Google/Alphabet CEO Sundar Pichai wasn’t kidding when, earlier this month, he said more layoffs are coming. The latest group to be hit is Alphabet’s X Lab, which is losing “dozens of employees,” according to a new report from Bloomberg. This is something like the 11th Google layoff announcement we’ve covered in the past 12 months and the fourth one this month.
The X Lab is Alphabet’s “moonshot” experimental group, which is responsible for wild concepts like a wearable head-up display, a self-driving car, smart contact lenses, flying Internet balloons, and delivery drones. This is the age of Google cost-cutting, and you’ll notice none of those projects is a rip-roaring commercial success. On Google’s financials, the X Lab is part of Alphabet’s “Other Bets” group, which burns through around a billion dollars every quarter. It’s a research arm, so the hope is that spending all this money will someday lead to new revenue streams. For the short-term Wall Street types, though, it’s a money loser, quarter to quarter, and that makes it a prime candidate for cuts.
Bloomberg has a copy of the memo announcing the cuts to the X Labs staff, and there’s more in there than just layoffs. X Lab CEO Astro Teller writes: “We’re expanding our approach to focus on spinning out more projects as independent companies funded through market-based capital. We’ll do this by opening our scope to collaborate with a broader base of industry and financial partners, and by continuing to emphasize lean teams and capital efficiency.” Basically, Google wants these money losers to find their own funding somewhere else, at least partially.
The “outside funding” model isn’t new for some of Alphabet’s biggest and most promising “Other Bets” projects. The self-driving car company, Waymo, took rounds of outside funding in 2020 and 2021, racking up over $5 billion of cash that didn’t come from the Google Ads money geyser. Verily, Alphabet’s health care data analytics company, has also raised billions in outside funding. Both groups started as X projects and later “graduated” to full-fledged Alphabet companies. Others, like Project Loon (Internet balloons) and Sidewalk Infrastructure Partners (infrastructure planning), were X or Alphabet companies and were spun out as fully independent entities, separate from the Alphabet earnings sheet. Apparently, Alphabet wants to push X projects down one of those two paths.
On one hand, outside funding will result in a tougher, more critical eye for some of these projects. On the other hand, the Bloomberg report notes that “Alphabet could only accommodate so many Other Bets, creating a bottleneck for X ventures that were ready to take the next step, according to one of the people with knowledge of the matter. Startups within X often faced a choice between waiting for a spot to open up or striking out on their own.”