Google sank billions into flailing 'moonshot projects' after it rebranded to Alphabet. Facebook, now Meta, could face the same fate.
- But many of its projects have shuttered, sunk cash, or been reabsorbed into Google.
That's why it changed its name: to reflect its goal of expanding into what will succeed the modern-day internet. Zuckerberg has said it never made sense anyway for the company, which houses multiple projects and apps, to go by one of their names (Facebook.)
And if that move sounds familiar, it's because that's how Google restructured itself in 2015 to allow each of its businesses to operate more efficiently.
But in the six years since, Google has moved at a glacial pace to drive some of its "moonshot projects" into mainstream use, as CNBC recently noted. While some have shown promise, others have been reabsorbed into Google, sunk loads of cash, spun off as separate entities, or been shuttered altogether.
And as Meta gears up to pour billions into its metaverse mission over the years, "we're seeing history repeat itself," Whitney Tilson, a former hedge-fund manager and the CEO of Empire Financial Research, told Insider.
Cashflow can hinder ambitious projects from true growth
Tilson says a major weak point for Google was creating an overarching framework in Alphabet. Instead, the company should have spun out its ambitious projects instead of keeping them under a parent company, where they were insulated from the market with Alphabet's pile of cash.
"Because it had access to unlimited capital with very little oversight, it has not achieved what it could have achieved as an independent company with its own board of directors where it had to go back to the market for capital by showing milestones," Tilson said.
For example, Alphabet's electric kite-project Makani was supposed to harness a more sustainable source of wind energy. But the company shut it down in early 2020 since "the road to commercial viability is a much longer and riskier road" than expected.
Loon was shut down earlier this year, and Waymo - Google's spin-off sibling company - recently saw its CEO, CFO, and other top brass exit as insiders grew frustrated with the autonomous tech firm's slow progress toward mass adoption, Bloomberg reported.
Other projects have been transferred from Alphabet's Other Bets bucket back to the Google division, where its search engine is housed. That happened to Jigsaw - a technology incubator devoted to solving disinformation and other online issues - in early 2020, Nest, the smart home project, in 2018, and Chronicle, an endeavor devoted to cybersecurity, in 2019.
And the company has sunk a sizable amount into these "moonshot projects." Other Bets have gobbled up $3.2 billion in capital and a reported $24.3 billion in operating losses since Google renamed itself, as Bloomberg reported in May. Deepmind, the Alphabet-owned artificial intelligence company, alone reported $649 million in losses in 2019, with the majority of costs going toward staff and other factors, as CNBC reported.
Investors have shrugged off any losses. Google's market value has soared since the reorganization, outperforming the benchmark S&P 500 index by double since 2015.
As will Facebook's, regardless of how its metaverse project churns out, Tilson said, because, the two firms' core businesses and their positions in the digital ads space are just that strong.
Zuckerberg and other company executives have acknowledged that it will be years before the metaverse materializes - at least 10 years to be exact.
But Tilson said Facebook should do what Google should have done: focus on its supremely successful businesses, deal with the high-profile problems associated with them, and "not waste $10 billion a year on the metaverse."
"Google and Facebook are both examples of the world's greatest businesses but also how the world's greatest businesses lead to so much cashflow that it leads to complacency and capital allocation mistakes and empire building," Tilson said.
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