Alphabet Inc. ($GOOG $GOOGL) Business Breakdown

Author

Thoughtful Investing
March 08, 2023

As our founders Larry and Sergey wrote in the original founders' letter, "Google is not a conventional company. We do not intend to become one." That unconventional spirit has been a driving force throughout our history, inspiring us to tackle big problems and invest in moonshots, such as our long-term opportunities in artificial intelligence (AI). We continue this work under the leadership of Alphabet and Google CEO Sundar Pichai.

Alphabet Inc. is a collection of businesses, with the largest being Google, which is divided into two segments, Google Services and Google Cloud. Other businesses not categorized under Google are collectively referred to as Other Bets. The company's mission is to organize the world's information and make it universally accessible and useful. This mission is accomplished through innovative products and services like Google Search, YouTube, Google Assistant, and Google Cloud.

Business Model 

Alphabet's business model is based on advertising, with the majority of its revenue coming from Google Services. Google makes money by displaying ads on its platforms, such as search results, YouTube videos, and mobile apps. Advertisers bid for ad space through the Google Ads platform, and Google earns revenue from clicks or impressions on those ads.

Google Cloud, on the other hand, generates revenue by providing cloud-based computing services to businesses and organizations.

Other Bets is an umbrella term for Alphabet's various experimental businesses and projects, including Waymo, Verily, and Wing. These businesses are not yet profitable, but they have the potential to become major sources of revenue in the future.

Alphabet also continue to focus on growing revenues beyond advertising, from Google Play, hardware, and YouTube subscriptions, such as:

• Google Play generates revenues from sales of apps and in-app purchases.

• Hardware generates revenues from sales of Fitbit wearable devices, Google Nest home products, and Pixel devices.

• YouTube non-advertising generates subscription revenues from services such as YouTube Premium and YouTube TV.

Alphabet Inc. Disaggregated Revenues

Business Strategy

Alphabet's business strategy is based on innovation and taking risks. The company is not afraid to invest in moonshots, high-risk, high-reward projects that have the potential to transform industries. Examples of Alphabet's moonshots include self-driving cars, healthcare technology, and renewable energy. The company is also focused on leveraging the power of AI to improve its products and services and to solve some of the world's most pressing problems.

Alphabet's business strategy is also based on diversification. The company is not solely reliant on advertising revenue from Google Services. Google Cloud, for example, has been growing rapidly and is becoming an increasingly important part of Alphabet's business. Additionally, Other Bets provides Alphabet with opportunities to explore new markets and industries.

Privacy and security are also key elements of Alphabet's business strategy. The company takes great care to protect the privacy and security of its users' data. Alphabet invests heavily in building secure products and features and is committed to responsible data practices that prioritize privacy by design.

Conclusion 

Alphabet Inc. is a unique company that is not afraid to take risks and invest in moonshots. The company's business model is based on advertising, with Google Services being the primary source of revenue. However, Alphabet is also diversifying its business through Google Cloud and Other Bets. Alphabet's business strategy is based on innovation, diversification, and a commitment to privacy and security. By focusing on these core values, Alphabet is well-positioned to continue growing and evolving in the years to come.