google-bets

Alphabet “Other Bets”: In Search Of Google’s Hidden Gems

Of Google’s (Alphabet) over $257 billion revenues for 2021, Google also generated $753 million from a group of startup bets, which Google considers potential moonshots (companies that might open up new industries). Those Google’s bets also generated a loss for the company of over $5.2 billion. In short, Google is using the money generated by search and betting it on other innovative industries. 

Enter Google “other bets.”

Google’s other bets comprise a list of eight companies that span from life science to self-driving companies:

  • Access.
  • Calico.
  • CapitalG.
  • GV.
  • Nest.
  • Verily.
  • Waymo.
  • X.

Compared to total Google’s turnover, “other bets” represented less than 1% of its overall revenues for 2021.

However, if we imagined it as a spin-off of Google, that would be a startup worth looking at.

In particular, Google has invested so far in eight bets. Some of those bets might fail.

Yet some others might not only grow exponentially in the next years. They might also transform Google’s business model.

Why is this important at all?

I argue that the business model resides in how a company thinks. Even though a company is made of principles that keep it together.

The commercial forces behind a business model are so strong that they eventually prevail over the rest.

Google uses a hidden revenue generation pattern and an advertising business model.

No doubt, this represents a cash cow for the organization. However, the future of Google might look quite different.

Remembering that a business model is never just about monetization is also important.

In fact, for a business model to work in the long run, it has to embrace the company’s principles.

As specified in the Alphabet annual report, “throughout Alphabet, we are also using technology to try and solve big problems across many industries. Alphabet’s Other Bets are early-stage businesses, and our goal is for them to become thriving, successful businesses in the medium to long-term. To do this, we make sure we have a strong CEO to run each company while also rigorously handling capital allocation and working to make sure each business is executing well.”

Not by chance, Google defined them as “bets.”

Early-Stage businesses naturally come with considerable uncertainty.

The interesting part? Some of them are already generating revenue.

Read Next: Business Model Innovation

What is Access?

Access is the Alphabet subsidiary that runs Google Fiber, which offers super-high-speed broadband access over fiber optic cables to new cities. Access provides Google Fiber in 12 US metropolitan areas and offers its Webpass wireless service in another eight.

access-google-fiber

What is Calico?

Calico is a research and development company whose mission is to harness advanced technologies to increase our understanding of the biology that controls lifespan. In short, it 

As explained on the Calico website, these are the guiding principles:

  • INNOVATION: We believe tackling aging and increasing healthspan can only succeed with cutting-edge science and transformative technology and that both are fueled by intellectual freedom and creativity
  • INTEGRITY: We expect everyone to be honest, ethical and trustworthy
  • COURAGE: We aim high, make tough decisions and take smart risks
  • ACCOUNTABILITY: We value taking personal responsibility and look inward first when things do not go well
  • COLLABORATION: We understand that working together can expand possibilities and capabilities
  • GENEROSITY OF SPIRIT: We strive to be kind and considerate, respect each other’s individuality and perspectives and graciously share both ideas and credit

What is CapitalG?

Capital G is the growth equity investment arm of Google that supports an investment portfolio of companies by providing tactical advice across key functional areas such as engineering, product, sales, and marketing. By working closely with growth-stage companies, CapitalG argues that its pattern recognition enables it to draw learnings and help our portfolio scale effectively.

The portfolio of companies like Airbnb, Duolingo, Robinhood, Lyft and many others:

capitalg-companies-google

What is GV?

GV or Google Ventures is the venture capital arm of Google, which invested in more than 300 companies that push the edge of what’s possible. From fields of life science, healthcare, artificial intelligence, robotics, transportation, cybersecurity, and agriculture. 

It branches in five main areas:

  • Consumer: with companies like Uber, Medium, Nest and many others
  • Life science and health: with projects like 23andMe
  • Data and AI
  • Enterprises: slack, stripe, HubSpot
  • Robotics and hardware

What is Nest?

Nest’s mission is to create a set of smart home devices. Nest recently expanded its connected home product line by introducing the Nest Thermostat E and a new home security solution that includes the Nest Hello video doorbell, Nest Cam IQ outdoor security camera, and the Nest Secure alarm system.

It comprises products like:

What is Verily?

Verily develops tools to collect and organize health data, then creating interventions and platforms that put insights derived from that health data to use for more holistic care management. With three guiding product design principles: start with the user, simplify care, and lead on security and privacy.

The company monetizes by selling its R&D services. Verily has also made significant progress on critical programs, like the launch of its Project Baseline study with Duke University and Stanford Medicine, and received an $800 million investment in 2017 from Temasek to accelerate its strategic programs.

What is Waymo?

Waymo began as the Google self-driving car project in 2009. Waymo is now an independent self-driving technology company with a mission to make it safe and secure for everyone to get around—without the need for anyone in the driver’s seat.

Waymo continues to progress the development and testing of its technology and now has a fleet of vehicles in Phoenix, Arizona, driving without a person behind the wheel.

What is X?

X is Google’s arm which is aimed at solving hard problems by creating new radical technologies. Some of the projects that came our from X comprise Verily, one of Google’s “other bets.” Other projects consisted of delivery drones, internet balloons, and cybersecurity. A few other projects in development are smart glasses, free-space optics, and learning robots.

As explained on X website:

Google founders Larry Page and Sergey Brin always believed in investing some of the company’s resources in hard, long-term problems. In 2010, a new division forms to work on moonshots: sci-fi sounding technologies that aim to make the world a radically better place.

Inside Google, other bets financials

google-other-bets-revenues

Other Bets revenues consist primarily of revenues and sales from:

  • Internet and TV services;
  • Licensing and R&D services;
  • and Nest branded hardware.

Other Bets is a combination of multiple operating segments that are not individually material. As we’ve seen Other Bets includes businesses such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X.

Revenues for Other Bets are derived primarily through the sales of internet and TV services through Fiber, sales of Nest products and services, and licensing and R&D services through Verily.

google-other-bets-expenses

In 2021, over $5 billion went toward maintaining those not profitable bets yet. 

That isn’t a cheap bet for Google, sustaining those other bets with the money coming primarily from its advertising networks.

Yet, those same revenues are getting spent to renew the whole business model in the coming years.

An inside look at the overall Google business model

how-does-google-make-money
Google (now Alphabet) primarily makes money through advertising. The Google search engine, while free, is monetized with paid advertising. In 2021 Google’s advertising generated over $209 billion (beyond Google Search, which comprises YouTube Ads and the Network Members Sites) compared to $257 billion in net sales. Advertising represented over 81% of net sales, followed by Google Cloud ($19 billion) and Google’s other revenue streams (Google Play, Pixel phones, and YouTube Premium).

What, instead, will be the role of the other bets?

Summary and conclusions: What if one of the other bets will be the next hit in tech and business?

  • Most of Google’s resources are skewed toward the core business model of Google. 
  • A small chunk is also used to maintain the operations of bets that Google placed in several future industries. 
  • Perhaps, in 2021, those other bets’ costed the company over $5 billion.
  • Yet, those bets show also where Google sees the future developing in the coming decade, and they might imply a whole new business model

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