February 5, 2018

Breakingviews: Alphabet is stuck at the letter G

by Breakingviews.

Alphabet is stuck at the letter G. The holding company of Google was created to safeguard against conventionality and let moonshot ideas, like self-driving cars, flourish. Almost three years in, it’s basically still just Google. Which means, in turn, that the A in Alphabet stands mainly for advertising.

Back in 2015, Google co-founder Larry Page explained the formation of holding company Alphabet was to keep things “crazy.” After all, products like the Android operating system and Google Maps had become less zany as they attracted billions of users. The purpose of Alphabet was to keep that same spirit alive while providing more financial transparency.

Today the hothouse is little more than a tiny subsidiary of a colossal ad machine. Alphabet reported on Thursday that revenue from “other bets” – where projects like driverless-car software maker Waymo resides – rose over 56 percent for the fourth quarter to $409 million, making up 1.3 percent of the group’s top line. Google advertising revenue at $27.2 billion represented 84 percent of it.

True, left-field ideas might take years to come good. And not all work out: the group has pulled back for instance on the ambitions of Google Fiber. But another telling metric is how much investment Alphabet is plugging into other bets. Non-Google capital expenditure fell from around 13 percent of the group total in 2016 to 4 percent in 2017 – and less than 3 percent in the fourth quarter. The total amount lavished on other bets, around $500 million, was practically the same as in 2014.

Along with Facebook, Google crushes its rivals in digital advertising. That dominance is raising eyebrows. European regulators have clamped down on how companies use consumer data, threatening a lucrative source of income. In the United States, lawmakers are circling Google, Facebook and Twitter because Russians used the tech companies to place fake ads and news stories to sway voters. It wouldn’t hurt Alphabet to put more energy into revenue sources that don’t start with a G.

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