
Alphabet Loses $859M on 'Moonshots' in 2Q 2016 - zeddie
http://www.nytimes.com/aponline/2016/07/28/business/ap-us-alphabet-moonshots.html
======
zaroth
I don't think it's right to equate R&D spending with "losses". Google makes a
profit, not a loss, so technically it does not have losses. It has expenses,
and among those, investments in future technology.

If all Google could do with their cash flow was pay a dividend, that would be
very sad, and it would call for a much lower P/E ratio. This article
completely misstates the facts.

Perhaps the way they break out their financial statements is confusing to
someone without an accounting degree. Just because "Other Bets" is negative, a
growing negative number in this case is a good thing. This is showing Google
has more free cash to invest in growth and has good ideas they believe in and
want to pursue. I would be worried if instead they were stockpiling cash. You
would then have to ask, why can't they put it to work effectively?

Of course, everything they do that is making money is no longer an "Other Bet"
by definition.

~~~
jahnu
Playing devil's advocate here (a little) but imagine they took a few dozen
million of that and, say, improved their development tool chains for Android
(which are disappointingly flaky). Or another few dozen millions and extended
the security updates for Nexus phones by a couple of years. That could grow
their market share of both developer mind-share and consumers.

Moonshots maybe should come once you've mastered all your core products?

~~~
Normal_gaussian
> Moonshots maybe should come once you've mastered all your core products?

Then they'll never come.

~~~
jahnu
They mastered search. They mastered mapping.

~~~
redthrowaway
Search has stagnated. Google has gotten scarily good at anticipating what I
want to know, but conspicuously bad at answering hard questions. There's tons
of room for improvement.

Similarly, Google Maps has added features that make it a better map, and it's
a great place to find what time a store closes and what their phone number is.
But it's been essentially the same service, with iterative improvements, for
years. There's a world of possible uses for that data beyond what we imagine
when we think of a map.

~~~
sievebrain
I suspect Google Search has not actually had quality regressions, but rather
that your expectations have gone up over time without you realising it.

~~~
redthrowaway
Yes, I might have phrased that poorly. Google Search still finds relevant web
pages just as well as it did 5 years ago, perhaps better. It _certainly_ has
leveraged the data it collects on me to suggest search terms in a way that's
almost eerie.

But it's still a tool to find relevant pages, not a tool to find answers. It's
made some progress with the semantic web and knowledge graph, but that still
provides basic facts about people, places, and things. At its core, it's still
a portal. It's still just a much better version of Excite. Search today feels
like it did in 1997: a "solved problem" ripe for disruption. Google has the
talent, technology, and data to produce something an order of magnitude
better.

------
noahmbarr
Google's S-1 April 24, 2004
[https://www.sec.gov/Archives/edgar/data/1288776/000119312504...](https://www.sec.gov/Archives/edgar/data/1288776/000119312504073639/ds1.htm):

RISK VS REWARD IN THE LONG RUN

Our business environment changes rapidly and needs long term investment. We
will not hesitate to place major bets on promising new opportunities.

We will not shy away from high-risk, high-reward projects because of short
term earnings pressure. Some of our past bets have gone extraordinarily well,
and others have not. Because we recognize the pursuit of such projects as the
key to our long term success, we will continue to seek them out. For example,
we would fund projects that have a 10% chance of earning a billion dollars
over the long term. Do not be surprised if we place smaller bets in areas that
seem very speculative or even strange. As the ratio of reward to risk
increases, we will accept projects further outside our normal areas,
especially when the initial investment is small.

We encourage our employees, in addition to their regular projects, to spend
20% of their time working on what they think will most benefit Google. This
empowers them to be more creative and innovative. Many of our significant
advances have happened in this manner. For example, AdSense for content and
Google News were both prototyped in “20% time.” Most risky projects fizzle,
often teaching us something. Others succeed and become attractive businesses.

We may have quarter-to-quarter volatility as we realize losses on some new
projects and gains on others. If we accept this, we can all maximize value in
the long term. Even though we are excited about risky projects, we expect to
devote the vast majority of our resources to our main businesses, especially
since most people naturally gravitate toward incremental improvements.

------
askafriend
I don't see anything wrong with this approach, especially since the company
can actually sustainably afford to keep placing these bets.

And perhaps "bet" is the wrong word being used here. Usually with a bet in
gambling terms, you either win big or you lose it all.

When Alphabet tries a "moonshot", they come away learning a lot about whatever
problem it is that they were trying to tackle. They build expertise in-house,
and they flex the idea muscle within the company. That isn't zero-value
activity. In fact it's _very_ valuable.

$1B a year is a small price to pay for what could eventually spurn a
sustainable $10B per year or $40B per year business in the future (self-
driving cars, for example).

Now this is just me being optimistic. It could also very well be the case that
the X division is horribly mismanaged and the moonshots fail for more
nefarious reasons, but I'm willing to give Google the benefit of the doubt.

~~~
arcticfox
In addition, it's not like these bets have been pronounced dead. They're all
still in play. It will be years before we know whether any were successful or
not.

This is like someone betting $1000 on a game, and then calling it a $1000 loss
up until the game is actually played (at which point it becomes indeed a true
$1000 loss, or possibly a gain). It doesn't make any sense.

~~~
mike_hearn
You could argue that Google Glass is dead.

~~~
eru
Though to be honest, it was never intended as a consumer product. (But their
marketing was conflicted.)

Wave is probably an even bigger disappointment: it would have done great as an
enterprise product.

------
aresant
This article makes it sound like Google frittered away $1b on the "X" lab last
quarter.

X lab includes self driving car, Goog Glass, Project Tango (editorializing
here but Tango is badass!), more crazier bets (1)

Ok, some crazy stuff there - pretty pretty risky.

Wow $1b last quarter for that stuff.

Geez corporate responsibility grumble grumble, stupid silicon valley assholes
snark snark.

But wait, spend 30 seconds doing research and in reality the $859m headline is
actually referring to Alphabet's line item "Other Bets"

"Other Bets" includes Nest, Google Fiber, Google Ventures, and Verily among
others(2)

Nest = iot + Tony Fadell (pre fallout) looked like a damn good way to beat
Apple to a new important consumer market. Still holding out hope.

Google Fiber = fast speed is fundamental to Google's biz, heck they could
probably look at this as CapEx. Please come to my 'hood!

Google Ventures = bought $258m of Uber stock @ $3.6b valuation. What's that a
20x so far? Pays for entire fund's lifetime by several multiples? Lots of
other follow-rounds that make sense (3)

Verily = profitable healthcare division. (4)

So come on NYT spend 5 mins getting the story straight instead of writing a
lazy click bait headline.

(1) [https://www.solveforx.com/](https://www.solveforx.com/)

(2) [https://www.engadget.com/2016/02/01/google-
alphabet-q4-2015-...](https://www.engadget.com/2016/02/01/google-
alphabet-q4-2015-earnings/)

(3) [https://techcrunch.com/2013/08/22/google-ventures-
puts-258m-...](https://techcrunch.com/2013/08/22/google-ventures-
puts-258m-into-uber-its-largest-deal-ever/)

(4) [http://www.recode.net/2016/4/13/11586102/verily-alphabet-
pro...](http://www.recode.net/2016/4/13/11586102/verily-alphabet-profitable)

~~~
Steko
> "Other Bets" includes Nest, Google Fiber, Google Ventures, and Verily among
> others(2)

The fact that most of those things aren't huge money losers undercuts your
argument though. Nest is making money. Google Ventures is $300 million a year,
Fiber invested $100 million in KC in 2013, meanwhile this segment was $3.6
billion in the red last year.

~~~
smitherfield
Yes, but they could* be taking write-downs on their investments in e.g. Nest.

*I haven't looked at their financial statements.

------
w1ntermute
There was an HN discussion earlier this week on Google X[0]. One important
point made there, by snarf:

> Google X is mainly about the PR value around its image and
> recruiting/locking up talent. Google would rather have smart people locked
> up inside the company working on projects with a high probability of going
> nowhere rather than having them going to a competitor, or worse, creating
> the next major competitor.

0:
[https://news.ycombinator.com/item?id=12150812](https://news.ycombinator.com/item?id=12150812)

~~~
asdfologist
That entire thread is filled with snark/speculation and lacks any actual
facts.

Is it that inconceivable that Google believes that one or more of these
moonshots might actually take off?

~~~
hueving
Well I'm sure the people working on it think one might take off. But if you're
taking the pessimistic view it doesn't matter if they never succeed as long as
the smart people are kept busy working for them.

~~~
Jach
It's a clever argument that might convince certain purse-holders, who are
optimistic or pessimistic about the success, that it's in the company's best
interest either way. I don't think Google's under full control of the
sociopaths yet that this sort of "locked up" argument is needed, or is felt
internally by very many upper level managers. It's also just not a great
strategy if you're worried about potential future competitors given that
employees are free citizens, not slaves, and California has no non-compete
laws. Industry (let alone tech industry, let alone Californian tech industry)
is littered with successful offshoots started by individuals and teams who
used to work together at one company, and quit or were fired en masse to start
working on something else in the same domain, taking their experience with
them and owing their former company nothing. Facebook's strategy of "buy any
threat" is a lot more sound, even if it too is vulnerable when the threat
refuses to be bought.

------
mfav
Subtly dishonest journalism in my opinion.

This article could just as easily be titled "Alphabet invests $859M on long-
term projects".

In fact, that would be a more accurate title since that is precisely Google's
intent.

~~~
anjc
There's nothing dishonest about it. It's a loss because these are explicit
investments which haven't produced any earnings. When they produce any sort of
revenue then their financial statements (and media reports of the financial
statements) will say "Other bets showed an operating profit of $Xm". It's just
a media report on a fact.

~~~
mfav
There's some intentional provocation going on with the title. Sure, it's
_factually correct_ , but choice of words really pulls the truth one way or
another.

------
tyre
> The cost for the Mercury, Gemini and Apollo programs was more than $25
> billion at the time more like $110 billion in today's world.[1]

Moonshots are expensive. Doesn't mean they aren't worth it.

[1]: [http://news.utexas.edu/2014/07/21/anniversary-shows-us-
that-...](http://news.utexas.edu/2014/07/21/anniversary-shows-us-that-nasa-
and-space-exploration-are-worth-their-costs)

~~~
afsina
Author of that article is like an apologist for excessive government spending.
To me, if government did not spend that amount of money on space exploration,
probably private sector would have achieved even better things faster with
lower cost.

Besides, about the author : "..Wallace Fowler is the director of the Texas
Space Grant Consortium.".

------
lpolovets
This is simply how moonshots work. You lose $50m 99 times in a row, then make
$50b on the 100th time. (This is also very similar to how venture capital
economics work.)

I think it's wonderful that Google pursues moonshots and that they have the
cash flow to keep Wall Street investors from freaking out. I'm confident that
one (or more) of their experiments will eventually make a huge impact on
people around the world.

------
323454
"NASA loses $25.4B on 'Moonshots'" \- New York Times headline from July 29
1973

------
zamalek
> The money that Google spent on areas that have little to do with internet
> search and advertising used to frustrate investors who wanted to see bigger
> profits.

"Dear Hen, the process of laying eggs is too expensive and should be
eliminated. Furthermore, we're expecting a 5% increase in golden eggs by the
end of the year."

------
chaostheory
Wall Street is short sighted and regularly see things by the quarter. Its long
term outlook tends to be a year give or take. Alphabet needs more forward
thinking investors who can see a payout that may not happen for a decade or
more. While it has cool projects, the problem with X is that it doesn't seem
to have a clear mission / message like SpaceX and Tesla where you are
investing for more than just a profit. I could be wrong but they have a
marketing / PR problem (in addition their other pre-exisiting ones).

~~~
hueving
Stock is up 4% after hours. I'm not sure which "wall street" strawman you are
attacking, but it doesn't appear to be the one that actually trades stock.

~~~
chaostheory
ok, my criticism is directed towards Wall St analysts. I could be wrong but it
feels like the vast majority of them see X as a money pit that's hampering
Alphabet as whole. I've been hearing this for about a year now. If ad revenue
wasn't up, the chorus would be louder.

~~~
_jtai
I also don't know if that's entirely true either. After the earnings came out,
it looks like quite a few Wall St analysts changed their recommendation to
outperform, with a target price of 900+, and in general, it seems like many
analysts all have pretty high target prices assigned to Alphabet.

~~~
chaostheory
Just because they like Alphabet as a whole doesn't mean that they like X. Am I
wrong?

------
redthrowaway
Google seems to be actively attempting to avoid the trap that Apple,
Microsoft, Facebook, etc have fallen into. When you completely dominate a
market, it can be tempting to optimize and be the best at serving that market.
But the nature of tech is such that markets have a short lifespan. New
innovations are constantly overturning old monopolies--just ask Microsoft. By
investing heavily in high-risk, high-reward prospects, Google is insulating
itself against future disruption.

If the display ad market collapsed 5 years from now, Google's investment in
AI, self-driving cars, AR, robotics, etc. might be the difference between
continued dominance and irrelevance. Tech companies rest on their laurels at
their own peril.

------
ChuckMcM
Interesting take on it, I would probably write the headline "Alphabet spends
nearly $1B trying to find new businesses". Using the New York times logic
nearly $15.3B was lost last quarter by startups[1] :-) But setting aside that
Google's spending as much as 6% of the existing startup ecosystem, they are
still not spending a material amount of their free cash flow of nearly $7B
last quarter.

And I wonder Why not?

[1] [http://nvca.org/pressreleases/15-3-billion-venture-
capital-d...](http://nvca.org/pressreleases/15-3-billion-venture-capital-
deployed-startup-ecosystem-second-quarter-according-moneytree-report/)

------
zaidf
"Moonshot" is the Google term for R&D.

Google's R&D budget in 2014 wasn't even in the top 5:
[http://www.neowin.net/images/uploaded/2014/12/screen_shot_20...](http://www.neowin.net/images/uploaded/2014/12/screen_shot_2014-12-03_at_9.28.59_pm_story.jpg)

Problem for Google might be that Wall Street may look at a word like
"moonshot" and basically associate it with wasting money whereas if you call
the same things R&D, it's something companies have been showing as an
"investment"(not loss) for decades.

~~~
kmonsen
I don't think this is true for Google. The "Moonshots" mentioned here are
pretty far from Google. It is in some sense R&D of course, but it is not R&D
that will benefit Google as a company.

~~~
zaidf
How do you reach the conclusion that it is not R&D that will benefit Alphabet?
They make it pretty clear it is a high risk high reward R&D, meaning if they
hit pay dirt, it can be massively profitable for Alphabet.

~~~
tyre
Notice that GP said Google while you said Alphabet.

If they pay off, it benefits Alphabet. Maybe Google (the search engine
monetized through advertising) but possibly not.

~~~
zaidf
I assumed GP meant Alphabet since public entity is Alphabet, not Google.

------
unfortunateface
I am encouraged by this advertising companies attempts at designing cars.

The moonshot program seems to me to be either Google cementing it's position
forever in the knowledge economy or a desperate scrabble for another hit.

If the latter is true, then I have hope for the future. It means that the
giants - Google (+ Youtube), Amazon, Facebook - can fall. They are not on as
strong a footing as it seems.

All it takes is...

\- One generation of kids to decide to eschew Facebook (or any product it
buys)

\- Ad revenue declining or another viable internet business model to rise up
and replace it

\- More efficient / free marketplaces

~~~
duckmysick
How is Amazon being mentioned in the same line as Google and Facebook? They
don't rely as much on the ad revenue as the other two.

~~~
unfortunateface
Each line of those bulletpoints was for a different company facebook, google
then amazon

------
eric-hu
This article highlights the myopia of public investment. Other comments have
mentioned the self driving car. That's a work still in progress, and likely
has been a net loss quarter over quarter.

Highlighting the research arm's quarterly losses is like setting an FM radio
to 10 Mhz* and then declaring there's nothing on air.

* FM Radio bands start around 80 Mhz in the modern world.

------
hackaflocka
All of humanity is going to benefit from these moonshots.

Sometimes, the original intent of a research program doesn't come to fruition,
but there are a lot of downstream benefits and innovations that can be traced
to the so-called "failed" research program. I believe that's exactly what's
going to happen with some of these so-called "failures."

Even today, what Elon Musk has already done, is considered impossible for his
companies to have done. (The car, and the backwards landing rocket.)

Here's to more moonshots from Google and Facebook! Salute!

\-------------------

And here's Nassim Taleb on "inverse Turkeys" (i.e., positive Black Swans),
from AntiFragile:

> Harvard Business School professor, Gary Pisano, writing about the potential
> of biotech, made the elementary inverse-turkey mistake, not realizing that
> in a business with limited losses and unlimited potential (the exact
> opposite of banking), what you don’t see can be both significant and hidden
> from the past. He writes: “Despite the commercial success of several
> companies and the stunning growth in revenues for the industry as a whole,
> most biotechnology firms earn no profit.” This may be correct, but the
> inference from it is wrong, possibly backward, on two counts, and it helps
> to repeat the logic owing to the gravity of the consequences. First, “most
> companies” in Extremistan make no profit—the rare event dominates, and a
> small number of companies generate all the shekels. And whatever point he
> may have, in the presence of the kind of asymmetry and optionality we see in
> Figure 7, it is inconclusive, so it is better to write about another
> subject, something less harmful that may interest Harvard students, like how
> to make a convincing PowerPoint presentation or the difference in managerial
> cultures between the Japanese and the French. Again, he may be right about
> the pitiful potential of biotech investments, but not on the basis of the
> data he showed.

~~~
wavefunction
The thing is, the car and reusable rocket stages exist and are far more
difficult to pull off than creating and running an ad-network.

I am not saying ad-networks aren't complicated and involved and require highly
intelligent people, but I don't believe them to be comparable to what Musk is
delivering.

------
graycat
For the project for real, actual moonshots, we knew in quite good terms right
at the beginning that the project was doable. Same for the Manhattan project.
Same for GPS. Same for the SR-71.

So, right, there is a methodology. Get very far from that methodology and tend
to get failed projects.

Sure, on some par 3 hole, there are a lot of hole in one shots, and only a
small fraction are made by expert golfers with the rest from luck. Still, if
picking someone to make a hole in one, pick an expert!

Sure, with luck, might get another successful mobile, social, local, sharing
app, but luck is not very reliable!

------
kmiroslav
It's R&D expense. Nothing new here.

It only takes one of these moon shots to be successful to bring in
extraordinary revenues, and Google has always been crystal clear that
following such path was in their DNA.

~~~
RikNieu
I don't see it that way exactly. R&D is an investment. Hell, I'd consider
calling it a pure capital investment, if not simply enhancing goodwill. If
even one of those moonshots become successful those "sunk costs" will likely
start streaming back.

------
rainhacker
I fear if such a view is prevalent, eventually focus might shift from 'solving
problems that matter on scale' to 'how much money can I make out of this'.
Hope research and innovation do not succumb to desire/pressure to grow
revenue. I don't believe such projects cannot have any (indirect) monetary
accountability. However, Investors should have a softer take on the outcome of
these projects.

------
havetocharge
Can't help but notice the bias in the title on HN. Sure, the company spent .8
billion on R&D. The revenue went up by 3.5 billion this quarter too, yoy.

------
sriram_sun
That is almost 20% investment on R&D - twice as good as other _good_
companies. That is why I would love to work for Google!

------
sudhirj
A lot of times I feel like the instinctive reaction to the word losses is an
image of Google stacking up a millions of dollars and burning it. That's not
what happened - it went to people who used it to build things that would not
have been built otherwise, in the hope that some of them might shape the
future. Not really a loss to humanity.

------
mythz
That's an interesting headline from the same company that posted a 21%/28% YoY
21.5B Revenue / 6B profit quarter.

------
corpus
The people complaining about this better not be the same Thiel worshippers who
constitute most of the Google hate here.

Thiel criticizes Google/Alphabet for hoarding any cash _at all_. A true
technology company re-invests all its excess profit.

This "loss" corresponds to less than 7% of Google's gross profits in the same
quarter.

~~~
dredmorbius
I can criticise the headline (if that's what you're referring to) while hating
on many things that Google do (advertising, crapification of the Web, TPP
support, absolutely atrocious user support, a pathetic Android environemnt,
from OS to apps to hardware/vendor dynamics.

But idiotic jabs on the fact that long-run investments in R&D haven't paid off
immediately are pathetically stupid.

Do I contradict myself? Very well. No I don't!

------
nickhalfasleep
I had to look up [1] the etymology of "moonshot" and thought it was
interesting.

moon shot, n.2 One might think, “1961, moon shot;” this word relates to the
space program as this is the year that President Kennedy set out the great
challenge to go to moon by the decade’s end, but it doesn’t, at least not
directly. The space term dates to 1949. This moon shot is baseball jargon for
a ball hit to a great height. But it’s still 1961, so the baseball usage could
be a figurative use of the space term, but the type of hit was made famous by
L. A. Dodger Wally Moon. Undoubtedly the coinage is something of a double
entendre, combining Moon’s name with the astronautic term, but it shows that
in etymology the obvious answer isn’t always the right one.

[1]
[http://www.wordorigins.org/index.php/site/comments/1961_word...](http://www.wordorigins.org/index.php/site/comments/1961_words/)

------
ElijahLynn
This is why nobody plays the long game, because of crap like this spread
around. Articles like this force people to play the 'quarterly' short game and
we don't get as much long term research as we need as a species.

------
philippeback
Google operating costs are more than $5 billion a quarter. $859M is not that
big.

------
havefunwiththat
For that kind of money, you could build a new moon. I don't see anything
positive about this kind of loss. If anything, it sounds like questionable
accounting to reduce the cost of other profits.

~~~
qqg3
It's not a loss though, they just invested some profits in R+D...

------
soperj
I wish they'd do something a long the lines of using all of their traffic data
to design better lighting systems for cities. Gotta be able to do better than
what is currently happening.

------
Animats
We need more detail in financial statements. "Operating loss of $859 million
in Other Bets" is not enough disclosure for a public company.

It's not research that spends that kind of money. It's attempts to buy market
share by selling at a loss that do. Or existing businesses with a high burn
rate that aren't profitable. That number includes Nest and Google Fiber, both
of which are in production but perhaps not doing too well. Does it include
Android? Google's various attempts to build and sell phones? Motorola?

~~~
jeffwilcox
Or it's just the cost of 3,000 engineers doing R&D work in this day and age...

------
Taylor_OD
Good. Isnt that the idea? That's what Moonshots are. Plus its hard to see
returns on a moonshot in a year. This is a long term investment.

------
TheOneTrueKyle
Is there a way to incentivize smaller companies to take these risks (relative
to the scale of the company and assuming you have the manpower)?

------
jlebrech
would it be legal to announce R&D as losses then buy back your own shares at a
reduced cost?

------
joeyspn
Quoting Edison here:

"I have not failed. I've just found 10,000 ways that won't work."

------
mite-mitreski
Better to have `Moonshots losses` than some CEO/Board rip off stock buyback
scheme.

------
shaunrussell
Alphabet INVESTS $859M on 'Moonshots' in 2Q 2016

------
engizeer
That's pretty much Amazon's profits in 2Q 2016.

------
perseusprime11
How much did Microsoft spend on their R&D?

------
dschiptsov
Has Peter Norvig retired?

------
jakozaur
s/loses/invests

------
known
AFAIK thinking out-of-the-box is prohibited in Corporations :)

------
pmyjavec
People are still starving in the USA on a daily basis, it's a mad world

------
honkhonkpants
Why should any organization have net profits at all? "Loses" here is being
used to mean "spent". You can't just keep stacking up cash forever. That would
be pointless and stupid.

~~~
sliverstorm
Net profits are how you pay shareholders dividends, which are often demanded,
and the futurr promise of which are the root basis of how the company can
attract money through IPO

~~~
honkhonkpants
That's a sort of quaint belief about the market but it's degenerated into
straight up gambling. Let me put the question a different way: why should any
company have positive retained earnings?

~~~
Axsuul
Because they're holding it offshore.

