COVID-19 forces Alphabet to pull plug on Page’s pet project

Alphabet has decided to terminate a smart city project in Toronto’s waterfront, a 2.5-year old project undertaken by its subsidiary Sidewalk Labs and a favourite of Google’s co-founder Larry Page.

Daniel L. Doctoroff, CEO of Sidewalk Labs, announced the decision to abandon the Quayside project in an article on Medium, blaming primarily on economic difficulties caused by the on-going Covid-19 pandemic. “As unprecedented economic uncertainty has set in around the world and in the Toronto real estate market, it has become too difficult to make the 12-acre project financially viable without sacrificing core parts of the plan we had developed together with Waterfront Toronto to build a truly inclusive, sustainable community”, Doctoroff said.

The company has “invested time, people, and resources in Toronto, including opening a 30-person office on the waterfront”, according to Doctoroff, though so far it has not built anything yet. It does not even receive the final development approval by the time of its demise, despite that it has been endorsed by governments at the city, provincial, and national level, including being championed by Justin Trudeau, the Prime Minister. The Wall Street Journal cited people familiar with the Toronto situation saying that “Alphabet had poured hundreds of millions of dollars into Sidewalk, with most of that earmarked for the Toronto project, and yet had little to show for it.”

Launched by Larry Page, Sidewalk Labs, a graduate of Alphabet’s Moonshot incubation organisation and now a subsidiary of its Other Bets unit, is one of those wild and weird ideas that cost Alphabet over $26 billion last year but with little returns. In the good old days, the company could afford such luxury, but as the cost of a downward global economy biting in all directions, even Alphabet had to calculate the return on its investment. Since last month the company has practically imposed a hiring freeze on non-essential functions.

Cost aside, there has long been data security and privacy concerns from the community. Sidewalk Labs promised to revolutionise city life with “ubiquitous connectivity, social networks, sensing, machine learning and artificial intelligence, and new design and fabrication technologies”, but these are precisely what concern the very people the Quayside project was meant to appeal to.

Google’s reputation has proceeded Alphabet’s participation in the project, leading Adrian Aoun, Sidewalk’s founder to comment “sometimes it’s easier not to be Google when going after bold ideas.” Prominent opponents to the project include Jim Balsillie, the former CEO of BlackBerry and an Ontario resident. “This is a major victory for the responsible citizens who fought to protect Canada’s democracy, civil and digital rights,” Balsillie said on hearing Alphabet’s decision. “Sidewalk Toronto will go down in history as one of the more disturbing planned experiments in surveillance capitalism.”

In a way this could be seen as a missed opportunity to showcase what smart cities have to offer, which would be encouraging to the flagging flare of IoT. Alphabet would have had the muscle to pull together the end-to-end smart city solutions so many similar trials have failed.

Diversification helps Google ride the waves of coronavirus turbulence

Alphabet-owned Google certainly felt the pinch of COVID-19 over the last few weeks of the quarter, but CEO Sundar Pichai identified diversification as key to managing the crisis.

While few would complain when looking at the Google spreadsheets over the last three-months, it might not be living up to the milestones it has set itself in previous years. 13% year-on-year growth could be considered miserly in Google’s standards, but the coronavirus pandemic is a crisis few have experience with.

That said, investors are clearly pleased with the was Pichai and the team are managing the difficulties as share price shot up 8% during pre-market trading.

Google Q1 Financial Results (USD ($), millions)
Metric 2020 Year-on-year
Total revenues 41,159 +13%
Operating income 7,977 +20%
Net income 6,836 +3%

These are all attractive numbers, though coronavirus has inflicted a dent into the business. Pichai highlighted online advertising demand, the core revenue machine of the Alphabet group, was severely weakened from March onwards, as the full-impact of COVID-19 forced society and the economy to close doors.

Performance of individual business units (USD ($), millions)
Business Unit 2020 Year-on-year
Google Search 24,502 +8%
YouTube 4,038 +33%
Network Members’ properties 5,223 +4%
Google Cloud 2,777 +52%
Other Bets 135 -21%
Google other 4,435 +22%

In today’s world, where there is still plenty of unrealised profits in the digital economy, making money does not seem to be good enough. Investors demand high-growth year-on-year, partly due to what is available and partly because they have become used to it. This is the challenge which the likes of Google, Amazon and Facebook are facing; matching the success of yesteryear.

But in this period of uncertainty, it does appear to be a case of damage limitation. Like the financial crisis of 2008, everyone will be impacted but Google has somewhat of an advantage.

“…our business is more diversified than it was in 2008,” Pichai said during the earnings call. “For example, Cloud. In the public sector, we are helping governments delivered critical health and social services. We are supporting the state of New York, new online unemployment application system as it deals with a significant increase in demand.

“In retail, we have held Loblaw, one of Canada’s largest food retailers, and Wayfair, scale to support exponential traffic increases. We are helping communication companies adapt to new behaviour patterns. Vodafone is using Google Cloud platform to help that analyse network traffic flows to keep everyone connected, and we are helping Unity Technologies keep real time online games stay up and running.”

Google Cloud is the business unit which is perhaps profiting the most from the current crisis as more companies are forced through a digital transformation programme to embrace cloud solutions and enable workforce mobility. Some might complain about Google sinking billions into the Moonshot Labs every year, but this is the very reason why.

The more diversified revenues are, the more resilient a business is when faced with turmoil, irrelevant as to whether it is precedented or unprecedented. Google now has online advertising, cloud and video as three major sources, with plenty more bubbling away.

Over the three-month period, Alphabet CFO Ruth Porter said revenues for the Other Bets unit were $135 million, while operating loss was $1.1 billion. This might seem like a remarkable number, but these losses could eventually turn into the next Moonshot Graduate to make billions for the Group. Let’s not forget, the cloud business unit, YouTube, Maps and Android were all cultivated in these labs.

Currently in the experimental unit is Google’s self-driving car project Waymo, a delivery service using specialized drones known as Wing, life science tech unit Verily, smart city initiative Sidewalk Labs and Makani, an attempt to create renewable energy from propellers on airborne kites. Outside of these homegrown experiments, Google purchased Fitbit for $2.1 billion last year, taking it into the world of wearables.

Each quarter, the core advertising business unit brings in billions in profit, but dependence on these revenues are lessened. As the alternative revenue streams gather momentum, Google becomes more diversified and much more capable of managing global crisis’ which could cripple rival firms.

Google reveals it isn’t immune to coronavirus

In an internal memo to staff, Google CEO Sundar Pichai has said the firm will slow down hiring for the rest of 2020 but will honour any offers made to new employees.

Obtained by Bloomberg, the memo states Google will slow down its recruitment mission, focusing more on strategic units and onboarding new employees who have already been offered a contract.

“We’ll be slowing down the pace of hiring, while maintaining momentum in a small number of strategic areas and onboarding the many people who’ve been hired but haven’t started yet,” a Google spokesperson said.

Year Total headcount Year-on-year change
2019-end 118,899 +20.3%
2018-end 98,771 +23.3%
2017-end 80,110 +11.1%
2016-end 72,053 +16.5%
2015-end 61,814 +15.3%

Numbers taken from Alphabet Quarterly Results

Google has been scaling its business in recent years, thanks to more companies venturing into the digital economy but also expanding its horizons beyond digital advertising. The core business still accounts for the majority of revenues, but Google is much more than just a search engine nowadays.

The Cloud business unit is the most obvious place to look for a surge in employees. Revenues in this business unit grew from $4.056 billion across 2017 to $5.838 billion in 2018 and $8.918 billion in 2019. This is a rapidly growing sector with huge potential for growth and will encourage Google to continue hiring. Elsewhere, ideas like Loon, Verily and Sidewalk Labs are growing after graduation from the Moonshot labs.

Looking at its Moonshot labs, where the weird and wonderful ideas are concocted, expenses increased 16.1% ($4.599 billion) year-on-year to $26.018 billion. The majority of this jump has been attributed to a 23% increase in headcount. This is where Google is most likely to be slowing down its recruitment to ensure core operations, and revenue which can be secured today, is prioritised.

In the memo, Pichai states:

We believe now is the time to significantly slow down the pace of hiring, while maintaining momentum in a small number of strategic areas where users and businesses rely on Google for ongoing support, and where our growth is critical to their success. By dialling back our plans in other areas, we can ensure Google emerges from this year at a more appropriate size and scale than we would otherwise. That means we need to carefully prioritize hiring employees who will address our greatest user and business needs

Google is not alone in making adjustments to its recruitment policies during the coronavirus outbreak, Microsoft is reportedly doing the same. However, it does demonstrate Silicon Valley is not immune to the impacts of the pandemic.

Loon bolsters connectivity credentials with advisory board signings

Alphabet’s latest X graduate Loon has added industry heavyweights to its advisory board as the business searches for commercial credibility in the world of connectivity.

As the ludicrous dream starts to become a reality, Loon has added three industry veterans to its ranks. Former McCaw Communications CEO Craig McCaw, Evernote CEO Ian Small and Verizon EVP Global Media & New Business Marni Walden will all be added to the roster, bringing with them years of experience and, perhaps more importantly, connections in the telco space.

“As Loon transitions to a commercial business and looks to partner with MNOs worldwide, we’re adding some serious expertise to our ranks with a new Advisory Board that brings together top wireless innovators with decades of experience in the industry,” Loon CEO Alastair Westgarth wrote in a blog post.

For those who have missed out on this blue-sky thinking idea, Loon is Alphabet’s latest attempt to branch into the connectivity segment. Previous efforts might have been a flop, just have a look at the success brought through Google Fiber, but this is something slightly different; its attempting to create a new segment rather than steal business from established players.

By floating these massive balloons 18-23km above the earth for periods of up to 100 days, the Loon team claims each balloon can create a connectivity cone with coverage to a ground area 80km in diameter. The balloons are fitted with a broad-coverage LTE base station and a high-speed directional link used to connect between balloons and back down to the internet infrastructure on the ground.

In an industry which has constantly struggled to bridge the digital divide due to the expense of deploying infrastructure, this is a genuinely innovative approach to providing connectivity. It helps lessen the financial pressures of delivering the internet, adding to the connectivity mix.

Back in November at AfricaCom, Westgarth gave some insight into the business on the main conference stage. At the time he announced the beginning of a commercial relationship with Telkom Kenya, as well as outlining the wider ambitions of the business. This is an idea which has big commercial potential, most of which will be in the developing markets. These are after all areas where ARPU is low and deployment is staggered. It would appear to be the perfect mix for Loon’s proposal to bring the internet to the masses.

These appointments however perhaps suggest Loon is not a firm satisfied with the developing markets alone. These are three US executives who have considerable experience in the domestic market. Of course, there will be connections in the international space with telcos in the developing nations, but perhaps Loon has spotted an opportunity in the US. These executives would certainly help pave the way for conversations across the homeland.

Of course, this is just a theory and the PR team have been, just as you would expect, pretty evasive when asked the question. However, the digital divide is certainly a challenge in the US. For those who are lucky enough to live in the cities, they’ll have no concept of connectivity challenges, but the vast expanses and challenging terrain of the US open up numerous, huge not-spots, despite what the telcos actually tell you.

Loon has been touted as an innovation for the developing markets but seeing as the US telcos are clueless as how to solve the domestic digital divide, why not. These executives will certainly know the right people in the right places.

Alphabet’s blue sky thinkers pen first Loon deal in Kenya

The Loon team have signed its first commercial deal with Telkom Kenya to deploy a pilot 4G network in suburban and rural areas of the country.

Having dropped the ‘Project’ part of the name, the Loon team now operates as an independent company within the Alphabet business, and does not look that ridiculous any more. Why didn’t anyone else figure out balloons would be an efficient means to deliver connectivity to some of the world’s more difficult not spots.

“As Loon, our mission is to connect people everywhere by inventing and integrating audacious technologies,” said Alastair Westgarth, CEO of Loon. “We couldn’t be more excited to start our journey in Kenya, and we look forward to working with mobile network partners worldwide to deliver on the promise of Loon.”

The deal with Telkom Kenya will kick off in 2019, and is being touted by the team as an alternative to the expensive job of building ground-based infrastructure. The balloons will be 60,000 feet in the air, on the edge of space, focusing on the central regions of Kenya which have been previously difficult to service, due to mountainous and inaccessible terrain. The exact coverage areas will be determined in the coming months, and subject to the requisite regulatory approvals.

“Telkom is focused on bringing innovative products and solutions to the Kenyan market,” said Telkom Kenya CEO Aldo Mareuse. “With this association with Loon, we will be partnering with a pioneer in the use of high altitude balloons to provide LTE coverage across larger areas in Kenya. We will work very hard with Loon, to deliver the first commercial mobile service, as quickly as possible, using Loon’s balloon-powered Internet in Africa.”

Alphabet is a company which certainly does specialise in absurd ideas, though this is one of the few moon-shots which looks to have genuine potential in the near future. Although it has been used to help provide connectivity in regions struck by natural disasters, this is one of the first signs of the long-term and sustainable presence of Loon. For telcos who are considering satellite as a means to tackle the rural not spots, Loon could certainly provide a more cost and time effective means to meet demand.

Back in October, Alphabet was given permission to use 30 experimental balloons to provide connectivity to Puerto Rico and the US Virgin Islands, which have been ravaged by Hurricanes Irma and Maria, leaving around 90% of the territories without coverage. While temporary coverage following natural disasters will be a continued use case for Loon, executives will certainly be comforted they don’t have to sit around and wait for a natural disaster to hit.

Alphabet is one of the internet giants which has been consistently searching for ways to diversify the business model, though this is not the first time connectivity was a major play. US telcos might have been relieved to see the end of the Google Fibre experiment, though this venture looks to be far more sustainable for Alphabet. Should the Telkom Kenya project be successful, Loon will start to attract interest around the world.

Another CEO climbs aboard the Google Fiber merry-go-round

Alphabet has named Dinesh Jain as the latest CEO of the Access business unit, the third boss in a little over a year.

Alphabet’s Access business unit, which features Google Fiber and the acquired Webpass, was certainly one which caught the attention of the US telcos are a potential threat at the beginning but this has amounted to very little so far. Perhaps three CEOs in a period of 16 months is a perfect example of this bundling business unit.

“We’re excited to announce that Access has a new leader to move the Google Fiber and Webpass businesses forward,” a statement on the Google Fiber blog reads. “Dinesh (Dinni) Jain, an accomplished veteran of the U.S. and European cable and telecommunications industries – most recently as Chief Operating Officer at Time Warner Cable – starts as CEO of Access today.”

Taking over from Gregory McCray, who left the business in July 2017, who took over from Craig Barratt after he left in October 2016, Jain has the complicated task of figuring out the future of Access. The division has a minor but notable presence throughout the US, Google Fiber is in twelve metropolitan areas while Webpass has eight, but so far it has looked nothing more than an expensive play thing.

Perhaps the only saving grace for Jain is the openness to experiment in new areas. Losing a couple of hundred million here and there doesn’t seem to be a problem for the Alphabet execs just as long as every avenue is explored. The Googlers have shown on numerous occasions they are willing to fund an unprofitable idea if there is light at the end of the tunnel, Google Maps is an excellent example, but this one might such up a lot of cash until that glimmer is found.

Alphabet started out with some very big ideas for the connectivity world but found out that competing with the big boys was going to be a difficult task. Playing in the physical world of connectivity is an expensive and time consuming game, and it is very different from Alphabet’s core competencies. We get the impression this was under-appreciated at first, but with this appointment perhaps Alphabet is showing it is ready to dig its heels in and persist until there are no other options left.

It is unclear for the moment as to whether the team will continue down the fixed wireless path or fibre ambitions will be remembered, but there will be a few in the US who will welcome this news. A notable proportion of US citizens only have access to one connectivity provider in the US so any additional competition would be welcomed.

We’ve also mentioned before that a company with the brand reputation of Google could shake things up considerably in the US. US citizens like Google more than the likes of AT&T or Verizon, should Access be able to sort itself out, it might be able to cause some damage. Perhaps this is what is fuelling the desires of the Alphabet executives.

Google’s Eric Schmidt is stepping down as Executive Chairman

One of the most recognizable names in the technology industry will be taking more a backseat role at Google, as Eric Schmidt steps down as Executive Chairman.

Schmidt will remain in place until the next general meeting on 18 January, though his new position will be as a technical advisor to the company while continuing to serve on its board. Details on why Schmidt will be moving away from the bright lights are thin for the moment, but perhaps it is just time for a bit of relaxation for man who was probably one of the busiest Googler’s in recent years.

“Since 2001, Eric has provided us with business and engineering expertise and a clear vision about the future of technology,” said Larry Page, CEO of Alphabet.

“Continuing his 17 years of service to the company, he’ll now be helping us as a technical advisor on science and technology issues. I’m incredibly excited about the progress our companies are making, and about the strong leaders who are driving that innovation.”

Schmidt, who Forbes ranked Schmidt as the 119th-richest person in the world in 2017, served as the CEO of Google from 2001 to 2011, a period which laid down the foundations for Google’s dominance today. Schmidt handed over control of Google in 2011 to founder Larry Page, but continued as Executive Chairman as the company restructured to form Alphabet.

“Larry (Page), Sergey (Binn), Sundar (Pichai) and I all believe that the time is right in Alphabet’s evolution for this transition. The Alphabet structure is working well, and Google and the Other Bets are thriving,” said Schmidt. “In recent years, I’ve been spending a lot of my time on science and technology issues, and philanthropy, and I plan to expand that work.”

A new Executive Chairman will be announced in January, and perhaps there will be a bit more detail on what Schmidt’s role will actually be. Considering the growing influence of the ‘Other bets’ business unit in Google, this might not be the last time you hear from the man.