GOOGLE STRATEGY TEARDOWN

Analysis of acquisition, investment, patent, and research trends

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ABOUT THE PRESENTER

Kerry Wu
Tech Industry Analyst, CB Insights

Focuses on automotive, transportation, and logistics tech;

additional topics include on-demand and macro VC trends
Published research and data analysis has been featured in The New
York Times, Financial Times, The Economist, and Bloomberg,
among other major media outlets

@kerrygwu

Previously worked as a management consultant at Simon-Kucher &

Partners

Graduate of Columbia University

kwu@cbinsights.com

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TABLE OF CONTENTS
9

Introduction

13

Investments: Google, GV, Google Capital

27

Acquisition Activity

34

Patent Data Analysis

38

Initiatives By Sector

43

Q&A

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INTRODUCTION

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REFRESHER ON
ALPHABETS STRUCTURE
Even within Google
proper, we are seeing an
emphasis on corralling
and centralizing related
businesses (e.g. Cloud
and Hardware).
Note: list is nonexhaustive and subject to
change.

Hardware

Home, Pixel, Chromecast, etc.

Access &
Energy

Infrastructure
Source: Alphabet

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10

SOME QUICK DATA

POINTS
of Alphabet revenue from
Google search & ads

89%

80%

76%

share of Google ad
revenue from
Google sites

cost-per-click (CPC)
vs. 2 years prior

70% in 2011
60% in 2006

Q216 figures shown. Sources: Alphabet quarterly results, Beyond Devices

Googles decade-plus
profit center remains
strong as ever thanks to
a successful push into
mobile.
Alphabet leadership is
keenly aware of the lack
of diversity in its
subsidiaries as it
searches for growth in
cloud & enterprise, AI,
hardware, and beyond.

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11

Ive commented many times

that our focus on long-term
revenue growth does not give
us a pass on managing
expenses.
Ruth Porat
CFO, Alphabet

Source: Reuters

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12

INVESTMENTS:
GOOGLE, GV, AND GOOGLE CAPITAL

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13

NEW DEAL ACTIVITY

ACROSS ALPHABET
INVESTMENT UNITS
GVs new deal activity
was already on the
decline prior to the
Alphabet reorg.
Meanwhile, new deals
through Google Capital
and direct strategic
investments from Google
have ticked upwards in
recent years.

Source: CB Insights

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14

GOOGLE DIRECT
INVESTMENTS
Google takes a handful
of direct positions, with
several mega-deals in
frontier areas such as
space transport and
satellite connective and
augmented reality.

Source: CB Insights

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15

GV OVERALL DEALS ALSO

DECLINING
GVs pace has been
trending downwards
since a peak from late
2013 to early 2014,
which saw nearly 30 total
deals per quarter.
This aligns with GVs
declining new deal
activity that we saw
earlier.

Source: CB Insights

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16

GV HAS WITHDRAWN
FROM SEED MARKET
The decline in deal pace
coincides with GVs neartotal withdrawal from the
seed market, once its
bread-and-butter.
Over the past two years,
its seed activity has
fallen almost 85% on a
year-over-year basis, with
no new seed deals at all
in the first half of 2016.

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17

When you have a $2.5

billion fund, a seed
investment has to take time
to move the needle.
Bill Maris
Founder, GV

Source: Recode

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18

GV NOW PARTICIPATING
IN MUCH LARGER DEALS
GV was founded with a
$100M capital
commitment in 2009,
which has since swelled
to $500M annually.
As GV exits the seed
market and its resources
grow, it is participating in
larger financings.

Source: CB Insights

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19

GEOGRAPHIC FOCUS
REMAINS US-CENTRIC
The firm launched a
$125M fund in 2014
dedicated to Europe, with
5 partners to lead the
unit.
However, post-Alphabet
the fund was scrapped in
December 2015 and
absorbed back into the
global vehicle with GVs
rebranding.

Source: CB Insights

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20

GVS AFFINITY FOR

HEALTHCARE UNDER
BILL MARIS
GV has heavily
committed to financing
healthcare startups in
recent years.
These range from digital
health companies
(Flatiron Health) to
providers (One Medical),
as well as startups in
fields like genomics
(Editas, Foundation
Medicine, 23andMe).

etc.

Source: CB Insights

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21

MARIS LEAVES GV
WITH STRONG LEGACY,
UNCERTAIN FUTURE
Bill Maris departs with a
number of $1B+ exits
under his stewardship.
However, as much of
GVs strategy was tied to
its founder, it remains to
be seen how GVs
investment style and
philosophy will now
change under David
Krane.

Source: CB Insights

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22

CAPITAL TYPICALLY
COMMITS TO 1-3
DEALS PER QUARTER
The junior Google
investment arm has
generally maintained a
lower profile than G V
since its formation.
The investment arm has
typically participated in 13 deals per quarter, with
a noticeable spike in
Q315.

Source: CB Insights

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23

GOOGLE CAPITAL NOT

AVERSE TO LARGER
DEALS
Google Capital most
often participates in
rounds between $25M
and $100M.
However, given its
mission it is not averse
to larger deals, such as
CloudFlares Series D
($110M), FanDuels
Series E ($275M), or
Oscars Series C
($400M).

Source: CB Insights

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24

STRONG SYNDICATE OF
KNOWN TECH INVESTORS
The funds investment
syndicate reflects a
pattern of following and
co-investing with leading
Silicon Valley VCs, as
well as notable crossover
tech investors.

GV rarely invests ahead

of Google Capital, but the
two may see increasing
overlap as GV moves into
later-stage deals.

Source: CB Insights

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25

Care.com exemplifies the kind of

company that we want to invest in.
Weve been focused on growth-stage
companies, and really our only
criteria is their having Google-sized
aspirations.
Laela Sturdy
Partner, Google Capital

Source: NY Times

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26

ACQUISITION ACTIVITY

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27

QUARTERLY
ACQUISITION ACTIVITY
Alphabet established

Google is famously one

of techs most acquisitive
companies, but activity
slowed both leading up
to and following its
reorganization under
Alphabet.

Q316 has seen a

resurgence in activity.

Source: CB Insights

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28

Robotics
acquisition spree

Boston Dynamics
robot video &
reports of sale

MIXED RESULTS FROM

MARQUEE ACQUISITIONS
Some of Googles highprofile bets from earlier
in the decade have met
with mixed results.
These include at least 7
robotics acquisitions in
late 2013 (which formed
Replicant) and smart
home purchases
including Nest, Dropcam,
and Revolv.

Source: CB Insights

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29

DEEPMIND ACQUISITION HAS BORNE MORE FRUIT

GOOGLES DEEPMIND ACHIEVES SPEECHGENERATION BREAKTHROUGH
Sep 9, 2016

GOOGLES DEEPMIND AI PLATFORM CAN

HOW THE COMPUTER BEAT THE GO

MASTER
Mar 19, 2016

NOW LEARN WITHOUT HUMAN INPUT

Oct 17, 2016

GOOGLES DEEPMIND GIVES AI MEMORY BOOST

TO NAVIGATE LONDON UNDERGROUND
Oct 12, 2016

GOOGLE CUTS ITS GIANT ELECTRICITY BILL

WITH DEEPMIND-POWERED AI
Jul 19, 2016

Sources: Bloomberg, Scientific America, IEEE Spectrum, The Next Web

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30

Machine learning is the engine that

will drive our future more than 100
teams are currently using machine
learning at Google, from Street View
to Gmail to Voice Search and more.
Sundar Pichai
CEO, Google

Source: Alphabet Q216 earnings call

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31

ENTERPRISE FOCUS
SHAPING CURRENT
ACQUISITION STRATEGY
Over the past year,
inbound acquisition
requests have come
most frequently from
Googles cloud &
enterprise unit.
This a lucrative, proven
sector where the
company has room to
catch up.

Sources: CB Insights, Recode

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32

ACQUISITIONS FOCUSED
ON VALUE-ADDED
SERVICES
According to Google CEO
Sundar Pichai, their
differentiation strategy
will involve value-added
services on top of
compute and storage
rather than competing on
sheer scale.
Many of its recent
acquisitions fall into its
category.

Sources: CB Insights, SiliconANGLE

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33

PATENT DATA ANALYSIS

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34

PATENT DATA SHOWS

REVERSAL FROM ANTIPATENT STANCE
In the past, company
executives up to Larry
Page and Sergey Brin
opposed excessive
patenting as a threat to
innovation.
However, as the threat of
smartphone litigation
intensified in the early
2010s, Google began
applying for patents at a
blistering pace.

Source: CB Insights

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35

KEYWORD FREQUENCY
ANALYSIS HIGHLIGHTS
MOONSHOT INITIATIVES
Keyword data highlights
patent activity related to
bleeding-edge projects.
These include the Glass
eyewear device and other
wearable research.
Balloon also tops the
list in 2016 to date as
development of Project
Loon continues.

Source: CB Insights

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36

SELF-DRIVING CAR
PROJECT ACCELERATES
Rising frequency of
vehicle also reflects
Googles concerted
efforts in the self-driving
vehicle space, where it
has been expanding its
test fleet and searching
for automakers to
partner with.

Source: CB Insights

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37

INITIATIVES BY SECTOR

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38

AI BEING LEVERAGED
ACROSS ALPHABET
Graduated X projects like
Google Brain and a host
of acquisitions are being
utilized enhance
capabilities from search
to cloud and voice
assistance, and even
improve power efficiency.

Source: CB Insights

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39

TRANSPORT AND
LOGISTICS
Google Self-Driving Car
Project has faced some
employee attrition and
increasing competition,
but has made veteran
industry hires and
secured its first
partnership.
Other initiatives include
delivery drones (Project
Wing) and sameday/grocery delivery
(Google Express).

Source: CB Insights

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40

 Pioneering Google Glass project was

ultimately unloved by consumers
Moved into low-end mobile VR with Cardboard

Reported in May that 5M Cardboards were in

hands of consumers (distributed widely via
partnership with NY Times); Cardboard App
has hit 50M downloads in Play store
Auto

Just announced mobile VR platform

Daydream, Lenovo also revealed first phone
driven by AR platform Tango
Investor in well-funded AR startup Magic Leap

In addition to its low-end mobile VR initiative

(and retooling Android OS to handle VR),
Google is reportedly working on a standalone
headset that would not require a tether to a
PC or game console
Sources: Wall Street Journal, TechCrunch, Fortune, Wall Street Journal

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41

Interested in more?
Our 7,000+ word teardown includes further insights
on acquisitions, investments, and sectors of interest.
CLICK HERE TO READ THE FULL TEARDOWN

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42

QUESTIONS

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43

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