The AI-first era can't come quick enough for Google
If you're a gigantic tech incumbent, how you continue a revolution in 2017?
“Revolution,” of course, is overused term. These days, it's more dinner party than act of insurrection, even by the standards set in Silicon Valley several decades ago. The rise of the personal computer changed many things, which led to the legend of Steve Jobs, which led to a bunch of corporate executives trying to pretend they don't dare to wear his mantle - all while coveting said said mantle. Which led to a lot of dreaming about big, audacious moonshots.
Which brings us to Alphabet.
Alphabet – like any corporation aspiring to continue this post-Jobs, digital revolution – is not the kind of company to exhort any masses into action. Instead, it may rely on classical conditioning to do so. Alphabet's revolution is one endless, dull dinner party, with serving after rich serving of innovation after innovation, long after our consumer bellies grew bloated and our tongues lost the power to taste anything delicious anymore.
Recall the first time you traveled virtually after the launch of Google Earth in 2005, or the skydiving demo of Google Glass during 2012's I/O conference. These announcements inspired excitement about the future – and even, for a while, a belief that Google Glass could catch on.
Now, contrast that wonder with the reaction to Google's announcements at this year's I/O: a smarter way to share Google Photos with friends, an Echo rival that could prove more useful than Echo, a technology called Lens that can use a smartphone's camera to interpret the world around it. These are interesting, potentially useful achievements that may come to matter to our daily lives. And yet even the shills Alphabet sprinkled throughout its I/O audience couldn't work up a convincing applause.
The biggest question I had after this year's I/O conference was why it all felt so underwhelming, if it was whelming at all. Is the company slowing down? Are the cost-cutting and the abandoning of many moonshot projects neutering its innovation? Or is it that artificial intelligence – the centerpiece of Alphabet innovation these days – is not so much dazzling as it is a revolution happening, at least for now, just outside our mainstream field of vision?
Maybe it's the startups that need to dazzle with their innovations to capture the world's attention, while tech giants can afford the luxury of boredom, that is, of technologies that are quietly transformative.
Remember when Satya Nadella joined Microsoft and kept intoning this mantra: “mobile first, cloud first”? It's okay if you don't, but in the two years since, Microsoft's stock has risen 71 percent, nearly triple the gain of the Dow Jones Industrials Average in that time.
Remember when, a year ago, an analyst asked Google CEO Sundar Pichai where Alphabet was spending its development resources, and Pichai responded in a way that was a kind of retort to Nadella's “mobile-first” vision? He had a different vision:
And overall, I do think, in the long run, I think, we will evolve in computing from a mobile-first to an AI-first world. And I do think we are at the forefront of development. So we don't view it as adapting to it as much as pushing hard and getting there. And so that's the core of what we do, and we'll continue to do that.
A year later, it's becoming clear how important that new mantra is for Google. A key takeaway from I/O was that AI has displaced search as the core element of Google's DNA. Search is not going away, but neither is it the hill on which the biggest digital-advertising battles are being fought. Google has fared well in the “mobile-first” era, thanks to the global ubiquity of Android and mobile-friendly ad platforms like YouTube.
All of this has kept Google at the head of the race to sell digital ads. Increasingly, though, it's having to share that lead with Facebook. Google's overall ad revenue still dwarfs that of Facebook, but its share of the growth of the online-ad market is pretty much split with its primary rival. And according to a recent report from Parse.ly, Facebook is a bigger referrer of traffic to certain types of ad-friendly content, such as lifestyle and etertainment, local events, and presidential politics. Google still leeds in sports, finance, and job postings.
So the AI-first era can't come quick enough for Google in particular and Alphabet in general. Alphabet has been pulling back from some of its audacious projects, such as Fiber and Boston Dynamics. What looked at first like retrenchment may have been the more visible part of a refocusing around projects that could benefit from the company's AI technology.
The search engine that became Google started crawling the Web in 1996. It took several years before most users started regarding it as their search engine of choice. Alphabet's AI technology may win the world over just as slowly but surely. There may not be a product that wows the masses for a while (unless you are a Go aficionado who has come across AlphaGo). If and when one comes, it may be WayMo.
With companies from Tesla to Uber to Detroit automakers like Ford racing to produce autonomous vehicles, the smart bet has long seemed to be Alphabet. Last week, Morgan Stanley put a price target of $1,050 on Alphabet shares, with one bullish reason being Waymo. Morgan Stanley, which said the subsidiary is likely to be spun out because of regulatory considerations, reckoned Waymo could be worth $70 billion.
Ever since Google molted into Alphabet, the question hanging over the company has been, can it keep funding its moonshots? Even with CFO Ruth Porat urging cost cutting, the “Other Bets” continue to lose money ($855 million last quarter alone). Was Alphabet cutting off future growth? Or pruning the shaggier limbs?
If Pichai is right and we are heading into an AI-first world, it might become a pruning job after all. Google the search giant still lives, even if its glory days are behind it. Alphabet the AI giant is coming, and maybe its best years are stretched out before it.