Apple is doomed. Microsoft is dying. Hardware will be free. Software should be free. At the other end of the scale, Amazon can do no wrong (even without profits), and Google will rule the world. Well, a funny thing happened on the way to the future. It’s called reality. And in this reality Google’s daddy, Alphabet, is crumbling.
What Price Diversity?
For the sake of argument, let’s conflate Google and its parent company, Alphabet as one and the same. The Google business still remains, and Alphabet was formed to create successful new Googles in the future, but the names often are used interchangeably.
Microsoft, once left for dead by technology critics and market naysayers, has diversified itself back into profitability. Windows, Office, homegrown PCs and tablet hardware, a growing cloud services operation, subscription software, and a bunch of great mobile apps for Mac, iPhone, iPad, and Android means Microsoft is back.
Diversification good, one-trick pony business bad.
Wall Street manipulators don’t want to read about facts, or care about well-run, diversified businesses. They pick their horses ahead of actual performance, change the investing rules on the fly, and back entities such as Amazon because the company’s CEO says profits are for sissies. One the one hand, Wall Street charlatans complain that Apple is too dependent upon the iPhone for success (ignoring that everything else Apple does could sit comfortably in the Fortune 500 as a profitable entity) while praising Google for being a one-trick pony operation with a very public Public Relations machine.
To the market, a one-trick pony business is good, profitable diversification is for fools.
So, let’s example how
Alphabet’s portfolio encompasses several industries, including technology, life sciences, investment capital, and research. Some of its subsidiaries include Google, Calico, GV, Google Capital, X, and Google Fiber. Some of the subsidiaries of Alphabet have altered their names since leaving Google—Google Ventures becoming GV, Google Life Sciences becoming Verily and Google X becoming just X.
In fact, well over 90-percent of Google’s growing revenue and profit machine is generated in 2016 just the way it was nearly 18 years ago when the company launched. Search engine advertising. So much for diversification, right?
In reality, Google– much like Microsoft before it– has spent dozens of billions of dollars on failed projects. Check out the List of Google Products. The Discontinued List actually seems longer than the product list (seems to defy logic, doesn’t it?).
The establishment of Alphabet was prompted by a desire to make the core Google Internet services business “cleaner and more accountable” while allowing greater autonomy to group companies that operate in businesses other than Internet services.
How has that worked out? Well, it just hasn’t. Android, the mobile device operating system that powers more than 80-percent of the world’s smartphones and tablets, doesn’t make much money for Google’s so-called Android partners. The lone exception being Samsung, which takes up less than 10-percent of the industry’s profits. Guess who gets the rest?
Chromebooks have made a huge dent in the universe, pushing Windows PCs and Macs and iPads out of schools. In fact, Chromebooks outsell Macs. At $299, why not? What has it done for Google? According to the quarterly financials, not much. Advertising still rules, and Alphabets attempts to create additional letters that can grow and become standalone entities with revenue and profits has largely failed.
Google co-founder Larry Page:
We liked the name Alphabet because it means a collection of letters that represent language, one of humanity’s most important innovations, and is the core of how we index with Google search! We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!
Alphabet is a bet on the future of new technology and products and services. So far, the bet hasn’t paid off anywhere except among Wall Street’s myopic investment gurus who manage to drive growth in a stock despite abysmal financial results.
The Alphabet emperor has no clothes. That fact just hasn’t made the mainstream news yet.