Google's Alphabet fails at keeping executives in the house

Google’s Alphabet fails at keeping executives in the house
By Tunechiray

Photo: Patrick T. Fallon, Bloomberg
Ruth Porat, chief financial officer of Alphabet Inc. and Google Inc., speaks during the Fortune Most Powerful Women Summit in Dana Point, California, U.S., on Wednesday, Oct. 19, 2016. Porat has been credited with instilling financial discipline in Alphabet’s newer, experimental divisions the company calls “Other Bets.”
When Google co-founder Larry Page created Alphabet Inc., he gave three primary reasons: free up the main Internet business from its costly “moonshot” projects; turn those audacious experiments into real businesses; and keep entrepreneurial leaders from leaving.

Fifteen months later, that third pillar looks like it’s crumbling.

On Tuesday, Craig Barratt, chief executive officer of Alphabet’s Access unit, which runs Google Fiber, announced his departure along with a wave of staff cuts and significant retrenchment of the broadband service’s strategy. Barratt is the third Alphabet CEO to leave since June, and other senior executives have gone too.

Google Fiber is the latest Alphabet new business — dubbed the “Other Bets” — to be overhauled. It comes as Page and Chief Financial Officer Ruth Porat try to control costs while putting nascent businesses in sectors such as biotech and robotics, on surer footing.

Google, the core digital ads juggernaut, is flourishing and turbulence at “Other Bets” may reflect the arrival of fiscal discipline under Porat, who has won praise on Wall Street for her work. Former employees have described how expense and revenue expectations, once rare at the experimental units, have become common since the Alphabet reorganization in August 2015.

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Google’s Alphabet fails at keeping executives in the house
The turbulence may also highlight deeper problems creating sustainable business models. Google Fiber was one of the two chief contributors to “Other Bets,” according to the company. (Alphabet does not break out financial metrics for each Bet.) The second is Nest, manufacturer of Internet-connected home devices. It has had an even rougher year.

Google has been rolling out its super-fast, super-desirable Fiber internet service for about six years now. However, it’s only launched in a handful of markets. Part of that is Google’s hesitance to become a large-scale ISP, but it’s also because wiring up homes for fiber connections is expensive. However, Alphabet Chairman Eric Schmidt says that if Google can shift to a type of gigabit WiFi technology, the whole process could be much smoother.

Media: Wochit Tech
In June, Nest co-founder and CEO Tony Fadell left following internal disputes that partly focused on a spending crackdown. Soon after, some Nest employees moved to Google to work in its new hardware division. That included Ana Corrales, Nest’s chief financial officer, who now runs supply chain operations for the hardware initiative. (A Nest spokeswoman said Corrales continues to be a “shared resource” between the two companies.)

The other Alphabet CEO departure was Bill Maris, who stepped down in August from GV, the company’s venture capital arm.

Google Fiber’s recast business plan — narrowing its markets to select cities and focusing on wireless technology to deliver broadband — is a retreat to the unit’s strategy from two years ago, a former executive said. A person familiar with the company’s plans said that Google Fiber will lay off about 9 percent of its staff and that efforts to bring Fiber to some cities including San Jose, would be suspended.

Analysts said mounting costs likely caused the retrenchment.

“At some point, Alphabet took a look at this and said, ‘Does the (return on investment) make sense?” said Mark Hung, a research vice president with Gartner.