Google Parent Alphabet Feels The Impact Of Heavy Spending

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Google veteran replaces Schmidt, as costly promotions for Pixel2 smartphone and YouTube TV impact results

Alphabet disappointed investors with its quarterly results as it felt the impact of heavy spending on promotions for its Pixel2 smartphone, YouTube TV, and cloud services.

However advertising growth remained strong for Google’s parent company and it has also replaced long-standing executive chairman Eric Schmidt with board veteran John Hennessy.

Eric Schmidt Landscape

Strong Growth, Heavy Spend

On the surface it seems that Alphabet enjoyed a strong year. For the fourth quarter Alphabet posted a net loss of $3bn (£2.1bn), compared to a year-ago profit $5.3bn (£3.7bn). Sales in the three month period were $32.3bn (£22.7bn) from $26bn (£18.3bn) a year earlier.

Indeed, there was plenty to happy about, as demand for expensive adverts on mobile apps kept Google’s core ad business strong. However this was tempered after expenses jumped 27 percent to $24.7bn (£17.4bn) in the fourth quarter from the year-earlier period.

It is reported that this expense rise was partly down to Google’s heavy promotion of its Pixel 2 smartphone and YouTube TV service. Google also cut the price on other hardware (speakers etc) and added staff to its enterprise sales unit to help grow its cloud business, which is in third place behind AWS and Microsoft Azure.

And, according to Reuters, Google also spent a growing portion of revenue to keep the Google search engine as the default option on products and services such as Apple’s iPhone and Mozilla’s Firefox browser.

Schmidt Replacement

Meanwhile Alphabet announced the replacement of long-serving executive chairman Eric Schmidt with board veteran John Hennessy as non-executive chairman.

Hennessy, 65, is a former Stanford University president and one of search engine company’s first users.

Indeed he joined Google’s board in 2004 months before the company went public, and he was also dean of Stanford’s engineering school when students Sergey Brin and Larry Page developed Google.

Eric Schmidt had announced in December 2017 that he would step down as the executive chairman of Alphabet’s board of directors, and concentrate more on his philanthropy work.

Schmidt oversaw the huge corporate restructuring of Google in 2015, until it eventually became a business unit of the holding company Alphabet, whose holdings now include Google, YouTube, Nest and Waymo.

Schmidt’s decision ended a 17-year run in which he played a central role in building a promising startup called Google into a global technology powerhouse.

He remains a board member and adviser on technical and science issues.

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