By Alistair Barr
To see how Google Inc. Chief Executive Larry Page hopes to
turbocharge a growing fleet of speculative projects under a new
holding company, look at Nest Labs.
After Google acquired the maker of connected-home devices for
$3.2 billion in 2014, Nest kept its own recruiters and its own
system for vetting job candidates, skirting Google's famously
deliberate hiring process. Nest still rents computer servers from
Amazon.com Inc., rather than use Google's data centers. Nest
co-founder and CEO Tony Fadell also curbed some Google perks, such
as free food, to maintain Nest's scrappy vibe.
Mr. Fadell and co-founder Matt Rogers negotiated unusual
autonomy for Nest. Now, as Google reorganizes and creates a new
parent company, Alphabet Inc., it is using Nest as a model for
running its other startup operations--the "bets" in
Alphabet--according to people familiar with the plan.
The restructuring separates Google's core businesses--including
Internet search, the Android operating system and YouTube--from
newer unrelated businesses such as Nest, Google Life Sciences and
Fiber, the fast Internet service. Mr. Page will remain CEO of the
Alphabet holding company, but step back from running Google's core
to oversee the other units, which will operate more independently.
A date for the new structure hasn't been made public, but Google
said it would start providing quarterly results for the core and
startup operations with the fourth quarter.
"If Google can deliver more broadly what it gave Nest, that
predicts success for the rest of the Alphabet projects," said Max
Levchin, a co-founder of PayPal Holdings Inc. who spent more than a
year at Google after it bought his social startup Slide in
2010.
Under the new arrangement, the "bet" companies will do their own
hiring, write their own contracts and plan their own marketing
campaigns, with an eye toward moving more quickly, the people
familiar with the matter said. Executives at Google's core
businesses will focus on things like search and advertising and
won't be distracted by having to assess and approve the plans of
Alphabet projects.
Executives got an unexpected glimpse of the new order on Aug.
11, one day after Mr. Page announced the reorganization. As they
convened to discuss one of the young bet businesses, Sundar Pichai,
who will be CEO of core Google, wasn't there. The others waited for
a time, but then realized Mr. Pichai didn't need to be there. The
meeting went ahead without him, giving the incoming Google CEO time
for other priorities.
"It gets a little faster, more efficient and a little more
independent," said Andy Conrad, CEO of Google Life Sciences, one of
the bet companies. "I act as a CEO of an independent company
instead of a senior executive within a large company."
That might seem like splitting linguistic hairs, but former
Google executives say new projects historically have struggled to
get resources, which flow to larger divisions that generate more
revenue. Business units within Google compete for talent, these
people say, both in number of employees, and sometimes, for
specific people.
Dr. Conrad said he feels freer to make decisions without
considering the effect on other Google businesses. "Sundar will act
in the best interests of Google Inc. I will act in the best
interests of Google Life Sciences," he added.
Many entrepreneurs believe "it's easier to do their business
outside Google rather than inside," said Max Ventilla, who left
Google in 2013 to found an education startup. "There's a lot of red
tape for head count and money to get through at Google."
Alphabet grew out of Mr. Page's concern that rising complexity
was limiting Google's ability to expand into potentially big
sectors including transportation, health care and communications,
said people familiar with the reorganization.
In a 2012 conference call with analysts, Mr. Page said Google
aspires to spend 70% of its time, money and other resources on core
businesses like search, 20% on related new businesses and 10% on
projects in new areas. But, he added, "We've really struggled to
even have 10% on the speculative things."
Alphabet will help Mr. Page meet this 10% goal, according to
people familiar with the plan, though the increase will likely be
gradual. Longer-term, this will result in more and bigger
"moonshot" investments, some of these people added.
That suggests that investors, who cheered the Alphabet
reorganization in hopes it would reduce Google's spending and boost
profits, may be disappointed. In a recent note to investors, Bank
of America Merrill Lynch analyst Justin Post said there is a risk
that spending "is about to accelerate under the new structure."
Nest has expanded quickly since joining Google, to more than
1,000 employees, from about 300. It acquired video-monitoring and
home-security startup Dropcam for $555 million and developed a
home-networking standard called Weave.
Nest co-founders sought independence because they feared getting
bogged down in Google's bureaucracy. In addition to its own
recruiters and computer systems, Nest also kept its own legal and
marketing departments. Its employees retained Nest email addresses.
Nest is headquartered in Palo Alto, Calif., more than four miles
away from Google's Mountain View campus. The division even had its
bikes painted with Nest's light blue corporate color, in contrast
to Google's logo-echoing multicolored bikes.
"We've always been run very independently. Alphabet just
formalizes that. It's a great way to scale a company." said Mr.
Rogers.
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(END) Dow Jones Newswires
October 01, 2015 16:06 ET (20:06 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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