Google/Alphabet: Flushing away billions

“Google/Alphabet is a modern-day Bell Telephone that is wasting billions of dollars on fruitless research projects that will never significantly contribute to the company’s bottom line,” PLM Investments writes for Seeking Alpha.

“Alphabet, and some other major modern tech companies seem to have not learned the lessons of the last generation of engineers and business leaders regarding R&D’s role in commercial innovation and its management. Especially as it pertains to coming up with high-value commercial successes in relatively short time periods in order to meet shareholder and board of director demands,” PLM Investments writes. “Major new innovations are rarely managed into existence.”

“Here is the crux of my argument. Alphabet revenue will be around $80B in 2016. To make a 10% positive impact on that, you’d need to come up with a new business that adds $8B/year in revenue today. That number will presumably keep growing every year,” PLM Investments writes. “Do you really think such a business, or combination of multiple smaller businesses, will pop out of the “Other Bets?” I believe that to be very unlikely. ”

Read more in the full article here.

MacDailyNews Take: Our Lady of Perpetual Beta certainly doesn’t suffer from a lack of hubris.

No major tech company gets more bang for their R&D buck than Apple.

SEE ALSO:
Is Apple underinvesting in R&D? – January 12, 2016
Apple gets much more bang for its R&D buck than Google and other tech companies – November 30, 2015
Massive R&D increase suggests Apple is working on something huge – May 4, 2015
Apple set new R&D spending record last quarter – January 29, 2015

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]

27 Comments

    1. Not necessarily. It is this kind of short-term ROI thinking that is going to destroy this country economically.

      With the ever decreasing amount of government funding for basic research in this country, we should be thankful that companies are willing to spend money on research that does not have an obvious commercial return in the short run.

      It is true that the company that comes up with the innovation is not always the one that is able to capitalize on it, but the innovation does diffuse itself through the economy via published research and movement of employees within an industry. As the taxpaying population of the US is subsidizing these efforts in any case via the R&D tax credit, this is as it should be.

      In any case, to use the example of Bell Labs as wasteful R&D is stupid. Does anyone think there was no value to our economy? On the list of the many Bell Labs inventions (with nearly 33,000 patents issued):

      1925: First demonstration of a facsimile machine sending pictures over telephone wires.

      •1926: First synchronization system for sound movies.

      •1927: First long-distance television transmission, sending live images of President Hoover from Washington, D.C., to New York.

      •1937: First electronic speech synthesizer (re-created human speech).

      •1939: First binary digital computer.

      •1947: John Bardeen, Walter Brattain and William Shockley invent the transistor, leading to the electronic-age of portable radios, touchtone phones, computer microchips and color and high-definition television; they share 1956 Nobel Prize.

      •1951: Direct dialing of domestic long-distance calls.

      •1954: Solar battery cell to convert sunlight into electricity.

      •1956: First transatlantic telephone cable, handling up to 36 calls.

      •1958: Arthur Schawlow and brother-in-law Charles Townes invent the laser (short for light amplification by stimulated emission of radiation), now used in fiber-optic communications networks and as a cutting tool in surgery and industry. Each later won a Nobel related to the research.

      •1962: Demonstrated cellular technology, tested the first paging system, produced the first orbiting communications satellite (Telstar I) and invented light-emitting diodes, now widely used in imaging systems.

      •1965: Arno Penzias and Bob Wilson stumble upon cosmetic background radiation while using a highly sensitive “horn antenna” in radio astronomy experiments; they win 1978 Nobel Prize. The static noise they heard was the strongest evidence supporting the Edwin Hubble/George Lemaitre theory the universe was created in a “Big Bang” explosion.

      •1969: UNIX operating system, software that made open computer systems possible and became the Internet’s foundation.

      •1979: Digital signal processor, enabling cellular phones and modems.

      •1980: Digital cellphone technology.

      •1988: First fiber-optic transatlantic cable, handling up to 40,000 phone calls at once.

      •1992: Invented compression technology needed for digital radio.

      •1995: First prototype system supporting wireless Internet.

      •1998: First switch allowing Internet telephone traffic, faster Internet access.

      •2005: First Internet Protocol transmission at 100 gigabits per second, 10 times the current speed and critical for future services such as IPTV.

          1. I used Xerox systems back in the early 80’s. Amazing machines with a 21″ monochrome monitors and a two button optical mouse. The keyboard was so cool that we never had to look down because it had these properties buttons on the left side to push to bring up a on screen menu. The menu allowed you to change properties of text and lines super easy.
            They were also beautiful machines. Dark brown towers and rarely had issues.

            Amazing machines and honestly when I saw my first Mac I couldn’t figure out why anyone would use it. Then I saw this thing called a PC thing with WordPerfect and though who the hell in their right mind would buy one of these things.

            Boy, was I wrong but I loved those Xerox machines.

          1. Some philosophers observed that the so-called big bang was the scientific equivalent of “Let there be light” (God, Genesis 1:3) and when science aligns with religion, to the believer that’s one hell of a ROI.

            1. I really, really try not to mix religion with science, but how can you not when they both seek the truth?

              The way to reconcile the two is to accept “let there be light” as the Act of Genesis, and the creation of Physics as Creation itself. The wisdom is built into these very laws of physics, and to the philosopher O offer the Anthropic Principle.

            2. Excellent comments. Pilate said, reasonably, “What is truth?” And Jesus said “I am truth.” The truth is, “truth” is cruelly violated by just about anyone who utters the word in defence of some tribal custom. Personally, I find comfort in the Truth Tables of my classes in logic and computer science. Those, I can understand.

    1. It was as massive as Apple Newton. From which Apple used to learn from this failure to later make the iPod, iPhone and iPad. Similar to how Apple learned from the failure of a series of PC products until they scored with the iMac and the MacBook.

      Google Glass failed, but its AR principles are serving Google very well with Pokemon Go. Which will lead to a bunch of other AR products in the future, and the first mainstream AR-enabled phone is already on the market. The Samsung Galaxy S8 will also be AR-enabled. Meanwhile the iPhone will not get AR features until 2018 at the earliest.

      1. People liked the Newton, and Apple had just about fixed the complaints people had about it. But Steve just came on and was not in any financial position to make it work, they were bleeding money from everywhere.

        Google Glass failed because . . . you don’t need me to tell you why Google Glass failed.

      2. AR apps have been in the App Store for at least 7 years. Not sure why you would think the AR principles (by which I assume you mean being able to superimpose a Pokemon over live video from a camera) have served Google well. They invested in Niantic along with many others but it’s not a Google/Alphabet company. I think Nintendo had more to do with the success of the free app, Pokemon has been popular for the last 20 years without AR. Google makes over 90% of its income from selling advertising space within its search engine, they really aren’t very good at much else.

  1. Interesting take on the past. You are correct from a shareholder perspective if all you look at is bottom line. What you fail to connect is that companies at the top have facilitated technology advancement, which would have not been possible unless they did do this with the extra “cash”. Let us start with AT&T/Bell before the breakup, this company is behind a good chunk of what we are benefiting from now (LINUX – derivative of Bell Labs research and UNIX) which powers the Internet, gave us a common platform to run code on, distributed computer systems, big data. Next the C programming language, the basis for all programming languages, wireless technologies like GSM – CDMA. The list goes on and on. And all of it was funded by a cash rich teleco company that was a monopoly. Getting back to google and the complete rethinking of how computers fundanentally operate with projects like tensor flow neural nets, despite What you think are going to be the next generations technology revolutions. Apple on the other hand does R&D for apples sake and rarely open sources anything the do. Which is ironic as all of apples products run on UNIX like system using C programming languages. They can thank AT&T for investing in that despite there being no clear revenue stream back in the 70’s. Google should be applauded as they are championing this IT open spirit that will directly lead to all kinds of companies and products that you as a investor can benefit from.

  2. “Google/Alphabet is a modern-day Bell Telephone that is wasting billions of dollars on fruitless research projects that will never significantly contribute to the company’s bottom line,” PLM Investments writes for Seeking Alpha.

    Yeah, we know. You just figured that out? It’s all for marketing hype, the Gee Whiz! factor, ad (pun!) nauseam. It’s the HOT AIR that inflates the GOOG balloon. Once enough of this baloney R&D dross has come and gone, the sheeple will figure out it’s all for show. It’s all snake oil and mirrors. Darn, the balloon pops and GOOG plummets to some sane value for a change. AMZN has similar HOT AIR properties.

    You’ve been warned, sheeple.

    1. Please see above.

      1. Google only lost $685 million in their moonshot bets last quarter. And some of those were on initiatlives like Google Fiber which will pay off.

      http://9to5google.com/2016/07/28/alphabet-q2-2016-earnings/

      2. Several of Google’s moonshot bets have already paid off and either joined the mainline company, or have been spun off into several companies for which Google is a major stakeholder. Example: Niantic Labs of Pokemon Go.

      3. The hot air balloon will pop and people will realize that it is all for show? Google made $5.86 billion in profits last quarter for a 20% YOY growth. Microsoft’s profits were $3.2 billion. In fact, Google’s profits were more than Microsoft, Facebook and Amazon COMBINED.

      Seriously you folks need a clue.

      1. I never said ‘all for show’. I said the ‘moonshot bets’, as you call them, were snake oil and mirrors. Do I really need to give you a list of examples? Can’t you list them yourself?

        I also pointed out that after the HOT AIR balloon pops, GOOG will reach a sane price. That means the price will reflect ACTUAL profits, as opposed to the current price based on Gee Whiz! hype garnered from ‘moonshot bets’. Do please quote your sources and understand them before bombing them.

        IOW: I never commented in any way about Google’s actual profit making businesses, did I.

  3. This missive is meant to evade the actual news: Google making $5.86 billion in profits last quarter, a 21% growth YOY. This places Google within $2 billion of Apple, who is down 27% YOY. Just 2 years ago, Apple was making more in a quarter than Google made an entire year.

    Even bigger news: while Google will obviously never catch Apple, they have surpassed Microsoft. Microsoft earned $3.2 billion last quarter; Google was about a half billion away from doubling that. Again, something utterly unthinkable a mere 5 years ago when Nokia and Symbian had a larger market share than Android, and everyone thought that Windows 8 and Bing would crush Android and Google.

    By the way … Google’s moonshot losses – and not all of them were moonshots as it also includes losses on solid business plans like Google Fiber that will pay off down the line … Google Fiber already played a role in forcing the cable industry to deregulate cable boxes – were less than half a billion dollars.

    Finally … do you know what was once a moonshot? Niantic Labs. Google spun them off into their own company and is now a major stockholder. That is right, Niantic Labs, the same company behind Pokemon Go. It is funny … everyone laughs at the Google moonshots that fail, but no one takes notice of the moonshots that succeed.

    It is the opposite with Apple for some reason. Their successes get a ton of attention while their failures get totally ignored. Ah well … that is the tech media for you. They have only recently stopped claiming that Google wasn’t making any money off Android. Now that it is clear – thanks to the Oracle trial – that Android brings them billions annually with a ton of revenue growth, they have shifted back to kicking around the moonshots again. Typical …

  4. Nice quarter Google. Apple is leaving A LOT of money on the table by not doing “search”. Tim was bullish on AI during the call, so maybe they have something in the works…

  5. Even though Alphabet is YouTube’s grandparent company, so to speak, YouTube doesn’t know the order of the letters. Search results are not sorted and cannot be sorted. If you are looking for episodes 1-5 of X, for example, you get Xep5 BB Xep3 Xep4 YY Xep1. BB and YB are irrelevant, and Xep2 doesn’t show up. Maybe this is the root of their troubles.

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