How Alphabet Inc. Reworked Its Letters This Year (GOOGL, FB)
By Greg Miles | December 29, 2016 — 12:32 PM EST
In his letter introducing Alphabet Inc. ( GOOGL ) to investors, the conglomerate’s chairman , Larry Page, wrote that “the whole point is that Alphabet companies should have independence and develop their own brands.”  The newly named company, Alphabet, was the grown-up Google, which had diverse interests and money-making ventures.
At the end of Alphabet’s first  year as a conglomerate, things have not turned out as Page had anticipated.
Google Is Still the Soul
Google still remains the heart and soul of the company and the search engine mints money for the conglomerate . For example, the Mountain View company reported revenues of $22.2 billion in the latest quarter on the back of mobile and video advertising.
To put that into context, rival Facebook Inc. ( FB ) reported revenues of $17.9 billion for the entire year of 2015. Google is essentially the bank from which other ventures within the Alphabet umbrella borrow money to finance themselves. (See also: Google's Six Most Profitable Lines Of Business .)
Struggling Ventures
But the individual brands that Page referenced in his introductory letter will take time to come into their own. They did not make news for all the right reasons in 2016.
In June, the New York Times reported that Nest founder and CEO Tony Fadell had quote the company after leadership problems. The company is a maker of hardware products and had been acquired by Google  $3.2 billion back in 2014. Another casualty within the Alphabet umbrella was Google Fiber, the company’s broadband division. According to an October report in The New York Times, the company dismissed its 130 employees and stopped expansion to other cities.
Scaled-Back Ambitions
Google also scaled back its ambitions of manufacturing a self-driving car after it failed to find a manufacturing partner. Instead, the self-driving unit was spun out into a separate software unit – called Waymo - that partners with established car manufacturers to install self-driving car technology. (See also: Google Spins Off New Self-Driving Car Technology .)
Perhaps the overarching theme in these news bits is Alphabet’s attempts to rein in profligate spending, a quality that separates the company from its contemporaries. The entry of Ruth Porat from Morgan Stanley has brought about this change.
A July report in the Wall Street Journal detailed Porat's efforts to pare spending by spending more judiciously on research and cutting back on profligate hiring. She has also forced divisions within the conglomerate to reconsider their moonshots within the context of costs and budgeting. A Bloomberg report towards the end of this year detailed how Google X, the company’s moonshots division, instituted cost controls and budgeting after her entry.
Risks and Budgets
This does not mean that Alphabet has become a boring venture aimed at minting money and profits. It was the company’s unpredictability and willingness to take risks that endeared it to investors. The markets reflected that optimism and faith this year, when they pushed it to become the world’s most valuable company, surpassing rival Apple Inc. ( AAPL ). (See also: Alphabet Is Now Bigger Than Apple ).
That said, Alphabet has matured. It’s risk-taking will now be underpinned with greater Wall Street transparency and budgeted timelines, if developments in 2016 are any indication.