Building a research division is an old and often unsuccessful concept, and now that Google has been reorganized as Alphabet, investors are getting something of a yardstick to judge the progress of its “moonshots.”
MOUNTAIN VIEW, Calif. — Project Foghorn is one of those straight-from-science-fiction concepts we’ve come to expect from Alphabet, the sprawling conglomerate formerly known as Google. The idea, hatched by the company’s X research lab, was to use seawater and chemistry to create fuel that could be refined into gasoline. This gas would be just like the gas we fill our cars with today — except that unlike today’s gas, it would not add to global warming because it would recycle carbon dioxide already in the atmosphere.
If the project had been successful — and this was always a big if — it would have redefined green energy and potentially undercut some of the most important industries in the world, not least the oil business. But after two years of trying, and an undisclosed research budget, Foghorn died during a January staff meeting.
The result: Everyone on the team received a bonus (They won’t say how much).
X, formerly called Google X, cheekily refers to itself as “the moonshot factory.” They are the people behind Google’s self-driving car, along with various out-there projects like Loon, an attempt to beam internet access from stratospheric balloons, and Wing, a drone delivery service.
Most Read Business Stories
- Seattle tops nation's slowing housing markets
- Cantwell pushes to clear Boeing's final 737 MAX models, with conditions
- Fees for using MyChart? More health systems charging for some messages
- Home prices in Seattle and U.S. drop again as market cooldown continues
- There’s a job-market riddle at the heart of the coming recession
Those efforts sit atop dozens of aborted projects — some just ideas, others that consumed years — like a never- built jet pack and giant blimps that would haul cargo with the same efficiency as an ocean liner.
What all these efforts have in common, besides imaginative power, is that they do not make any money. X’s budget and head count are a secret, but shareholders’ perceptions about the division were aptly summed up by a poster board in its Mountain View offices. It had a picture of a burning $100 bill followed by, “Investors think we do this.”
That poster points to a central question for both X and Alphabet: What exactly is X’s business? And how does a public company invest in such speculative ideas, most of which will never work, without irritating investors or wasting a ton of money?
Building a research division is an old and often unsuccessful concept. For decades, corporate giants like AT&T, IBM, Microsoft and Xerox have tried, in varying ways, to organize research-oriented groups in hopes of finding ways to cash in on emerging technologies before their competitors.
Those efforts played a role in creating some of the 20th century’s most significant innovations. For instance, Bell Labs, then a division of AT&T, invented the transistor, the foundation of modern electronics. But in many cases these research arms did little for the companies that financed them.
Xerox pioneered the graphical interface for computers — the idea that people could navigate with a mouse rather than by typing obscure commands on a screen. But it was a young company named Apple that turned that idea into a giant business.
While investors still do not know X’s budget, they at least have a sense of the limits. In the first quarter, Alphabet lost about $800 million on what it called “other bets” — everything outside Google’s core search and advertising businesses — and it will update the figure when it reports its second-quarter earnings Thursday.
At the same time, now that X is spinning off new companies that will either stand on their own or die, investors are getting something of a yardstick to judge the division’s progress. If one of those new companies starts to rival search advertising as a revenue stream, X will be considered a success. If that never happens, it will be a failure (and not the good kind).
For instance, X’s self-driving-car project, known internally as Chauffeur, recently hired a chief executive and is poised to become a stand-alone company. Another, called Verily, is a life-sciences company that has developed, among other things, a glucose-sensing contact lens for people with diabetes, and has licensed that technology to Novartis. Verily became its own company shortly after Google announced the Alphabet reorganization.
“The thing we created — our product — was Verily, and at the highest level we are being paid as an organization to do that somewhat regularly,” said Astro Teller, X’s chief executive, though his actual title is “captain of moonshots.”
“I would not want to promise anyone internally or externally that we’re going to do it once a year.”
While operations like Bell Labs and Xerox PARC worked on problems that were at least nominally related to their parent companies’ core businesses, X employees can work on anything they like. In fact, they are discouraged from straying into Google’s main business because Google has its own research group that focuses on machine learning and other computer-science topics.
And while Bell Labs and others made huge contributions to basic, university-style research, X projects are conceived as moneymaking enterprises, or things that at least seem as if they could make money sometime in the next few years.
With Foghorn, the goal was to turn seawater into gasoline for no more than $5 a gallon — enough that it could conceivably find a market in some European nations where high taxes make gasoline more costly.
Kathy Cooper, an engineer who led the project, said of the goal, “I think we could meet it, but it would be more like 15 to 20 years.” That was too far away, which was why she recommended killing it.
X employees avoid talking about money, but it is not a subject they can ignore. They face financial barriers that can shut down a project if it does not pan out as quickly as planned. And they have to meet various milestones before they can hire more people for their teams.
The point, several executives said, is to encourage employees to think big while staying away from creating technology for technology’s sake.
X was founded in 2010, and it was originally in a brick building on the edge of Google’s main campus.
At the beginning, it felt like an extended 20 percent project — the extra projects Google employees are encouraged to work on outside of their main job — with little in the way of process.
Former Google employees said this led to a temptation to overhype projects long before they were ready. The most notorious example was Google Glass, the much maligned computer glasses.
Today, the company’s offices are a few miles from Google’s main campus. They are full of electric vehicles and people riding skateboardlike contraptions. Teller appears to be always on Rollerblades.
Beyond the main lobby and offices, behind key-card-protected doors, sit various labs, as well as an open warehouse floor that houses a division called the Design Kitchen, which appears to be a cross between a machine shop and a cool dad’s garage. Some items spotted on a recent tour included climbing rope; lots of tools; oversize plugs; a set of skateboard wheels attached to a block, wires and a 9-volt battery; a plastic ear; and beer.
Unlike Google, where software engineers are kings, X is run by an eclectic batch of scientists and tinkerers whose backgrounds range from math, physics and chemistry to design, fashion and public art. The line “I’m not an engineer” seems to be a point of pride.
Rich DeVaul, who heads a “rapid evaluation” team whose job is to hatch and kill ideas in short order, guessed that fewer than half the employees have engineering degrees.
Failure bonuses notwithstanding, no normal person would walk away from X thinking it looked frugal. There is a free cafeteria whose recent menu included sushi and pork tri-tip. The bathrooms have Japanese toilet seats with buttons for warmth and spritz.
Listening to X executives talk about saving money is a bit like having billionaires tell you they built a $30 million house for $30 million and not a penny more.
But X’s success will be less about money saved than the creation of a new Google-size business whose profits wash away all the losses. And while the division has had some successes, it has yet to produce the “moonshot” Teller is hoping for.