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Google's plan with Alphabet: build the Bell Labs of the 21st century

Larry Page and Sergey Brin have always seen Google's aim as more than mere profits. "Google’s mission is to organize the world’s information and make it universally accessible and useful," reads the company website. But even that's come to seem too small to its founders. In their 2004 IPO letter, they put it more broadly: "We aspire to make Google an institution that makes the world a better place."

A more precise mission statement may be, simply, "Google: better living through technology." Page and Brin have become obsessed in recent years with what they see as a kind of market/cultural failure to pursue the big, expensive ideas that might truly change lives. In an interview with the Financial Times, Page was unsparing:

Page estimates that only about 50 investors are chasing the real breakthrough technologies that have the potential to make a material difference to the lives of most people on earth. If there is something holding these big ideas back, it is not a shortage of money or even the barrier of insurmountable technical hurdles. When breakthroughs of the type he has in mind are pursued, it is "not really being driven by any fundamental technical advance. It’s just being driven by people working on it and being ambitious," he says. Not enough institutions – particularly governments – are thinking expansively enough about these issues: "We’re probably underinvested as a world in that."

As Ben Thompson writes, Google's founders aren't business-and-strategy nerds, which is what continuing to run Google's search and advertising products would require. They are change-the-world nerds, and that's why they're reorganizing their company around breakthrough technologies.

But in this, Google — excuse me, Alphabet — is walking well-trod territory. AT&T took its monopoly profits and funded Bell Labs, which racked up Nobel Prizes, invented the transistor, and revolutionized our understanding of how the world began. Xerox took its profits and built PARC labs, which developed the graphical user interface that led to the Macintosh. And now Google wants to take the massive profits from its search-and-advertising business and fund its own factory dedicated to changing the world.

Michael Hiltzik is the author of Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age, as well as the new book Big Science: Ernest Lawrence and the Invention That Launched the Military-Industrial Complex. And so I asked him: Does Google have a chance at really making these moonshot technologies work? Or is this just founder ego run amok? A lightly edited transcript of our conversation follows.

Ezra Klein

Do you think the comparison of Google and Bell Labs or Xerox-PARC is valid?

Michael Hiltzik

There are a few things you need to do what Google seems to want to do. One is a huge flow of revenue. This is something AT&T had when it was a monopoly provider of communication services and Xerox had when it was exploiting the revenue flow from what was then one of the most successful commercial products in history.

The next thing was to create an atmosphere in the research arm that allowed serendipitous development. Most of what Bells Labs was trying to do was advance communications technology. But communication encompasses a lot of things. The transistor was the product of the idea that we should be more effective and efficient transmitters of voice information. They were looking for an alternative to vacuum tubes. When they discovered the background radiation of the Big Bang, they were ostensibly researching communications technology — they won a Nobel Prize, and that was okay.

Xerox-PARC was the same way. The idea was to keep an eye on the digital future. Xerox deliberately established PARC on the other side of the country. They accepted it when the guy they put in charge of PARC said, Don’t expect anything you can commercialize in the next five years. So they ended up with the personal computer and the graphical user interface. No one could have foreseen that from the original charge.

So when I look at Google’s R&D, what interests me is they’re not only working on the self-driving car, which would be easy to commercialize, but life-extension technology, which is way out there. That reflects this culture where they want to nurture a spirit of inquiry.

Ezra Klein

From the corporate perspective, are Bell Labs and Xerox-PARC examples of success or failure? Bell Labs created the transistor, but it was Intel that commercialized it. Xerox-PARC created the graphical user interface, but it was Apple that commercialized it. There's huge social benefit in all this, but even if Google makes breakthroughs, is it likely to benefit from them?

Michael Hiltzik

It depends on the company. I’ve been talking about the culture of the research organization, but there’s also the question of the culture of the company and the reality of their business. AT&T had a communications monopoly. So it could get into anything related to communications.

Xerox was a prisoner of the success of the copier business — it had a whole sales and manufacturing structure devoted to this product. The way Xerox made its money wasn't even selling copiers, it was leasing them. You paid based on how many copies you made. So it was very hard for Xerox to get into anything that wasn’t really connected to the copier. They had 250,000 salesmen, and when they looked at the personal computer it wasn't even clear how they made their commission off of it.

Google, almost from its inception, has had a much broader idea of what could be its business. Google engineers have always been given time to work on whatever they want. That tells you Google conceives of its business based on what it discovers. And that may mean the company is more able to absorb dramatically different technologies and discoveries.

Ezra Klein

But isn't the creation of Alphabet a signal that Page and Brin don't think that's true? It seems that implicit in this move is the idea that these other ideas and products are being somehow stanched by being inside Google, and they need to be spun out into separate entities if they're going to succeed.

Michael Hiltzik

That’s very possible. A company can also come to believe what it’s doing is costing it shares because Wall Street doesn’t understand how it all fits together. That's one reason you often see businesses spin out new product lines or break themselves into pieces.

I was just looking at Google financials, and in 2014 they brought in $66 billion in revenue, brought in $10 billion profit, and they were holding over $60 billion in cash. Investors can’t say, Don’t use that money to look ahead. But things change over time. That’s why this is encouraging. They’re setting up a culture that looks ahead to innovations.

Ezra Klein

In his Financial Times interview, Page almost seems to be saying that there's a market failure around moonshot innovations — that for reasons both cultural and financial, there's too little investment in very big ideas, and so there's both good to be done there but also money to be made there. I guess another way of putting that is that Alphabet doesn't face competition for talent or big thinking right now from a Bell Labs or a Xerox-PARC. Do you think he's right?

Michael Hiltzik

I look at it in a broader sense. Traditionally — which is to say the last 50 to 75 years — the patron of basic research has been the government. The government doesn’t have these imperatives to think only about commercializable research. The internet was a government project. But what we’ve seen in recent decades is that government has started to withdraw from that role because it doesn’t want to spend that much and because the funding has become more politicized. Scientific research is easy to caricature and thus easy to cut. So basic scientific research has moved toward private industry, but they have these imperatives to foster the bottom line.

Google is now the epitome of a company that has so much money coming in that they have the luxury of steering some of that money to worlds that no one knows exist yet.

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