That doesn't track. As long as the project is generating at least a single dollar (TVM-adjusted) and you're not constrained on resources (SWEs, labs, etc.) that could be reassigned to higher yielding projects, that's all the justification you need.
The market tracks how profitable you are as company. Tech companies get higher multiples on their valuation because they can be more profitable than a manufacturing company.
This was one big reason why the trend is for conglomerates got broken apart, it lets their high profitability companies get valued higher.
Google focusing on products that are break even or slightly profitable hurts them for this very reason.
So if you are the CFO of google the decision you make is do we keep some of these low profitability companies around and have them drag our multiples down or do we cut them when its clear they won't become high margin profitable businesses.
Given that the CFO of google gets most of their compensation in stock its not surprising that they chose to have a higher multiples applied to them, and therefor higher stock prices, than lower ones.
agreed - there is also opportunity cost. While that particular project - may be earning that dollar - putting those resources somewhere else might be more profitable....
A lot of what you said is accurate, but then the ideal play would not be to shut down non-core projects, but rather to sell them or spin them off into their own companies.
...which partly-happened via licensing in the article, but they didn't realize the full value of the working operation.
... yeah, but that's just not how it works inside Alphabet. It's not rational but plenty of us would share that this is absolutely the logic that drives day-to-day business decisions across all of Alphabet's business units today.
This has no weight to it but is just sort of my anecdotal perception, my feeling from googlers I know directly or indirectly feels like, I guess I would say a lot are really vigilant of career risk?
The vibe I always get is that they won't hesitate to abandon stuff that doesn't get huge fast, but a big part is that the manager or teams don't want to get stuck with something that isn't a juggernaut or obviously on its way.
And heck, maybe that is just everywhere, but anecdotally at google, from an outside observer, it looks like the culture dictates being on the 'Big Thing' is how you succeed there.
chollida1|1 year ago
The market tracks how profitable you are as company. Tech companies get higher multiples on their valuation because they can be more profitable than a manufacturing company.
This was one big reason why the trend is for conglomerates got broken apart, it lets their high profitability companies get valued higher.
Google focusing on products that are break even or slightly profitable hurts them for this very reason.
So if you are the CFO of google the decision you make is do we keep some of these low profitability companies around and have them drag our multiples down or do we cut them when its clear they won't become high margin profitable businesses.
Given that the CFO of google gets most of their compensation in stock its not surprising that they chose to have a higher multiples applied to them, and therefor higher stock prices, than lower ones.
gmoore|1 year ago
office_drone|1 year ago
...which partly-happened via licensing in the article, but they didn't realize the full value of the working operation.
vineyardmike|1 year ago
But also more realistically, Google reports their margins to wall street and a ton of barely profitable ventures would drag that down.
counters|1 year ago
gimmeThaBeet|1 year ago
The vibe I always get is that they won't hesitate to abandon stuff that doesn't get huge fast, but a big part is that the manager or teams don't want to get stuck with something that isn't a juggernaut or obviously on its way.
And heck, maybe that is just everywhere, but anecdotally at google, from an outside observer, it looks like the culture dictates being on the 'Big Thing' is how you succeed there.