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Alphabet Backs Off On Experimentation — WSJ

By Rob Copeland 

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (December 6, 2019).

Sundar Pichai's appointment this week as chief executive of Google parent Alphabet Inc. effectively shifts the focus back on the company's advertising profit machine and away from its "moonshots" and other potential new businesses.

Mr. Pichai's promotion late Tuesday amounted to the biggest managerial overhaul of the internet giant since 2015, when co-founders Larry Page and Sergey Brin created Alphabet as a parent company above Google. Their goal then was to make Google and its highly profitable advertising businesses just one of many subsidiaries. The stated purpose, as they said in a public letter: "We are still trying to do things other people think are crazy."

Those goals were on-brand for the two former Stanford University graduate students. They famously celebrated a "don't be evil" ethos and were working on driverless cars, wearable computers, beating death and a host of other money-losing projects. The idea was to free the duo from the day-to-day at Google, which remains a profit machine, to build out new, world-changing ideas.

Those now include Alphabet's Waymo unit, which is piloting self-driving car rides, and Calico Labs, which says it's "tackling aging."

At least financially, those efforts have yet to amount to much. Google, which includes search, YouTube, the Chrome web browser, hardware and much else, reported $40 billion of revenue in the past quarter alone, with a 23% margin. These areas draw in more than 99% of the parent company's staggering $155 billion in annual revenue.

The rest of Alphabet eked out $155 million in revenue, and lost $941 million while doing it. Alphabet's stock is up 99% from its creation to the close of trading Wednesday, ahead of the technology-heavy Nasdaq and the S&P 500.

The founders said in a letter Tuesday that they see Alphabet's structure as a success, given that Google has continued to grow and various business units are now set up with independent boards. They also signaled that the company's research and expansion into new areas will continue, as Alphabet "continues to make ambitious bets on new technology," according to the letter.

"I will continue to be very focused on Google and the deep work we're doing to push the boundaries of computing and build a more helpful Google for everyone," Mr. Pichai said Tuesday in a letter to Google employees.

Mr. Pichai said the transition won't affect the Alphabet structure, but his ascendance undercuts the pretense that Alphabet and Google are distinct entities. Led by the India-born immigrant, the company is seeking rapid expansion in cloud-computing and health care, the same areas as a number of peers. For all its quirks and earnest ambitions, Google is moving in the direction of a more conventional corporation focused on the bottom line.

The leadership transition comes amid a broader shift in Silicon Valley, where companies that long portrayed themselves as spreading the benefits of technology are contending with an intense backlash over the tremendous power and wealth they have accumulated. Having become some of the world's most valuable corporations, giant tech companies face accusations of anti-consumer behavior, privacy violations and failing to stem the growing tide of disinformation on their platforms.

It is in this environment that Messrs. Page and Brin are leaving, assuming the role of "proud parents," they wrote Tuesday.

The pair doesn't want "to suit up and go to D.C.," said David Hsu, a management professor at the University of Pennsylvania's Wharton School of Business. Mr. Page and Mr. Brin will remain board members, and because they own a majority of voting shares, they still hold a veto-proof say over any decisions.

People familiar with the matter say Mr. Pichai meets with either or both of the co-founders weekly, usually in person. A spokeswoman had no comment on the arrangement, or whether it would change.

Messrs. Brin and Page also said four years ago that Alphabet's creation would make the conglomerate "cleaner and more accountable."

Yet Alphabet in many ways made matters muddier. Alphabet did nothing to improve transparency into the costs that most worry investors now, namely those hidden inside Google itself, in areas like YouTube and hardware. Mr. Pichai and his management team have resisted calls to provide more regular financial details on Google itself.

Meanwhile, the two co-founders have disappeared from the public eye. Mr. Page memorably didn't show for a congressional hearing last year, leaving an empty chair for photographers, and became a shadow power behind Google and Mr. Pichai.

Documents released in a shareholder lawsuit earlier this year showed Mr. Page sometimes has acted unilaterally: He approved a more than $100 million severance package for an executive accused of sexual harassment, for instance, before asking the board to weigh in.

Current and former employees grumble that the co-founders have stood idly as their once-open workplace has become consumed by infighting and increased secrecy. A few weeks ago, Mr. Pichai announced the cancellation of Google's cherished weekly management question-and-answer sessions, saying they are no longer a fit for the multi-headed conglomerate the company has become.

No less than the U.S. Securities and Exchange Commission, in 2017, asked Alphabet to clarify who exactly was in charge. The answer, which Alphabet delivered in a filing: "Larry Page is our chief operating decision maker." The same filing described Mr. Pichai as a mere "segment manager," equivalent to nine other unnamed executives who reported directly to Mr. Page.

Mr. Pichai may now call himself chief operating decision maker -- and whether of Alphabet or of Google, it might no longer matter.

--Sebastian Herrera contributed to this article.

Write to Rob Copeland at


(END) Dow Jones Newswires

December 06, 2019 02:47 ET (07:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.