Google's next big thing will likely come from
one of its new priority areas, like cloud, transportation, and
healthcare. Each has a massive, global addressable market and plays well
to Google's strength in AI.
As the digital world evolves, Google is taking a multi-pronged approach to maintaining its dominance in the search and ad business, which makes up the vast majority of its revenue.
Search is migrating across mediums, with users gradually moving from desktop to mobile devices and voice assistants — a shift that directly threatens Google’s moat in search and advertising.
As competition rises in the mobile and digital assistant space, and concerns over privacy and data management mount, Google has been forced to adapt.
To maintain its foothold and protect its main source of revenue, Alphabet (Google’s parent company) is positioning itself to dominate adjacent sectors — such as digital commerce, branded hardware products, and content — and attempting to integrate its services into every aspect of the digital user experience.
The company is also seeking out new streams of revenue in sectors with large addressable markets, namely on the enterprise side with cloud computing and services. Furthermore, it’s looking at industries ripe for disruption, such as transportation, logistics, and healthcare.
Unifying Alphabet’s approach across initiatives is its expertise in AI and machine learning, which the company believes will help it become an all-encompassing service for both consumers and enterprises.
In this teardown, we dive into Google’s approach to maintaining its search platform dominance, outlining the strategic investments, acquisitions, and partnerships across its top priorities moving forward.
TABLE OF CONTENTS
Alphabet’s structure and background
Google’s priorities:
Conclusion
- AI centricity: Embrace an AI-centric approach and solidify lead in machine learning
- Cloud: Grow share in the cloud market
- Computing: Build out a network infrastructure for computing
- Advertising: Protect advertising business from rising competition in digital — especially from Amazon
- Emerging markets: Expand in India & Southeast Asia, rebuild presence in China
Transportation & logistics: Disrupt the transportation and logistics industry
Alphabet’s structure and background
Alphabet is broken out into its core Google business and a number of other subsidiaries, which it deems “Other Bets.”
The majority of Google’s business comes from advertising revenues, which the company generates through its search engine as well as a number of other Google-affiliated and partnership websites.
Outside of search and advertising, Google generates revenue from products including cloud and enterprise, consumer hardware, mapping, and YouTube.
In addition to Google, Alphabet encompasses a host of other subsidiaries called “Other Bets.” These companies are more experimental in nature, and as a result are not material to Alphabet’s bottom line.
Google’s Other Bets include:....MUCH MORE
Given that Google makes up the vast majority of Alphabet’s business, the company’s initiatives across subsidiaries have largely focused on protecting Google’s moat in search and advertising.
- GV and capitalG, two of Google’s investment vehicles
- Waymo, Google’s self-driving car initiative
- Verily and Calico, two healthcare subsidiaries
- Alphabet Access & Energy, which houses the company’s telecommunications projects and energy initiatives
- Sidewalk Labs, Alphabet’s urban innovation organization
- DeepMind, an AI research arm acquired by Google in 2014 that has the company develop neural networks
- Cybersecurity spinoff Chronicle, which focuses on security solutions for Google’s cloud business
- Project Loon, a subsidiary working to bring internet access to rural and remote areas
- Project Wing, which is developing an autonomous delivery drone service
- Google X, an R&D facility focused on “moonshot” technologies aimed at improving the world
In recent quarters, the company has seen notable increases in traffic acquisition costs (TAC), which is the largest cost associated with Google’s main stream of revenue, ad and search. As the company faces increasing regulation (e.g. the EU’s $5B fine on Android) and an ongoing shift to mobile from desktop, TAC is expected to rise.
In addition to rising TAC, competition is growing from peers like Apple, Amazon, and Microsoft, all of which are racing to capitalize on a growing digital economy to capture data and access new streams of revenue.
As a result, Google is doing everything in its power to capitalize on potential growth areas and maintain its foothold in search and advertising.
Below, we outline the company’s main priorities, detailing the initiatives, investments, and acquisitions across its subsidiaries.
1. Embrace an AI-centric approach and solidify lead in machine learning
Artificial intelligence is critical to Alphabet’s long-term outlook. AI is the thread that runs through search & advertising, cloud, autonomous driving, healthcare, and a host of the company’s Other Bets, as we’ll outline futher below.
WHAT it’s DOING now
In a keynote presentation to launch Google’s new high-end Pixel smartphones in October 2016, CEO Sundar Pichai highlighted the importance of artificial intelligence to the tech landscape moving forward, explaining, “It is clear to me we are evolving from a mobile-first to an AI-first world.”
Since then, AI has become the company’s focus across its investments, acquisitions, and internal spending.
Investments
Google has launched two funds dedicated solely to AI: Gradient Ventures and the Google Assistant Investment Program.
Gradient Ventures was launched in July 2017. Unlike GV and capitalG, which run separately from Google under the Alphabet corporate framework, Gradient Ventures is accounted for on Google’s balance sheet. That said, the fund plans to break off from the main company once it ramps up its investment pace.
So far, Gradient has only invested in early-stage deals, primarily focusing on the US — though a recent investment was in Canada-based Benchsci, a medical sciences startup using AI to accelerate biomedical discoveries.
Google has also launched a fund to build out its capabilities for Google Assistant, Google’s virtual assistant that uses natural language processing to take voice commands from users and search the internet, schedule events, set alarms, among a host of other tasks. Launched in May, the Google Assistant Investment Program is focused specifically on early-stage startups working with Google’s virtual assistant....
