Alphabet Eyes New Frontiers Case Solution

1. What is the rationale for Alphabet owning a variety of businesses that are significantly different from each other?

The parent organization Alphabet has a number of subsidiaries that are quite different from each other, and the company’s core business. It has invested in companies that have later grown to become big names in their industry themselves.

The owners with their futuristic visions purchased companies such as Android, and YouTube that later became huge successes. They also invested in other companies such as DoubleClick, Calico, and formed Google X where they experimented with different projects.

Their shareholders have always accused them to spend extravagantly, but this has not stopped them in exploring new ventures. However, they assured that the investments were quite insignificant compared to the core business.

The aim of the founders was to diversify the business by investing in ventures aside from search. They always aimed to look at the long-term profit of the company and maximize the shareholder value.

The criteria for investment is to look for such opportunities that aim to improve the lives of the masses through technology. They are willing to take calculated risks all the while ensuring the future growth of the company.

2. Why did Alphabet invest in Nest? How is this different from its core businesses?

Nest Labs was founded by Fadell and Matt Rogers, both of them having worked for Apple Inc. previously. The company was known to create internet-connected thermostats and smoke alarms, designed especially for what Fadell used to refer to as ‘the conscious homes’ (Constine, 2014).

The company which was founded in 2010, released its first thermostat a year later in October 2011. The product was a huge success all over the country (Kessle, 2011). This smart home appliance was able to energy-efficient as well as cost-efficient. The thermostat adaptable to user behavior, adjusting itself automatically. The thermostat came with a remote control, and also being controlled with WiFi. The ease of installing and usage made it a popular choice for households. By the end of 2013, it was installed in approximately 1% of U.S. homes.

Witnessing its growing success, Alphabet decided to acquire Nest in January 2014. It was the second most expensive purchase in the company’s history as it was acquired at $3.2 billion. The agreement between the two managements was that from then onwards Alphabet was responsible for all the administrative and financial resources, and legal assistance required by Nest in order for the company to grow.

This acquisition helped the founder of Nest to focus solely on differentiating the company from the competition. Just six months after the acquisition of the company, Nest itself decided to buy Dropcam for $555 million. Dropcam was a startup, for home monitoring security camera.

Alphabet had previously made attempts to find a breakthrough in the urban household but was not quite successful. Besides this, Alphabet had also been trying to support its Android OS for electronic devices by trying to get a firm footing  in the industry of web-connected home appliances. In addition, IoT is expected to make major contributions to the U.S. economy in the next decade.