As long as Alphabet’s core advertising products keep making money, its moonshots are under no pressure to become viable businesses.
The pie-in-the-sky "moonshots" of Google parent company Alphabet like self-driving cars and hot air balloons that beam internet access down to earth? They're total money losers, and that's OK.
On Monday afternoon Google parent company Alphabet reported its financial results for the fourth quarter of 2015, breaking out for the first time what it calls "Other Bets," its name for speculative projects like Google Fiber, Nest, health research company Calico, and X, the R&D division that's home to the company's self-driving car efforts. Overall it was a great quarter for the company, with total revenue topping $21 billion for the quarter, some 18 percent higher than the same time last year. The company briefly surpassed Apple in terms of market value during the day on Monday.
Alphabet, however, lost nearly $3.6 billion in 2015 on those Other Bet moonshots. That's worse than 2014's $1.9 billion loss on those same programs.
Of course, Alphabet has been crystal clear in recent years that it's in no hurry to figure out how to turn these projects into viable, money-makers anytime soon. (Nor does it need to: With advertising revenue coming in at $19 billion for the quarter, the company has plenty of time to figure out how to, say, turn self-driving cars into a viable business.) One analyst from financial advisors Raymond James went so far as to say in a research note that the amount of money that Alphabet's Other Bets make is "immaterial" given how "early stage" they are.
James' note belies just how enviable a position Alphabet currently is in. While its core businesses like Search, Android, and YouTube continue to print money hand over fist, Alphabet can continue to experiment on project with no obvious, short-term financial return like Calico, where it's focused on "increasing our understanding our understanding of the biology that controls lifespan." How many other publicly traded companies' investors would be cool with studying aging without any guarantees that doing so would immediately rain money down from the sky?
Alphabet CEO Larry Page put it best in 2013, when he told Wired that "most companies decay slowly over time" because they're entirely focused on creating minor updates to already existing products. Rather than condemn his employees to come out with slightly better widgets every year, Page instead wants them to focus on building "breakthrough, non-incremental things" that will benefit the company long before next quarter's earnings call.