Google X Becomes X, Should Allay Alphabet Investors Fears

  • Google X, the semi-secret research lab of Alphabet, has been re-branded as X.
  • X will incubate Alphabet's visionary long term projects called "moonshots" with the objective to transform ambitious projects into viable businesses, then graduate them into standalone operations.
  • Alphabet will give investors more transparency about the finances of the different businesses, including X.

Google X, the semi-secret research lab of Alphabet Inc-A (NASDAQ:GOOGL) has been re-branded as X, Re/Code reports. X has a new logo, a yellow stylized X that’s meant to capture the X blueprint of incubating radical solutions to big world problems by means of breakthrough technology.

In August 2015, Google restructured into the Alphabet holding company. The move separated the company's main online businesses like search, YouTube and Android from the visionary long-term projects called "moonshots." Astro Teller, an artificial intelligence expert nicknamed "Captain of Moonshots,” will oversee X operations.

Google, now Alphabet, has been often criticized for its long term projects and investments in emerging technologies still on the drawing board. But even one moonshot that works can recover the cost of all the others, and the company has a good track record for moonshots that work. The Internet itself was dismissed as a visionary non-business in the 1990s, but it changed the world and Google made a lot of money as a result.

CNN Money notes that separating X gives investors more transparency about the finances of the different businesses. Shareholders are often worried by expensive moonshots that may never take off, since Alphabet makes nearly all of its money from search advertising. For the first time ever next month, in  its quarterly financial statement on February 1, Alphabet will break out the finances of each of its different companies.

X will incubate startup initiatives with a particular focus on hardware, with the objective to transform ambitious projects into viable businesses, then graduate them into standalone operations. Re/Code notes that, as an incubator and standalone company, X may need to be more judicious and leaner than it once was. A former X employee said that X is going to be much more scaled back, but another person familiar with X said the lab’s ambitions and size will remain unchanged.

"Our vision is for Google to remain a place of incredible creativity and innovation that uses a unique technical expertise to tackle big problems and create that future," said Sundar Pichai, CEO of Google, Inc.

The deep learning project Google Brain and a project to build detailed indoor maps graduated from X to official Google projects in 2012, parts of Research and Maps respectively. In December, Google Life Sciences, formerly part of X, re-branded itself as Verily and graduated to become a stand-alone subsidiary of Alphabet, with projects in medical hardware, software, clinical applications, and sciences, including bio-molecular nanotechnology projects.

The self-driving car project, first started as a moonshot under X, seems on its way to become an important part of Alphabet's business. Alphabet, the undisputed leader in advanced software for self-driving cars, including sophisticated Artificial Intelligence (AI) subsystems for autonomous driving, computer vision, and navigation, is likely to focus on enabling technology and collaborating with established car-makers to get self-driving cars to consumers on the road, as indicated by the recently announced partnership with Ford.

The self-driving cars unit is scheduled to become a stand-alone business under the Alphabet corporate umbrella. The new Alphabet company could offer rides for hire, with a business model similar to that of Uber and Lyft, which shows that Alphabet has a clear business strategy in mind.

These and other examples show that the X strategy - investigating wild ideas to find out if and how they can be turned into business opportunities - can work if it's well managed. Of course, an important part of moonshot management is knowing when to pull the plug. "Somebody would get too attached to the project and not kill it," said a former X employee. Therefore, a dedicated X group known as the Foundry, recently established, will oversee risk management for X projects and determine whether a project should be taken to market or killed.

That should be reassuring for cautious investors afraid that Alphabet spends too much money on moonshots with uncertain potential. At the same time, the creation of X with a re-affirmed commitment to the moonshot ecosystem should reassure bullish investors that Alphabet's visionary projects will change the world and boost the company's stock. For both, Alphabet stock remains a buy-and-hold.

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