Google’s ‘Moonshot’ Business Feels the Pressure

Google has long held that investing in potential world-changing “moonshot” projects was crucial to the company’s innovation strategy. By all appearances, it’s still a priority–but it’s starting to look like reality is bringing at least some Google’s lofty ambitions down to Earth.

As parent company Alphabet announced in its earnings report Thursday, the Other Bets division is losing–big. The branch, which houses the company’s long-term moonshot projects, lost $865 million in the third quarter. This is nothing new: This arm has lost upwards of $800 million each quarter since Alphabet started reporting its revenues separately last year.

What is new is the company’s apparent move to start thinking more about the bottom line. For one, the company invested $59 million less into its moonshots than in the same quarter a year ago–the opposite approach of what you’d expect from a division that has prioritized long-term projects over short-term financial solvency. And recent changes in strategy on some of its projects suggest that the company is adjusting its ideals.

Last week, Google Fiber, the company’s project to deliver high-speed Internet throughout the U.S., announced it was halting its expansion. The company’s chief executive, Craig Barratt, stepped down as part of the announcement.

Currently, about half the U.S. has only one provider option. Fiber intended to install ethernet infrastructure in cities throughout the U.S. as it has already done in Kansas City, Nashville, and Atlanta. In June, though, the company acquired wireless service provider Webpass, a signal that it planned to switch its plan from a more expensive, long-term cable infrastructure to a more cost efficient and immediate–though potentially less reliable–Internet delivered over cell networks. And in August, Alphabet CEO Larry Page reportedly told Fiber to trim its workforce in half and cut its spending by 90 percent.

“As we reach for moonshots that will have a big impact in the longer term it’s inevitable that there will be course corrections along the way and that some efforts will be more successful than others,” CFO Ruth Porat said on the company’s earnings call.

If Google is in fact making a conscious effort to curb its moonshots, who could blame it? They’re expensive, and in many cases, they’re facing rocky outlooks. Nest, which also falls under the Other Bets category and makes smart home hardware, lost co-founder and top executive Tony Fadell to a resignation in June after months of reported tension among its leadership.

Verily, Google’s health sciences branch, lost 12 top employees in a recent year-long stretch. While it has partnered up with health giants on several ambitious projects, a March report in the Boston Globe’s medical publication suggested that many employees found CEO Andrew Conrad to be divisive and impulsive and felt left in the dark on important decisions.

Google’s self-driving car project, meanwhile, lost its CTO in August. Two former Google engineers, including the project’s technical lead, left in January and founded Otto, which this week made headlines for successfully driving a shipment of 50,000 cans of Budweiser 120 miles in an automated truck.

Google has been trying to get its own project out of the lab. Last year, the company hired former Hyundai CEO John Krafcik to take over its self-driving project, indicating that it was moving away from the science project phase and focusing more on commercialization.

Google CEO Sundar Pichai did his best not to raise alarm during Thursday’s earnings call. “We generally want to encourage a culture of innovation. It is fine that some of them happen outside,” he said. “We don’t view it as a zero sum game.”

Still, one has to wonder what the future holds for Google’s moonshots. The company declined to comment for this story.

All that said, Alphabet is still investing upwards of $1 billion each quarter on long-term projects–an amount that only a handful of companies could even afford to spend, if they were so inclined.

And aside from Fiber, the projects are still progressing. Like the self-driving project, Project Loon–the company’s attempt to beam Internet connectivity from hot air balloons to rural areas across the world–in August hired a new exec to lead the project toward profitability. Loon was recently spotted testing its balloons over Yellowstone National Park. Alphabet’s interest in becoming an Internet provider is double-fold, since more people on the web means more people using Google.

Currently, about 90 percent of Alphabet’s revenue comes from advertising via Google’s search function. The company certainly is not in any immediate trouble: Ads pulled in $18.9 billion of the company’s $22.45 billion revenue in the third quarter.

Still, the reliance on that one money-maker is a big motivator in the company’s attempt to find a moonshot that can help sustain it going forward.