Alpha minus

“EMPOWERING great entrepreneurs and [allowing] companies to flourish.” This was one of the reasons Larry Page, the co-founder of Google, gave when he announced almost a year ago that the firm would restructure itself. Google, which comprises the internet-search and advertising business, now sits as a subsidiary in a holding company called Alphabet, alongside the “other bets”, a dozen startup businesses that range from fibre networks and smart cities to robotics and life sciences. Yet for now at least, the flourishing is limited and the entrepreneurs seem somewhat less than empowered.

When Tony Fadell, the boss of Nest, which makes wireless thermostats and other “smart home” devices (see article), resigned last week, it was not only because of Nest’s disappointing results and his abrasive management style, but the fact that he no longer got along with Mr Page. Even before Alphabet was launched, Andy Rubin, who ran the company’s robotics business, also stepped down, apparently because he was bored (he now runs an incubator of hardware startups called Playground). One of the firms he persuaded Google to buy is Boston Dynamics, a maker of artificial dogs and other scary-looking mechanical beasts (see picture). Its founder, Marc Raibert, is known to cherish his autonomy.

That may help explain why Boston Dynamics is now up for sale. An uncertain path to profitability may also play its part in that decision. The firm’s automatons are a hit on YouTube, but internally Alphabet thinks it will take another decade before they can be put to commercial use.

Herding entrepreneurs is hard. And bets on new technologies are risky. Yet Alphabet is grappling with a problem that has already troubled many other big tech firms: how much freedom, money and time to give internal startups. As much as it is designed to give entrepreneurs their head, the holding structure is also meant to create more clarity about how much is invested in riskier bets. As such, it marks the beginning of what Mr Fadell has called a “fiscal discipline era”.

The core Google business is growing nicely and is highly profitable, but the other “moonshot” businesses keep losing money. How much exactly is hard to say because Alphabet only publishes consolidated numbers for these ventures. In 2015 the combined losses for the non-Google businesses hit $3.6 billion on revenue of just $448m. That is a drop in the bucket for Alphabet: it generated $75 billion in revenues and $16.3 billion in profits last year. But a structure that focuses investors’ attention on how these other bets are going may limit flexibility as much as enable it.