tak
you fait I just wan t
gav e one proj ect man ager som e advice whe n he was hired: "It's O.K. if
Pag e
54 In Mar ch 2015, the Wall Street Journal repo
rted that Goo gle was inve stin g mor e
you to fail quic kly." linu ted proj ects to two
Projects (ATAP), the research lab that
reso urce s in Adv anc ed Tec hno logy and 55 k of thei r time is one perc ent
r innovative projects. uOne wee
years, whi le scal ing back sup port for othe atie nt with bureaucracy
ATAP' s founder. "Th at mak es them imp
of thei r entire dura tion in ATAP / said gs and go really
p, you can start to strip away those thin
and process. And with a small eno ugh grou less investment,
." 56 Inve stors wer e pleased. "If Goo gle can make research projects sho rter and57with
fast
g to be less worrying if projects fail.''
that 's positive," one anal yst said "It's goin
Google every
e than 2 million people applied to wor k for
Lov ing the Goo glep lex By 2015, mor students and
58 2015 surv ey foun d that Goo gle was the preferred employer of both engineering
year. A ose, align with it, and
business students. "Millennials wan
59 t to trul y understand a company's purp
niza tion 's perf orm ance ," the stud y's
authors commented.
wor k with others to propel the orga 60 About 89% of Googlers
are high ly attra cted to entr epre neu rial ene rgy in the workplace."61
lenn ials from the
, according to PayScale. "Google works
'' Mil
loye r a high satisfact ion ratin g in 2015
gave their emp don 't hav e you r
r. "If you have a great technical idea, you
bottom up," explained one Google enginee w engineers and
send out a mem o telli ng eve rybo dy to use il Instead, you take it to you r fello felt
.P.
V
that it1s good."62 Google leadership sought to establish a cult ure whe re employees
convince them create their own
vision were given the opp ortu nity to
comfortable spe akin g up. "People with
63
k Rules/64
Google," Dock wro te in his 2015 book, Wor
effort to create what one spokesman called "the happiest,
Leaving the Googleplex Despite an 65 large numbers of Googlers left after short tenurea. Betwee
n
most productive workplace in the world," loye e
in a list of Fortune 500 firms wit h highest
emp
July 2013, Goo gle was ranked four th
July 2012 and pay of $107,000, they only stuc k around for
a med ian
ian
tumover.66 Tho ugh employees enjoyed a med th; between
Pai t of this , exp erts explained, was a function of Google's exponential grow
of 1.1 yea:rs.67
2007 and 2013, Google add ed 19,000 emp
loyees.68

4
 1\7◄U

One enginee r who left 1

preoecup,ed With beatin l ,e company U\ 2012. said 1ru1 lormer llfJulova tion factory'' had become
technol ogy g rival Paaebook in adve1tu i.n~" •71,e Google I wa pa.sionatc about was a
th ettipow end its employee9 to Jnnovate,N ne wrote. '"Ille Google I left wn an
adve!rtiaJng C::pa.n y at "aeepin g
bureau mpany with • tlngJc, C--'ltporatc-rnandatcd focus."'° Another eited
th 11 A d,Jrd safd Eth~ wanted lo run her own show: '~Google l5
4 gree t~ u e reason she left Googic.
and an amuing product. But C,oogle u;
n t ng ground for how t.c, build a.n ama.zfng culture
~ that good Al tC!aChing you how to Lulld a businesa."n An elght«ye at Google veterail CeU too
and protects you.''7)
• eltered hom failure at Googl~ "Coogle teaches you so much, but lt also buffers
through its venture
Some executiv es left to start t:heir own fu·ms, m&ny of which Coogle funded
One ex-Goog ler who went on to &lart a comp1ny
capital departm ent, Google Ventures (GV).1~
have a major impact on the world. HaVU\8 U1 go lo other
comme nted, "Coogl c has always wanted to
com pan.la la an extenalon of that. " 75

tt. Investing Outalde the Core

e the quickly
11rom the beginning, Googfc'a founder s vowed to t:Akc the long-ter m view, "Despit
year scenarios in order to
changin g busJnes,s and technology J4ndscape, we try to look at three to five
that the company would
decide what to do now," the {ow,dcr~ wrote in 2004. They warned investor s 17
76
"We will not shy away
"plac:c major betJ on promisl ng new opportu nities," incumn g ,ubetan tial riak.
," ·they wrot.e/1
from hJgh..-iJk, high-1'eward projecu because of ehort term earnings pres,ure
revenues (95%
And, although online advertising account ed for the vast majority of Coogle's total
nities beyond aearili
In 2012), the company also showed a strong interest for the pursuit of new opportu
a signific ant n~rgin for expansi on, "You know, we always
Page appeare d to bclicve that Google had
have the,e debates : We have aJl this money, we have all these people, why aren't we doing more stuff?'~
he said in 2013.79 HYou may say that Apple only does a very, very small number of things, and that's
I feel Uke there are all these opportunities in
working pretty well tor them Uut J find that unsati.!fying. 80
a tension between investors
the world to use technology to make people's lives bette.r." He (X)lnted to
and t.king risk$: "'Investors alwayt1 worry, 'Oh, you guys arc gojng to spend too much money on these
...." 81
crazy things.' But those are now the thfngs they are most excited about
growth4 ''lf you think
Some argued th.at Google had no choice but to diversif y to ensure future
ch and Development}
historically, go back 30 or 35 years, the organizations with big R&O [Resear
1 "Notice that each of those companies hatd
divi.slona were AT~T, IBM# and Xerox," uld one academic: 2
poured large sums of money
a de f octo o.,onopol y. '' But others noted that these very companies had84
13

fnto R&D, but often !ailed LO profit directly from new discoveries. (Exhibi
t• 3a and 3\, show
jMOva tio~ at BeU Labe and PARC.)

Early Investn,tn.bi
ln a 2005 discrete transaction, Google acquimd A.ndrot~ 1 wall software company,
at an estimated
amartpnones
pric~ ol up lo SSO million. HThe bet that Larry, Sergey, and Eric: made at the time was th.t
15
a great smartphone
are going to be a thing, Uwe's going to be Internet on lt, so ltt'a make IUfe there's
J)lafiornt out the.re that people mn u,e to, among other thing1, access Google eervtces
," said Hiroshi
d become the
uxkh~lmer, Google's Vice ~reaJdent for Engineering at Andro£d~l6 By 2015, Androi had
makers were
most popular n'\ObUc opcrntiJ,M ,ystcm in the ,vorld.67 lncreaaingly, however, cell phone
th d smartphones
~ltering e operatJng system to disengage Googlc'a apps. About 30 percent of Androi
11

thit may not

• hipped in Ute last quarter of 2014 were actuaJly modified, or forked, vuston s of the OS

s
~
I~

r1lil ~ • ~ for~ only In Prot. OllpaJ( Chan ~lrt PGP,.

Catf>onlll SQfegy. 2024 (OC) ,t lndlw, ln11Uut• o f ~ .. &tngllkn ffun Uay 2024
\C
~
 p.,1.v, frontl ed {A)
.tJplulbct ByU

717-01

# the New York Timts

.
. ABI ~arc h,
be v . the firm
ery haspt table to Goog le's service,• according to
reported,.&! be for Sl.65 billion tn
video site YouTuAt the ti m e, thereTwas be
In 0c lutioo.689
tober 2006, Google agree d to buy the popul ar onllne tract top adver tisers . Y?u f u
lntem et video ~e;:t
s~~- (Erle) Schm idt called it "the beginning of an the high price Goog le. ~a.id or a
nt siteS wo
signif icant doub t as to wheth er user-generated conte br 90 In 2016, this acqutS tti.On was
perplexed
was considen,--d an unpro ven entity, and lllAJ\Y were abilJty . . ted at sever al times lhe
2006
path to profil
comp any lvith a string ol losses and no clear et rema ined uncle ar.
l ad rcve~uc~ es~~ phab
generaUy viewe d a.1 successful, with YouTube's annua button . ,
ll contrt
purch ase price and grow ing However, the unit's overa uld ac ulre the onUne advertiSU\g
Less than a year later, in April 2007, Google annou
.
nced that •t. wo er
wjllin
1
times reven ue, was even
g to spen d anything
purchase pnce, ov
cootp any Dou_bteOkk foe $3.1 biJlion in ca5h. This ~ woul d impr ove the end-
more pe~le xing. WaJl Stree t analysts viewed Lt
91 as a sign th~t Go ogl
92 Schmidt said th~ P Wa5 ti ht and his ration ale was
to keep Micro~oft off its onJine advertising turf. his explanation g
user experience, but the press and shareholders felt
vague.

Moonshots 93
· . . called .,moonshots."" The secretive
In le's nsk1e st pr~t s, 9-1 G gl X
2010, Goog leX becam e the home of Goog 1 00
~
balloons, and smar t eyeg asses . .
lab pursu ed futuristic ideas like driverless cars, Wi-Fi lives and empl ~yed ...existi ng
millions of
proJects were chosen U they had potentiaJ to affect the rest of Google,_ 0tha Google
95 Research activities at Google X were closed off from
technoJogjes. -in for a better
XN was originally just a stand
empl oyees were denied entry to the buiJding. The
11
96
willing to inves t in projects that were 10 years
name~ 91 but some Googlers said it indicated that X was
98
away from large-scale implementation.
99
was commercially viable. "The portfolio
With in Google X, projects could fail as long as the group
has to make money,n said Obi Felten, whose title at
for Cont act with the Real World." She added., "Som
Google was "'Head of Getti ng Moon shots Ready
e of these will be bettt~r busin esses than other s, if
make a huge impact on the world , but it's not a
-
you want to measure in terms oi dollars. Others might
head of X, gave a speech tiUed "The Unex pecte d
mass ive mark et." 100 In February 2016, Astro Teller, the
several X projects that had been disco ntinu ed in
Benefit of Celebrating Failure,"' in which he described
farming that failed to grow stapl e crops and a
recent years, inclu ding a project to automate vertical
n to proto type. 101 "We work hard at X to make
light weig ht cargo ship that would have cost $200 millio
as the evidence is on the table because they' re
it safe to faiJ," Teller said. "Teams kill their ideu as soon
Hugs and high fives from their mana ger, me in
rewa rded for it. They get applause from their peers.
every single person on team s that ende d their
particular. They get promoted for it We have bonused
than 30."102
projects, from teams as small as two to teams of more
tIy funding a startup based near Google' 5 Mou ntain view'
· Califonua• ,
Also in 2010, Page began,. secre t th fl • 103 "'P b 'ld h
• • car. age is using his personal fortu n
camp us that ,vas work mg lO tnven e ymg repor ted.t04 e to u, t e
futur e of his childhood dreams," Bloom btrg

it easy to recruit talen t uTh .

Some said Google's ambitious research acti¥ities made ese fanta stical
ing the perce ption that Al ha
ideas create a growing halo aroun d the company, foster P bet [Google] ls a
where magic happens, where the•-1most innov ative minds from iP0 d
P lace
. d . ti,tAt:L
to
.. _._"
, a fast Comp any contr ibuto r
creat or
105
Tony Podell t lifc °
sciences' chief Andy Conra , come wrote . For every 100 ideas
gets minted."l06
that fa.ii at Google's X division, "an army of new fans

6
ta Slrattgy. 2024 (DC)
th0tizad for usa Of'lly In Prof. Deeplk Ct1andra1hekal's PGP• Corpcn at lndlan Institute of Ma
his doQJm.nt ii .., nagemant • Bangasor. tn>m Mav 2024 to Allg
 Alpha ~ EYftNe ,v1:-. .
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?17◄18

But in~·vestors COntin

some inves t Ued to VOice cone al investments.1a1 "'There ue
recou r ors who have been lookin •ems about the reporting mintern
and saying , They spend like crazy and l have zero
se to chang e the direct ion 501 dg •\Goo gle
In Se t 1..- ' on want to be involved with ~,,, said one a.nalyst.1CI
tha p ern_uer 2013, Page introd g huma n longevity. He assured investors
t the projec t was in line with theuced uHco , a lab probin
~ comp any s m.ismon,. stating:
You' re probabl thinki
ng wow! lbat's a lot different from what Google does todAy.
~ And you're r i ~ B to shareholders, there's
treme ndous t tia1ut as we explained in our first letter
lly to impro ve people's lives. So don't
be Surprised ~o:: . f~r _technology more genera
~ existi ng lnt
st
b ~ve in projects that seem strang e or specu lative compared with our

-~.. small by ernet . USJ.nesses. And please remem

comp arison to our core busine ss. 109
ber that new invest

In June l0l4, analysts called for greater transparency in

ments like this are vuy

Google's expense line, noting that while

ses increased 23-fold.110 Pointing to a decline
~even~es went up 22-fold betwe en 2004 and 2014, expen

-~
._
in cap~~l expen ~ture efficiency, the analysts contrasted
adver tising subS1diary), and YouTube with the compMiy's
and the smart home, projects with less "transparent mone
investments like Android, DoubleOidc (the
new invest ments l.i.ke the self-driving car
tizatio n potential."111
to research spending. 'il just wa.nt to kind
Goog le's then-CFO emphasized a conservative approach
lined manner,'~ he said in a call with
.:- of reaffi rm to you that we do it in a smart way and
investors. "We'r e drivin g forward to make sure we don't
a discip
waste our shareholders' money." 112 The then-

-~ head of Goog le X defen ded his division. He compared expec

who inves ts in a young comp any. uBecause risk abounds,
tations for X to those of a venture capitalist
we owe a very strong return," he said.
113

•-- In 2014, Goog le spent 12 % of its revenues on research

since the comp any's 2004 IPO. In all, the company spent
114

Mean while , onlin e adver tising continued to dominate,

2015.1.1 6 Some of those profits had been fundi ng the comp
and development, the highest ~ent age
$9.8 billion on R&D, up 38% from 2013.
generating nearly 90% of total reven
any's moonshots, but consolidated report
ues
115

in
ing
mance of these riskier endeavors.
made it difficult for investors lo evaluate the perfor

Other Moonshot Factories

other technology comp anies had their own
Thou gh perha ps less extrav agant than Google's big bets,
online retail store, Amaz on contained several
moon shot factories. In additi on to its core business, an
ing, publis hing, and tablet units under its
other ventu res, includ ing drone, data storage, video stream
the Gran d Challenge, that worke d on projects
umbrelJa.117 The comp any also opera ted a moonshot lab,
ge delive ry.118 "Mos t large organizations
invol ving cance r research, medical records, and packa
the string of failed exper iment s necessary
embr ace the idea of inventio11t but are not willing to suffer
119
to get there, " noted CEO Jeff Bezos.

Simil arly, Faceb ook opera ted WhatsApp, virtua l real1ty

company Oculu s Rift, Ins ta~ drone
comp any Ascenta, and an artificial intelligence initiative,
in addit ion to its core social media platform
busin ess goals.120 •we like probl ems that
and ad tech busin esses, all of which furthe red Pacebook's
said CTO Mike Schroepfer. "Meaning, we
have very low busin ess risk and very high teclutical risk," it done."121
er you can actually get
know what we will use this for, but we have ro idea wheth
et value in 2015, spent less on R&:D than
Apple , the large st p~bli c corpo ra~on in the world by mark
year 2015, Appl e spent only 3.5% of its
other top technology firms as O portion of revenue. In fiscal
bet's 15%. 122 In 1998, Apple founder Steve
reven ue on R&D, compared with Facebook's 21 % and Alpha

: : , Thlll documaf'I b outhoriHd li>r uoo only In Prof ONpok

Chend,.shal<o(o PGP- ~ &lnolegy, 2024 (DC) ll Indian lnllllule r:I Managtlmtlll. Bengalara fn>m Mil'f 202-1 "' ""
~
 otw a (A)
AlphalMt Ey u N•w FTo
'7'17-419

s
have." 123 Still, Ap ple wa
hin g to do wi th how ma ny R&D dollars yo u TV pro ject.tlA
not a pay
Jobs S&id, "Innovation has bitious projects, including a self-driving car and
e am
rep ort edl y pu rsu ing som y ran gin g from subsea
jects gro up wo rke d on breakthrough technolog Microsoft subsidiary
At Microsoft, a Special
Pro soft Research, a
A sto rag e, 125 1n e gro up resided un der Micro
datacenters to DN
hnology innovation. t2'
focused on science and tec

Trends in Technology rth $1 billion or mo re (kn

ow n
sul tan ts cou nte d 146 private tech companies wo a gra ph sho wi ng US .-
In 2015, McKinsey con ab ove $10 billion 127 (See Ex hib it 8a for hil e, an
ich w~ e val ued 4.) Meanw
ns "unicorns"), 14 of wh IPOs fro m 1980 to 201
IPO s, 199 5-2 015 , and Ex hib it Sb for all U.S. 1 an d 201 5. 1 :m "'There is dem and ,
list ed tech s dro p bet we en 201
firms saw the ir valuation d ano the r, ·M an y
' sai d on e an aly sl Sai
129
est im ate d 40-X. of suc h sta rtu ps/
tio ns VCs hav e giv en the ney wh ile staying
too -ju st no t at the va hu they cou ld raJse vir tua lly infinite am ou nts of mo vat e longer.'" 130
fou nd pri
of the jaz zie r com pan ies bab ly wo uld hav e sta yed
d Go ogl e an d Fac ebo ok ha d the option, they pro
private. Ha

Ru th Po ra t CFO. "We're tremendously

ed Wa ll Str eet ban ker Ruth Porat to serve as ," Pa ge said. "l
In March 2015, Googl e hir
ed an d op era tio nal ly str on g executive
suc h a creative, exp eri enc m search and ads, to
for tun ate to ha ve fou nd con tin ue to inn ov ate in ou r core fro t
from Ru th as we lin ed wa y in ou r nex
look forward to learning u.b e as we ll as inv est in a thoughtful, dis cip
n Sta nle y, wh ere
Android, Chrome and 131 YouT
financial-services firm
Morga
tio n of big bet s. " Po rat cam e to Google from n an d eB ay. 132 Analysts mt erp ret ed the
gen era lik e Am azo
ise d tec hn olo gy clients per cep tio n ha s long be
en tha t the y thr ow
she wa s CF O an d ha d adv ens e red uct ion . "T he
nings report, bu t
hir e as a shi ft in priori
ties tow ard exp to change because of one ear
not go ing
lyst sai d. "T ha t's es pa rt of a story line.
mo ne y at things," one ana serious commitment to some discipline, it becom
wi th he r there an d showi
ng a le could be a very strong-
tha t could be cut. If so, Goog
People are saying there'
s pro bab ly a lot mo re ted the second-quarter
inv est ors as Google CFO, sh e presen
pe rfo rm ing stock." On
133 he r first cal l wi th ck.NA key focus is on the
wo uld in fac t mo ve to keep expenses in che po rti ng our
earnings report, ind ica tin
g she
e of exp ens es wh ile still en su rin g an d sup
to manage the pac ich exceeded
levers within ou r co1ntrol ent hu sia stic all y to the ear nin gs report, wh
Investors respond ed ck climbed
gro wt h," Porat said. ~ en t to fisc al dis cip lin e; the ne xt day Google sto
d Porat's commitm re qualitative
the ir expectations, an
135
by nea rly $65 bil lio n.136 •S he gave a lot mo
any's market val ue th the investor
16.3%, boosting the comp dec ess ors an d she see ms to be mo re in- tun e wi
on than her pre
an d directional informati
st notcd.137
community," on e analy

ructuring
Google A nn ou nc es Rest ne w ho ldi ng company
t it wo uld restructure an d cre ate a
On Au gu st 10, 2015, Goog
le an no un ced tha become the CEO of
le sin ce 201 1, an no un ced tha t he wo uld
the CEO of Go og Go og le- bra nd ed
na me d Alphabet. Page, haL for me r Se nior Vice President of
pro mo te Su nd ar Pic :hm idt wo uld
AJphabet,138 an d wo uld Br in wo uld nm Al ph abet, alo ng wi th Porat Sc
140
ogle. Pa ge an d su ch as
pro du cts ,139 to CEO of Go eid iary inc lud ed its Int ernet-related businesaes,
n. The Google sub n-G oo gle su bs idi ari es
inc lud ed
remain executive chairma dro id ph on es. Th e no
ps, YouTube, an d An 141 ostat system; Fiber, an
Search, advertising, Ma an y; Ne st, a sm art home therm
Deep~1ind, an artificial
intell ige nc e co mp
the moonshot incubato
r; Sid ew alk , an urb an
vity res ear ch lab ; X,
, a longe
Int ern et service; Calico

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itute of Manegtrnent. Blngal0
agy, 202-4 tOC) ot lnd,an lnat
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ed for uu only in Prof. Deepak
Thl1 dOQJfflent fa aurhOriz
., :
,- :
...
~
AJpt..b.t £y a Ne
w J'r on lJt n (AJ 71? --tu

... ogle a. iltal. 141

•
en t arm.,, CV and Go deAcri pt' xh ib iu 5 an d 6 pro
vide: 1
t; an d tw o in ve stm br ief (fi
ch )
techn~l ogy pr oj ec bsfdfa ri~ , wf th p 1S of ea
and non-Google su
d)l

selection of Google d conv ert t AJ h

es of Go ogle woul •h.ues and tl'ade
ring, ex ist ing ,h ar The chti: 1;..,.~bet

._
111W Under the restructu kers u before, GOOG and GOOGL. uJ i.ntroduc..~ g irnp!&cabona for thet

way Go og le re
•
po rte
clc tic
w1der the same sto earnings to investors; Google pl an
d
be i
J fr
d - - rate y om the
uId . v ew e sepa
n~ to
ot he r bu5in es s
ting stock fn the co
se
mmt reporting sol'4tha
gments ot Al habc t. In
mpiny. 145 p
Google ~arnmgs coand Bnn held more than 50% of the vo
~ August 2015, Page

.. Lany "Warren Biifftt

l" Page?

,,In general, ou r m
odel is,; to have a
Pa ge wr
stro~g
ot e 1n
CE Ob w .ho
o pu 1Jc post on
ru ns ea
the Alphabet webe
ge wr ote , ad di
rgey and me in
ch business, with Se (abc.xyz).146
ite
ng , ''We can run
as ne ed ed , em en t sc ale , Pa
&crvke to them ny more manag
ld allow the compa
Reorganization wou ar en 't very related."
147
en tly th at CEO of
things inde pe nd
bu sin es sm an Warren Buffett, the
tion fro m writing a., a
un de rs ha d lo ng dr aw n inspira c. Pa ge an d Bnn cited Buffetrs
Google' s fo atha w ay ln blidy.10 In
ho ld in g co mpany Berkshire H tte r, 1" an d often praised rum pu
Nebraska -b as ed ders' IP O Le ire 1--fathaway
en ce fo r th ei r Google's 2004 Foun rro w ed "u pe ct s'' 150 of the Berk.sh s the
major in flu
et, Pa ge said GoogJe leader
ship bo
id . 1. In 2015, Be
51 rkshire H4lthaway wa
creatin g Al ph ab really we ll, " he sa pany Be rb hire
"I th in k th er e's things that they do 152 Si nc e Bu ffe tt bo ug ht failing textile com ye ar . 153
mod el. ld by revenue. .6% on average ea ch
in th e w or gr ow in g 21
1411\..Jargest company increased 1,826,163%
,
ay in 19 65 , the stock price ~ d companies. Like
Ha th aw
ris on between the two
d furth er co m pa insurance, ~ 's
ov e to restructure inspire bs id ia ries, including Geico
Go og le's m rse ar ra y of su tly. 154 NGoogle's
ph ab et, Be rk sh ire Hathaway ha d a djve tchup, which were aU ru n independen ote on Tw1tter
Al z Ke wr
Dwnonds, an d Hein in CEO Jeff Weiner
Candies, Helzberg ur y Be rk sh ire H athaway," Linked co nt ro lle d a large portion of
~ lik e a 21st cent 153 Though Buffett
A lp ha ~t so un re an no un ce d. 156 "W e will continue
s to restructure we ss indcpcndently.
when Google's plan es op er at ed m or e or Je
shire/' Buffett wrot
e in
shares, his compani tra liz at io n at Berk
Berkshire Hathaway most un he ar d of -d ec en
d a du al sh ar e cla ss
op er ate w ith ex tre m e- in de ed , al ab et, Bu ffe tt's ho lding company ha sta ke in hi s
to Alph tt held a 20 %
areholdcrs. Like
157
1ss ln 2014, w he n Buffe
his 2016 l~tter to sh er pr ice s. k that I stu ffed th e ba llo t
uc ture , wi th B sh ares trading at low os al . 159 "Now, you may thin
str dend pr op
ders rejected a divi160
company, sharehol did . "
the time. "I rm value creation"
161 an d
box," Buffett said at en t to "lo ng -te
Buffett's commitm ou t that unlike
le founders shared d. They pointed
Porat said the Goog 162 Some observers were less convince dition, Be rb hi re
chnology. In ad
163
gr ea t Je ad crs." ste d in te t's
"bac ki ng
, Buffett had no t hi
storicall y in ve
io vi a acquisitio
n, while Alphabe
be t's fo un de rs to th e po rtf ol
Alpha Uy ad de d
iaries were genera
Hathaway's subsid d in ternaJly.l'-i
es we re co m m on ly develope
ventur

investors Relations e on A ug us t 10, Google's sh ar

es -w hi ch
e news br ok the new
ch ee re d th e ne w structure. When th in la te tradf ng .16 5 Analysts viewed
Investors be d 6. 21 continue
th e fir st tw o qu arters of 20 15 -c lim ar d in ve sto rs ha d improved. NWe
Jagged durin g e to w st.166
re as ev id en ce that Google's at tit ud po sit iv e fo r G oo gl e/ sa id oneanaly
corporate struc tu
cost consciousness
.. . is
n kn ow n for compl
ex
th in k an er a of m ore disclosure and 167 fro m Po ra t, a "W ~ St re et vetera in the st at e
to
lled it n Npositivc
surprise" m e officially incorp
orated
Ano th er an al ys t ca ha be t, lnc. be ca
2015, Alp
g." On October 2,
168
financial engineerfn
9

2024 lo Aug
gem.nt. 8angakn tom May
... C~a t1 p - y. 202.. (DC) ar Ind
ian lns111Uf4 of MaN

"
~
Thia doc:unenf la •ut
hotfzed for UN only il Prof. 0. .,, .k
'
GP- Corporata Slr
at~

-.I
 L-t• l!yff New frontiu • (A)
Alph.Ao,i;

. 110 (E,chi bit 4 shows the Googl e

57
$6 apiece .
of Delaw are. 1<>9 That day, Alpha bet shares surged 23% to hi
t 2015 and June 2016 -)
(Alpha bet) stock price betwe en Augus e of inStitu tional fundo w~ers . p
taJ C rnposi te Rating , mearu ng 1t's
Durin g the fourth quarte r of 2015 AJphabet had a higher percenlB o th in recent quarte rs," one
ossible 99
(31 %) than any other stock. In pAlp,habet has a best-p
aotl profit grow
outpe rform ed 99% of all stocks on key metrics such as sales
observ er comm ented. tn k (a $5.1 billion purcha se).17 3
nced Alpha bet's first-e ver share buyba c •
In Octob er 2015 Porat annou .
17
in summ er of 2015. • (See
'
~hare p~c~16 )
By Febru ary 2016, Alpha bet stock was nearly 50% obovc •
the major institu tional invest ors m Mar
Exhibit 7 for a chart showi ng

Innovation
.
nurtu r·1ng Jong-te rm projects. In Novem ber 2015, p age in
d hi lso reitera ted a comm
Follow.mg the restru cturin g announcement Alpha bet lea ers Pthat
• d1cated
a . b ti.
the mcu a on
itmen t to
period for a
" hink 1 t f the things we
inves_tment. It . k: 1:t ~f them have the
-
moo~ hot was generally longer than a ventur e capita list's
are doing we have a lot of conviction about them working.ove r ti1!'e, but I ~~75 In Octob er 2015, Porat
Page sat • turin l
characteristic of taking longer than an averag e ventur e capital bet, izing value: "[The reStI'UC g
descri bed Alphabet's appro ach of monitoring spend ing while optim
· b • that we have. the .same very
out ensur ing
wasn' t about cost cuttin g our way to greatn ess, 1t was a 0rd er to
ed, disciplined appro ach to lookin g at the growt h and expenses, makin g chotces m
detail
176
optim ize while shll suppo rting revenue growt h."
70% of the comp any's r~ur ces
Porat went on to outlin e Alphabet's u70:20:10 system in which
11

research.177 For some, the ~reatio~ _of

were spent on the core, 20% on adjacent projects, and 10% on
and with all large comparues, pohtic s
Alpha bet marke d a cultur al shift. "ltis such a large comp any now
able to launc h an idea and set up a TV
and burea ucrac y gets [sic] in the way of movin g fast, from being 178
camp aign it becam e layers and layers of management," said
one ex-Googler.
their own busin ess, adopt ing hiring
Other s noted that the "bet" companies a now controlled more of
a little more indep enden t," said Andy
and marke ting functions. "It gets a little faster, more efficient and
Conra d, CEO of Verily (formerly Google Life Sciences).179 "I act as a CEO of an indep enden t comp any
added , "Sund ar [Pichai} will act in the
instea d of a senio r executive within a large company." He
le Life Sciences_,.180
best intere sts of Google Inc. I will act in the best interests of Goog
enabl e the comp any to be '' an
In suppo rt of this view, Porat said the new structure would
181
accelerant" for entrepreneurship. She added:
n this larger fanlily of
A lot of that is about giving them the autonomy to opera te withi
that allow s us on the
Alpha bet. So what' s been very valuable is creating a struct ure
same time, to conti nu:~ :
hand to have mania cal focuses withi n businesses and at the
engin es of grow th so that
pl~t the see~ and_ reall~ nu~ e in a_ smart way those next
g to irrelevance.182
we re not dealm g with this quest ion of mcrementalism leadin
the creation of separ ate bet companies woul d reduc e
..
Google insiders commented that183 comp etitio n for
Street fou 1 .
talent and funds between units. In November 2015, the Wall Alph abet
es such rna repo_rted that
woul d charg e Other Bets subsidiaries for corporation-wide servic as comp uting , recru iting, and

et.
.11 ''Bet" comparues, also caJied Other Bets, were subsidiaries of Alphab

10
 111... 11

marketi,n .,T'I.._
g. I I le people £1un1u
account able for tht"ir co • ar with the mattet 5ald execu
Tl~ Econom ist offered sts, which rnay lead lo m~rc en ti tives hope to
~ake the bet comp;1nie.s mott
many other bi . a summary: ,, Alphabet Is u. on o~ spendin g, the ncwspap<:r reported.t'4
g tech firms: how much freed grappling ~•th a problcn1 that ha! already troubled
om, money and time to give internal startups."'U.5

· ,;;; · G oogl e
Alpha bet Spells a N•w
Q4 Earnings Rt/eased
Alphab et's 2015 fourth-q uarte .
of 18% over the prev· r earru.ngs were strong. Total revet\ue was S21.3 bil~ an increase
nd 14 ~ above the previou s quarter (refer to Exhibit la))" Porat
credlte d mobHe sear~o u; y;ar~
driver was the increa 5 ou u ' and program matic advertis ing for revenue gains~ "The prunuy
ed
l use ~f Mobile Seard, by consumers, benefiting from our ongoing efforts to
enhanc e the eff . 17 Alphabe t was
now rti •~ency Mobile Search, as well a, from the ho'liday
O sea~ u she said,1
and Other Bets, which include d "an aggrega tion of
b - . repo ng ong two segmen ts: Google
with diff~cn t busines s models, u Porat said. Due
USJ.n ~:,.~Y of which operate in distinct sectors
CapEx resulting fro1n
to. certain idiosyncrasies with respect to the timing of revenue expenses and1

said it would likely be more instruct ive to evaJuate

milestones, partner ships, and other factors/ ' Porat
th basis~ In the Google segmen t, revenues
the per{orman~e o( the Other Bets segment on a 12-mon iaa
grouped together , reported revenues
were $21.2 bllhon, up 18% over 2014. Other Bets, which were
189
and Veri.Jy generat ed the
of $448 million, 37% higher than in 2014. 90 Porat noted that N~t Fiber,
1
Bets a.re pre-reve nue. "'191
majorit y of Other Bets revenue s, adding, "The majority of efforts within Other
and TV services, and
As a whole, Other Bets revenues, sourced from Nest hardware sales, Interne t
et's consolidated revenues. 192
revenues from licensing and R&D services, inade up 0.6 % of Alphab
2015, excluding
Alphab et reported an operating loss of $3.6 bUUon in the Other Bets segment for
milestones established
stocJ< ..based compensation, which, Porat said, reflected •tne impact of project
to continu e to pursue "longe_r-term
several years ago."193 Lookjng ahead, she expected Alphabet
pushing the frontier
opport wuties both within Google and Other Bets, consistent with our emphashl on
19
to adjacent areas and moonshots." ~

Nest
called .,the
Nest Labs made Internet-connected thermostats and smoke alarms for \iVhat Fadcll
design the iPo4
conscious home. "'lts Founded in 2010 by Fadell, a former Apple executive who helped
2011.:,96
and Matt Rogers, another Apple cngin~e~, Nest released its first sm;rt thermostat in _Oc~~ qulpped , a
The device was an "innovative reJmagin1ng of a product category, the NL"W York Times
a crystal-sharp color
stylish piece of hard ware, a circle of brushed stainless steeL reflective polymer and 1918
display.utf1 l.n late 2013, Fadell said the thermostat hung in "almost 1% of U.S. homes."
in the
In January 2014, Google acquired Nest for $3.2 b~lion in the ~-lar gest pu~s~ tranve
h.is"'ory !99 Fadell said Google would provide Nest fmanaa l,. leg-1, and admlnis bout
. 1
• • d •..... '
con1pany s "·' • help then1 grow. • "l wasspendjng ~ much tt.me1n my aysJ~ wony1~! a
urces that would ced. 'lhis
reso d t wor in about product," Fadell said when the deal was announ later, Nest bought
infrastructure an no . ryIhA!8stu ff that differentiates us."?02 Roughly &Ix month.,
allows us to ron~t rate on f $555 milllon.200 Between 2011 and 2015, aMual revenue
Dropa m a security-camera startup or ,
204
growth at Nest surpassed 50%.

11
 717-4t8

ben("fidary. As a su.bsldi~ ry
\\'hen Alph«bet .announ~i plruu to n.~tructu.re. Nest was_9e«\~ence aoJ finan,cial support.lm
~p.lrate from Googl~ observ£-r.s said the business would enl<>Y md~~~- t»CC"Ording to reporls from
During 2015, Nest's revenues totaled $340 million. lagging ~t1cns-.taL ft smolu! detector. and a
R.ecod~Z06 By 2016. Nest had 1#100 e-mp!oyees and olftted a. smart thermos
5 ea.trity came~?ru

. ~ t A l ~ was pre~urlng non-

But m Man:h 2016. Fadcll told tech ne~-s outlet The lrtlornution ~ ~d ·ts Other Bets subst.·chane!-.
~ore divisions to tigheen their be-its. u In his wotds, Alphabet le«Ie.rship to 1 :umbers.~
Show us your business plan for the year. we·re gomg to hold you to those n
. between spring and fall of 201s.no
The Wonnation at.so reported that 70 employees had left Nest
Current and form.er employees complained about FadeU's &trict m,a.nagement~y
Product delays. 211 Later that mont~ Dropcam founder Greg f:>uffy, \'\t~O !
l
;;n
d btamed him for
pany tn 2015
toc:;l'.. lus startu
1

:P_cessed his frus..~on in a public blog post. d~.ari.ng that tt ,vas a . nus::~ He faulted Nest~
hich was 1n the rruddle of a record year of sales whe.n Google acquired ard f t. B t
movi sl 1 "' • bef where it is h er to move as u
. ng ow y. All of us have '"orked at big comparues ore, the ti 1...D)..
this is something different, as evidenced by the continued lack of output from· curren Y
person team and its virtually unlimited budget.," Duffy \<\rrote.21J
InA p,-:1 ne,vs outJets reported that Nest would be dosmg
u4
• ~nyitacqui.redin20l4.114
RevolV1 a comr-~
Revolv made devices that could control several smart apphances.. t •unfortunately, tha t me.ans '"'e
2 5
can't 4 Hocate resources to Revoiv anymore and we hai."e to shut down the service," Revolv' 5 founciers
~ote in a blog post. • As of May 15, 2016, your Revolv hub and a.pp will no longe: work."'l:16 Nest~
1t bought Revolv for the talent, not the products. "We are noi fans of yet another hub that people should
have to worry abou~• Rogers said.t1 7
On Jun~ 3, 2016, AJphabet said FadeU ,vould leave Nest and n,ove into an advisory role at Google. ns
Observers specu.l,1ted that Fadell "ras being let go in light of the complaints lodged against him, but he
sald the departure had been planned since late 2015.1 ' 9 RJ don't know of any regrets that t have/' he
said. 'lo do what we do at the level \,Ve do it# no one's done it before. So you re bound to make
1

mistakes.''2-"0 One observer said a cu.Hural mismatch had ended fadell's rejgn. HNest,, \...•i.th its Apple
DNA, was very mu.ch a top-do1vn company, where only one person was in charge - Fadel\,• he \"\'"rote.
uGoogle, on the other hand, has an engineer-dri~ bottom-up culture." 121

Alphabet chose Man~an Fawaz to replace Fadel). A former ~iotorola executive., Fawaz was known
for his people skills and team-oriented approach. Page said Fav~-az would • deepen Nest"' s partnerships,
expand within enterprise channels, and bring Nest products to even more homes."' 222

Other Moonshots
lne creation of Alphabet preceded widespread change also among otl,er divisions formerly
operated by Google-, including Nest.
On August 1Z 2015, Google startup Niantic Labs, a ganie company, announced its independ,ence
from Google: "We'll be taking our unique blend of exploration and fun to even bigget audlences '\\ith
some amazing new partners joining Google as collaborators and backers..-213 In October, Niantic best
known for video game ;n~s, ~unced that it had raised $20 million in bNiting from Pok~on,
Nintendo, and Googfe. That s kind of a theme at Google~ to take businesses that are not search and
give them more independence/' said Niantic's founder. ._\Ve·re kind of at the vanguard of that..,u•

12
 • 7J1'-t1S
Alph4&.rl Ey a Ntw lTO atl na (AJ

it, which
15 , Blo om be rg re t d
ab et' s pla ns to tu m its seU-d.riving cars un
In December 20 in X 1· to po re on sin Alph
e-.s.s.m
ha d been contained , n a standalone bu
LU Sci becoCM th e Al ph
abet company
C le m X to
In the sam e mo nt h ences gr ad ua ted fro ical Inc., reportedly
ou ~c ed ~ e company, Verb Surg hnology w srAT
Ve rily.2 26 Ve rjJy ai m 1 ! wo ul d cre ate a ne w
& JOhn soortly after on, to pu nu e adv•ncC!S in surgical tecnts about· the CEO.,
backed by Johnson n an d Ethic 14 am id complai
re po rte d th at d hA d lef t Verily since 20 a whim,
da,, ozen seni or sta ff me mb er s
cu i deJiver, lau
nches big projects on
Andy C es w ~I Ve ri1 y
m ig ht br in g m rev enue, u
an d ra ~ ~ • Th
ey sa id he exaggerat utm en ts to the neJ<t ho t id ea th atth business partners, an d
r co mn
ur ce s fro m pr io as dJfflcult m ee tin p
wi
STAT . Y " ~ ~o .is ha s Jed to wh at they describe of se em in gl y im po ss ib le de ma nd
s." 228
. reported. 'Th d scientists in the fac e
oralized engineers an departures su gg es ted
resignations by dem pr em atu re tim in g of the employees'
the
Technology analy
st Rob Enderle said
nf ide nc e in the leadership."m
staffers "are losing co O News
cs , a 20 13 ac quisitio~ up for saJe.D
le pu t robotics firm
Boston Dy na mi gh to generating
20 16, Go og e ro bo ts were no t close en ou
In M arc h
ct insiders, sa id Go
ogle had de cid ed th cs an d theirTokyo-
tin g pr oje en gi ne er s at Boston Dy na mi
re po rts , d
also cited growing fri
ction be tw ee n ut iv ~ ha d become
revenue. Insiders
231 na l m em os , Google ex ec d
counterparts. Ac
232 cord in g to .in ter
233 "'We as a sta rtu p of
ou r su e cannot sp en
an d California-based ce of Boston Dy na nu cs ' pr oJ ec ts.
e ex ecutive du rin g a No ve m be r
th the slo w pa ye ars ,:r sa id on at
im pa tie nt wi ings th at take ten am ou nt of re ve nu e
th
30 -p lus pe rc en t of
ou r resources on th at we ne ed to be ge ne ra tin g an bo tic s gr ou p
so m e time fra me th als o reported th at ro
. "T he re 's ws ou tle ts
2015 me eti ng
atJ ne ed s to be a few
years.' ' 234 Ne
fo lde d in to X
235 The m oo ho tns
rs ex pe ns es an d fth pl oy tts ba d be en
cove its em lp ." ~
ica nt wa s no lo ng er a standalone unH; rld pr ob lem s in wh ich robotics could he
Repl c real wo
efining some specifi
gr ou p said it wa s "d

L oo ki ng A he ad he r Al ph ab et moonshots re m
ai ne d uncertain.
of Ne st an d ot re m ai ne d th e
to a dose, the fu tu re d its ad ve rti sin g service
As Ju ne 2016 ca me ify, the se ar ch en gi ne an s, yo u can sa y
ite a co nc erted eff or t to divers 90 % of re v~ nues. "In six month
An d de sp
e dr ive r, accounting
for ne ar ly ha m 't ch an ge [sicJ
firm's biggest revenu eit he r m ad e th em wo rs e or
s be tte r- it ha s we re su pp os ed
wh et he r the str uc
ture has mildc thing237 fro m Go ogle, the m oo ns ho ts
eing lib er ate d e Guardian wr ot e
in gs at all ," on e an alyst concluded. HB y? Th e ea rly re su lts ar e no t go od ," Th
th ve the
phabet umbrella. Ha
to thrive un de r the23Al
in early Ju ne 2016
. 8 m ea nt the
sa id le ad er sh ip ch an ge at Ne st
On e ob se rv er e, a Google
he rs re ad th e de pa rtu re differently. ed ict ed th at N es t an d Google Ho m
Ot ng. She pr
was in fact succeedi cceed:
Alphabet structure tu al as sis tan t fo r the home, wo ul d su
pi ng a vir
su bs idi ar y de ve lo tu re in th e first
th e Al ph ab et ho ld in g str uc
ivation fo r cr ea tin g hotsN an d ot he r
Google's whole mot ip lin e at its va rio us "moons
e more finan cia l di sc . It' s likely th at
place was to fo rc atl y in to Google's co re focus
st, th at di dn 't fit ne ch an im po rta nt
businesses, lik e Ne t, ha d a sa y in de ci di ng th at su
forcer, CFO Ru th Po ra
fle dg ed el se wh er e
[w ith in Google
Al ph ab et 's chief en ] sh ou ld be
pa ny [h om e auto m ati on
its wings free of th
e di vi sio n's dr am a,
pr od uc t fo r the co m at it co ul d ea rn
bs id ia ry J- so th
Ho me , a Go og le su 239
.
financial or otherwise Page an d Brin ha d
so m e critical
e co nt in ue d,
pr od uc t lin e co m pa ni es
e ca mp ai gn to ex pa nd Al ph ab et 's ies . W as Jt im po rta nt to gi ve th
As th
ab ou t the non-Google
subsid iar
? Ho w lo ng sh ou
ld Ot he r Bets be
decis io ns to m ak e ive lea de rs hip
ul d th at str at eg y
em po we r di vis
in de pe nd en ce or wo 13

lo Aug 20 2•.
!(va from May 20 2,
lnd lan fna llu . d Managament - Banga
4 (DC) It
rpo ,ate Strat•ay, 202
raahelcar'a PGP· Co
use onl y in Prof. 0..,,-,.lc Chand
100Jmet1l ~ authonzed
for
8

via bl-, . pro fita ble p.x odu

►wed to e x ~ ~ be fo~ pro du cin g a
nee ded to suc cee d, or wo uld
our ces sta rtu p ven .tn. res des per ate ly
~ov ati.o -n.?
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)
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• 7 C4'
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mfllJon • uc-~ )
e Data, Q j &
Incom
Ja:C A lp h ab et S e l« te d
ll~hibll la Q}UJH Q 1 2 0 ,,
- --
18,615 21,329

Revenue• 7,037 8,188

,• n u a J,610
Coat, 1n d o xr 3,230
oa 2,879
Cotf o f revenu l 2,223
d de.letopm•n 1,672
R •• •• ~ h an 1,',77
k•tlno 15,949
S •, _ and mar f 3,967
and admlnl9
trallve
General 6,380
d expense• 4,7U8
Total coat, an (180)
16 3
operations 5.200
tncom• from ",891
(expen se), net e taJCes 2n
Other ,~ome op eration• before Incom 912
continuing 4,923
tncon-w, from 3, 91 9
Provision for
lncomo taxes
J0K.pdf.
1_atph~b.t_
Net Income qi/lm•attJr/pd
l/2015123
il Roport, ltttp,.//1be
, 2015 Annw
Sourco; Alph4bcl, Inc. 15.
20
A«csa «.1 Fllbruory

2013-2015
t fn /o rm at io rt
ected S eg m en
Alphabet Sel 2015
~
• E~hlblt lb 2013
2CJ14

74,541
85 ,8 74
55,507 448
327
Revenues 12
74,919
Google 61,001
55,519
Other Bets
e•
Toe.I revenu 23,425
19,011
(loss) 18,260
aUng Income (3,587)
Segment oper (527)
(1 .942)
(408)
Google (573)
(330) 19,360
Other Bets ou s Items 16,498
costa and ot
her miscellane 15,403
Admlnlstratlvo
,at1on1
e fr om o,,.
T o ti / Incom
8, 84 9
11,173
dllure1 7,006 869
Capital •xPfn 501
187 197
Google (715)
165
Other Bets 10,959
9,915
Reconciling lto
ms
•
7,358 --
•x p e n d lt u r•
To t. l capital /pl,11beLlOK
pd{.
s1or/pdlj2[)15J2JJ_JJ
~ t h bc.Kyl/111vr
M w d Rllp<>r, tt ps ·//a
Source: , In c 201520A15
AJph.1bc!1F~
d br ~ary
acce•u

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ttf

e~ • from M.
oy 202◄ to Au
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i• ., ,, POP C IX )ra (e ser.i..gy 2024 (D Cj 0 n" ia n 'll ul ut e
of 0N pa k Cnana,.a1 O,
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 Alphabet Eyes New Frontiera (A)
117-411

Exhibit 2 Alphabet. fnc. Sha.re Pricing, Relative to the S&P 500 Index, August 2004 to June 2016

2,000.0009' - - - - - - - - - - - - - - - - - - - - - -
-- ---------

1 600,0°"

1,000.00"'

0.00'%

-Alpha~ Inc (NndlqGS:GOOGL) • SNr. Pricing ...... • 5£P !iOO Index ("sPX) • IACM1; Value
- - - --------------1
Source: Alphabet Share Pricing, August 2004 to June 2016, CApital IQ Inc., a division of Standard &c Poor's.

Exhibit 3.1 A Selection of Top Innovations at Bell Labs

Innovation Applications

Data networking. late 1940s Digital Subscriber Line (DSL)

Transistor, 1947 Computers, radios, stereos
CeJfufar network, suggested in 1947, Installed 1980 Mobile phones
Sfflcon solar cells, 1954 Solar power
First patented laser, 1958 Medicine, electronics, communications
Convnunlcations satellites, 1962 Long distance phone calls, television, and radio
Touch tone dlalfng, 1963 Replaced rotary dialing on telephones
Unix C, C++, 1969-1972 The Intemet, computer programming

Source: AJcatel-Luccnt, "Bell Labs Top 10 lMovations," lrom the University of Texas website, http·/ /www.cs~utex1.s..edu/
~ 1 nr.4itil/networking/Cl,1ss%20Notes/02%20Bell%20L.ibs%20Top%2010%20lnnovation.4
i.pdf, accessed June 2016.
 Alph.l bt-t Eyes N<'W F
COJ\liera (A)

717-418

Exhibit Jb A Selecn0 nofTop J.nn

ovations at Xerox PARC
lnnovat ion

Laser prlnlfng, 1972 Applicat ion.

Xerox Alto Personal Photocop iers
Ethernet netw r1<J computer, 1873 Apple's Macintos h Compute r
o ng, 1973
Cut-and-p ast d Local Area Network (LAN)
Graphica l e an text editor, 1974 Microsoft Word
. User Interface, 1975
Compute r user Interfaces . populariz ed by Apple
~ulh-bea m lasers, 1986
Advance d printers
6-bit coding system, 1989
Unicode standard , allows compute rs to communi cate
across languages

Soun:-c Todd R. Weis.s "Timcline: P ARC Miles to~," Compultrw urld, Seph!mbe r 20,2010, ht~// www.com pute-rwor ld.com/
articlc/2.5 lS87'4/ and Dan Farber, -rracsng
the 0r· computcr- h.u-dw.ire /tunclme- -p.u-c-mil ~tones html, ac-cc.-ssed June 2016;
Janu.ary 21, 2014, http·//ww w c:net.com /news/tn clng-~rig ins-of-th e-
, t:~/ of the Macintosh ,'" CNt?t,
macm Ubl\ , .accessed June 2016.

to June 2016
Exhibit 4 Alphab et Inc. Share Pricing, Relative to the S&P 500 Index, August 2015

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
.
..
-5.00%
..... ....
-10.00% •
...
-15.00%

StandM'd & Poor's.

Source: Alphabet Share Pricing, August 2015 to June 2016, Capita-1 IQ, Inc., a division of

17

Strallgy, 2024 (DC) et lncftln tnltlue of ManagamaM • &ana•lor• from May 2024 to Aug
~~ 1, auChorizad for 1.11• only tn Prof. o..pak Chandraahekar's PGP- Corporata
717--41g
Alpblb et eyu New frontiers (A)

&hib it s
Alphabet's N
ew Corpo rate Structure, 2016

Alphabet t, Chi>irmon
Lorry Pogc, CEO I Se,g1y Brin, President I Eric Schmid

~,....
nest. Aoceas ~ Energy ~er ily Ca lico [SIDE!WHK!LA8S]
......... ,.
,.,,.. . . .,,..........
~
o-. ....
........ __
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...,._......,
...,.... ..........,
...., ---~,,..._.
~et•

~""'= --.-~G -...- lllbollt, ,,.... P ■U _ , WCI ,....,.,

~1t1 • .......,.,tJ O..,U t"-6 ~u.c: .,,.,.,

Goog k~ . ... ..
Google G003le[x] GI ................... ..."""'....
' 1•

Capital
...........
Met~ ,ir.....,,.,.
.-...r...
s.o.-.-.-.....- ...
NYeok .....
....,......._..,,,., .....
'- ~
........,........
""""" . . flff~
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~~~
........,..,_
GV • '91111ts .,.,.. ae,ri .,.,.,..
· - ... ----•- ...
..,..,..c;...- ......,.-101♦•

Project Wing Project Titen

RepUc1nt PfIDJfCl UJfJI
.. .....
..
........,. .....
---~J~•
..,..,.,. ._.,,
~ ........
........ ....
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o,..,. . . . . .
C..----IN l:\11\
au
....,.,.......
.....
~

...........
........
...
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w ...... c,-
--.
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c......,tAa,,

Technical '6 Go gtc ~rn-t-

YoutB lnfrastructllt
............
,.......,.............
. . . .-~C-... .,lft~

Go 9~ Apps for 'lloA

Go gle for \4/ork ATAP

ed in One Owt" Business Insider, January 12

Source· Rob Price and Mike N u ~ "Google's Parent Company Explain '
arent-<:ompany-lnfographic-,c-gv-2016-1,
2016, http·//www.businessinsider.com/chut-of-.1lphabet-google-p
accessed febn.w-y 2016.
 717..Q,8

Exh ibit 6

Com pa» y Fun ctio n

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