COMMANDING the plot lines of Hollywood films, covers of magazines and reams of newsprint, the contest between artificial intelligence (AI) and mankind draws much attention. Doomsayers warn that AI could eradicate jobs, break laws and start wars. The competition today is not between humans and machines but among the world's technology giants, which are investing feverishly to get a lead over each other in AI.
Alphabet is broken out into its core Google business and a number of other subsidiaries, which it deems "Other Bets." The majority of Google's business comes from advertising revenues, which the company generates through its search engine as well as a number of other Google-affiliated and partnership websites. Outside of search and advertising, Google generates revenue from products including cloud and enterprise, consumer hardware, mapping, and YouTube. In addition to Google, Alphabet encompasses a host of other subsidiaries called "Other Bets." These companies are more experimental in nature, and as a result are not material to Alphabet's bottom line.
You're probably reading this on a browser built by Apple or Google. If you're on a smartphone, it's almost certain those two companies built the operating system. You probably arrived from a link posted on Apple News, Google News or a social media site like Facebook. And when this page loaded, it, like many others on the Internet, connected to one of Amazon's ubiquitous data centers. Amazon, Apple, Facebook and Google -- known as the Big 4 -- now dominate many facets of our lives. But they didn't get there alone. They acquired hundreds of companies over decades to propel them to become some of the most powerful tech behemoths in the world.
Before we dive into the data behind Alphabet's forward-looking strategy, we must quickly assess its most mature and most profitable (by far) business line: Google search and advertising. As a reminder, Google now consists of search, mapping, cloud & enterprise, Google-branded consumer hardware and operating systems (Chrome, Android, etc.), and YouTube. All other units, from investment vehicles (GV, Google Capital) to the X arm, are now subsidiaries reporting directly to Alphabet management. We will use the Google moniker when discussing either the company proper or historical pre-Alphabet activities under its banner. The company outperformed analyst expectations in Q2'16 with surging top- and bottom-line growth.
There are number of factors that motivate businesses to take over other businesses. These factors include innovation, integration, portfolio expansion, killing competition, talent or customer acquisition. The 5 most powerful tech companies (Microsoft, Google, Apple, Facebook and Amazon, hereinafter called the Big 5) have been at the forefront of making such acquisitions. They have strengthened their competitive position and have a combined market capitalisation of over $2.8 Tn. While comparison is odious, consider that the Indian GDP is around $2.3 Tn and one can imagine the value they have created.