16 BriefingAlphabet The EconomistAugust 1st 2020
21four years later. Since then Mr Pichai has
managed Google in much the same way
that previously he ran Chrome, Google’s
web browser, and other projects. Rather
than getting bogged down in details, he put
trusted people in charge, giving them re-
sources and nudging them along.
The result is a collection of semi-inde-
pendent firms with powerful bosses sitting
atop each of them: Thomas Kurian at Goo-
gle Cloud, Susan Wojcicki at YouTube, Rick
Osterloh at Google’s hardware division and
Hiroshi Lockheimer at the Android opera-
tion. In early June Mr Pichai put Prabhakar
Raghavan, who already headed Google’s ad
business, in charge of search as well, mak-
ing him Google’s de facto deputy ceo.
(Mustafa Suleyman, vice-president of ai
policy at Google, sits on the board of The
Economist’s parent company.) A company
of Alphabet’s breadth would fail if it de-
pended solely on one man’s judgment, Mr
Pichai explains. “People have to be able to
make their own decisions.”
These decisions are becoming harder.
Googlers have always prided themselves
on solving the toughest problems in com-
puter science—less so on making money.
This may be one reason why some of the
company’s hit services generate smaller
revenues than they might, like YouTube, or
barely any at all, like Maps. Monetisation
from the “other bets” has scarcely begun.
They racked up more than $5bn in losses in
the four quarters to March. Only Access and
Verily bring in material revenues. Some
could one day turn into huge businesses:
Waymo was valued at about $30bn when it
raised outside capital this spring. But even
that impressive figure is much less than
earlier estimates, which valued the auton-
omous-driving unit at more than $100bn.
None of this used to matter much, as
long as Google’s ad products were “a gold-
threaded safety net underneath every dar-
ing innovation”, as Steven Levy, one of Sil-
icon Valley’s scribes, put it in 2011. It be-
comes a problem when it translates into
lower margins and weaker stockmarket
performance than rival tech giants (seechart 3 and chart 4 on the next page).
Online advertising overall is far from a
mature market, but growth in search ads,
which continue to generate about 60% of
Alphabet’s revenues, has slowed. In 2019
sales expanded by 15%, a healthy clip but
considerably lower than the 22% a year ear-
lier. General online search is also being
“hollowed out” by specialised searches,
says Mark Shmulik of Bernstein, a research
firm. Mr Shmulik estimates that about 60%
of product searches now start on Amazon
(whose fast-growing online-ad business is
already the world’s third-biggest behind
Google and Facebook).Spaced out
Alphabet’s engineer-driven bottom-up cul-
ture is also showing signs of age. It can be
hit and miss. “You can paper over a lot of
problems by throwing money at it and hir-
ing more bodies,” says a long-time Googler,
who previously worked for Microsoft,
which was regularly scooped by Google
when it came to new products. “I thought
they must have really clever strategists,” he
recalls, only to discover on joining the firm
that it “had hundreds of things happening
in parallel”. Alphabet executives often lik-
en their firm’s structure to a “slime
mould”—organisms that survive as single
cells, but must aggregate to reproduce.
Innovation can indeed mushroom in
such a corporate ecosystem. But it may hin-
der the development of more structured
products, which require more sustained
co-operation and a strategic vision. This is
particularly true of lucrative enterprise of-
ferings, where corporate clients expect
providers to be both consistent and re-
sponsive to their needs. Google has a repu-
tation for being neither.
Over the years Google has churned out
new messaging tools, from Allo and Buzz to
Hangouts and Meet, only recently starting
to develop a unified communications of-fering for corporations, similar to Slack or
Microsoft Teams. Google’s cloud business
has often been criticised for “not having a
customer-service bone in its body”, says
Brent Thill of Jefferies, a bank. As a result it
lags behind Amazon Web Services and Mi-
crosoft’s Azure, where customer service
verges on an obsession.
It is also becoming increasingly appar-
ent that Alphabet’s organisational setup
does not scale well. Even with a workforce
of a few tens of thousands Google felt
small, notes an employee who left a few
years ago and later returned. With the
firms’ 120,000 permanent workers com-
plemented by an even more numerous
(and less-well-paid) temporary or contract
staff, the founders’ original idiosyncratic
rules are becoming a drag. Executives
grumble that internal promotion by com-
mittee is often a time-consuming political
exercise. Letting a thousand flowers bloom
is leading to an awful lot of compost.
Size creates political tensions, too. After
2016 the firm’s mostly woke workforce be-
gan using internal messaging tools to or-
ganise and press management to take ac-
tion on everything from President Donald
Trump’s harsh immigration policy to boy-
cotting meat in its cafeterias. As Alphabet
has hired engineers at breakneck speed, it
is no longer “a country where everybody
politically agrees” with the once-dominant
liberal bent, says an insider.
Tensions came to a head in 2017 when
James Damore, a Google software engineer,
published a memo on an internal mailing
list arguing that the lack of gender diversity
in tech could partly be explained by biolog-
ical differences. After it was leaked to the
press he was fired, but many insiders felt
that management, including Mr Pichai,
had let the debate fester and did not do
enough to help the activist employees who
had been “doxxed” (having their personal
details published online) by other staffers.
Things went downhill from there. Once
unthinkable leaks multiplied. So did inter-
nal petitions. In 2018 activist employees
forced Google not to renew an aicontract
with the Pentagon and to abandon plans
for a censored Chinese version of its search
engine. Tensions culminated later that
year when it emerged that high-perform-
ing executives accused of sexual harass-
ment had been sent off with multi-million
exit packages. More than 20,000 employ-
ees globally staged a walkout in protest.
“The walkout broke Larry’s heart,” says
one Googler. It suggested that the goal of
creating an engineers’ commune had
failed. After that the two founders put more
distance between themselves and their
creation. They stopped attending the tgif
meetings. In many ways Mr Pichai’s ascent
to the top job last year was a formality.
Although Mr Brin, Mr Page and Mr
Schmidt remain Alphabet’s biggest indi-The slough of idealism
Operating-profit margin, %Source:Bloomberg Yearsbeginning*October†July ‡April36040200
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