Alphabet is pushing its startups to act like independent companies
Alphabet is pushing its startups to act like independent companies
Many of us were caught by surprise in August when Google announced a major restructuring of its myriad businesses into individual firms consolidated under a single holding company called Alphabet.
The aim was to separate Google’s core search business from its almost unwieldy bunch of projects, which is an eclectic collection ranging from self-driving cars to smart home devices and even life extension.
Now, a Wall Street Journal report suggests that Alphabet is looking to take this divorce a step farther by pushing its subsidiaries to behave as if they were financially accountable independent companies.
This means that Google X, Fiber, Nest and other Alphabet companies would be charged the market rate to use existing Google services like the Google Cloud Platform. Similarly, they would have to pay to use Google’s recruiting services, although they are free to develop their own systems.
The new move is intended to improve accountability. Because Google’s sprawling collection of startups also dabble in moonshot projects like balloon-powered Internet and smart contact lenses for diabetics, which aren’t going to be profitable any time soon, the shift to more independent operations would facilitate greater financial transparency as any losses made would not be obscured by Google’s profits and privileged access to its resources.
Of course, there is the obvious worry that innovation and the development of daring projects will be hindered by the accountability push, but as Engadget pointed out, Alphabet may just give a company like Google X greater leeway to work with. After all, no one in their right mind expects half the things on the table at Google X to rake in the dollars in the near future.
Furthermore, the primary aim of the changes is still to increase financial accountability instead of profits. Alphabet CFO Ruth Porat signaled this back in July, where she singled out Fiber, Life Sciences, and Nest as “earlier stage products” that will “serve as longer term sources of revenues”.
The operational shift should also help appease investors concerned that Alphabet would throw money away on hapless, moonshot projects. But whatever the case, we won’t know just how well, or badly, some of Alphabet’s more eccentric ventures are doing until the next quarter, which is the first time Alphabet will separate the results of its core business from its subsidiaries.
Source: The Wall Street Journal via Engadget, The Verge