If anyone at Gooogle is wondering why they are going through this pain or might have been fired it is because TCI, which is an activist hedge fund, decided they want to make more money and they have a giant share of ownership of Alphabet stock.
TCI sent Google a letter [1] telling them they need to cut people to get higher margins (>40%) as well as pay the investors more (stock buybacks).
Google is choosing to do what this group of investors says instead of supporting it's employees.
Edit: This data came from me asking myself of the headline "ok who is it that is putting "Pressure to Cut Costs" on Google." Luckily TCI made it really clear
They can send all the letters they want. Larry & Sergey have controlling interest[0] in Alphabet and can very much decide to ignore any of this if they want. In effect, TCI can't compel them to do anything they don't want to do.
I think merging Waze and Google Maps teams is actually smart, whether it cuts cost or not seems like they have similar goals as a product.
That said, doesn't mean Alphabet won't head some investors letters or something, so its always possible
I can’t comment on Google specifically but it is possible to have de jure controlling interest, while another party has de facto control because they can threaten to unload a huge position and tank the price.
Even in that scenario, the people making that threat are not actually in control. The ones with control are choosing to do this, rather than lose money.
These people are not forced to make more money at the expense of others. It's their choice.
If the threat is that unloading a position will cause a dip in shareholder value of $X, but those actually in control believe their own thesis and operating model is worth more than $X, then they can choose to weather the storm, believing their way will negate the loss of $X.
If they really don't have an answer to the activist investor's thesis, then yea, they'll roll over.
But it completely ignores the commercial reality: 10% of your holdings making a move is sometimes enough to swing a board decision. Look at AGL in Australia and the recent play by Grok ventures. Nothing like 50% + 1. They moved the mountain.
You are conflating control with influence. Control is the ability to make a unilateral decision, consequences be damned. Influence is the ability to impose costs and benefits on a decision maker so that they do what you want
No disagree but also.. this is nitpicking. Everyone reading the flow knows what was meant here: change was effected by a significant minority of shareholders exerting influence. You would not be wrong saying colloquially "they were made to" or "had to" even though legally no force exists. Well clearly to a nitpicker you would be wrong, but half the room is now rolling their eyes.
Yes 10% of your company being sold at once would be alarming. Thing is TCI does not have anything like that much. They have ~0.5% of the equity and less than 0.5% of the votes.
They're still one relatively teeny investor in a company with a gargantuan market cap. Nobody really cares that much whether they hold or sell.
More likely, though I haven't read their letter in depth, is that their beliefs actually aren't that far out there - I mean, you probably aren't going to get pushback from anyone if you say "Google is bloated and needs to trim and focus". So they write a letter and make some noise, and then when Google makes some rather unsurprising changes they can say something like "look how influential and prescient we are", and that has value in the investment world.
I recently created an account on Waze and it was quite a challenge. Kept giving me errors, and giving me impossible instructions. It was one of the jankiest/most broken experience I've had in an Android app.
Then in my last trip I tried using it to find gas stations on my drive and it was a huge pain in the ass. It was once again impressive in how bad it was.
Waze has some nice features, but it's janky af. Google Maps is considerably better in almost every way. Waze is useful to see speed traps and has more information about gas prices. (Much less helpful in getting you TO those gas stations, though.)
I do not think it is much better. I like Waze when I want to aggressively avoid traffic when driving. But Waze doesn't let me save offline maps. Also, I think Google Maps might have better voice navigation when it comes to specific lanes. It depends on the roads and map updates, but Waze might tell you to turn left, but Google Maps might tell you to "use the second from the right lane to turn left".
I'll usually load up waze in the car and have it sitting where I can see it, but I never ask for directions because I know where I'm going. It'll warn me about bad shit on the road ahead of me, saved my ass a couple times by telling me to decelerate from ramming speed to normal speed.
I would never use anything other than driving directions
I only walk to and from my car, and i do not own a bike, and if a business does not have parking less than 300ft from the door I am going to a different business
Google generally is poor for hiking trails etc. Use Open Street Maps in that case. (Which isn't perfect but is at least better given there's no money for Google in better hiking trail maps.)
Not dissing on you by any means, it’s just crazy to me how different this is than London. My train station in Surrey is a good 1.3km walk from my home, but all of my neighbors do the exact same thing.
Waze: 4 out of 5 scary Uber drivers who drive aggressively, abruptly turn on to obscure side streets at the first sight of another vehicle, and blare the navigation voice as loud as possible on their smartphone speakers choose Waze.
Seriously, Google Maps being a all-caps TERRIBLE app? Come on. It's basically the gold standard.
In my experience, Waze is more about the perception of progress - it optimizes for reducing the amount of time you are _waiting_, sometimes at the expense of _progress_.
In NYC, it often makes absurd suggestions - I once got in an uber on 33rd and 2nd trying to get to penn station on 31st and 7th avenue. Far and away the most straightforward path is to head west on 31st street all the way to 7th avenue, but there's always a backup between 5th ave and 7th avenue - but that's still the fastest route. Waze directed the uber to head north on 3rd avenue to 39th street, head west, make a left on 5th avenue, then make a right on 35th, then make a left on 7th. It took twice as long, but we were always moving - it just wasn't taking into account how long it can take to make a turn on nyc streets.
I'm guessing it's a preference setting at this point, Waze was acquired long ago and they should have the same information to pick a route.
Waze seems more willing to save time even if the path gets more complicated. Maps on the other hand even exposes a "greener" path that minimizes fuel when it won't cost too much time.
Related question here, do you know if they have done anything public with that data besides showing you a speed trap in real time? Like are there any summary maps of where speed traps typically occur?
Yeah but different teams, different goals. With this news, I give it a year or two before Waze is shut down and only a few Waze features are added to Maps. Nothing good will come from this.
Yes, I know. And when that happened, there was a sharp drop in quality in Google Maps as they tried to add Waze features into Google Maps. I can imagine the same drop in quality in Waze if Google starts doing Google things to it.
Their fiduciary responsibility is not to defraud the shareholders. Milton Friedman’s idea that management’s only constituency is the shareholders is not actually a matter of law.
Management can just say “in our judgement X is the right thing to do, not Y”. Google is too big for TCI to try to gain control over.
The wikipedia page pretty accurately summarizes why Dodge v. Ford isn't really a useful citation.
Firstly, if an executive says "we believe this is in the interest of long-term shareholder value", the courts basically just defer to their judgement. You can't get the courts to run a company for you.
And second, the precedent has been softened since 1916 (or wasn't even true at the time), and for example some corporations like B-corps explicitly reject it, without any legal consequences.
No, you are very incorrect here. I am sorry to say that you fell for some spicy headlines, and there is no evidence to suggest TCI's letter had anything to do with this restructing.
TCI has a trivial stake in Google — at most, less than half of one percent of the company[0]. By voting shares, Larry and Sergey alone control >50% voting power[1]. TCI has nowhere near enough influence to move the needle in any appreciable way here.
[0] $6B / $1200B market cap (edit: to clarify, this is an upper limit, in practice it's even less because of super-voting shares owned by the founders)
No, I don't believe I am. Can you clarify what you think I've mixed up?
Class A shares (such as TCI have) have regular voting rights. Class B shares (such as Larry and Sergey have) have 10x voting rights. Thus, as I understand it, TCI's voting voting power is at most roughly ~0.5. In practice, it's way less than that due to all the class B shares[0], reinforcing my point.
>GuruFocus data, as of 29 November 2022, revealed that 59.13% of Alphabet’s stock was owned by insiders, including the two founders, while 22.21% of common shares were owned by institutions including brokerage firms, hedge funds, pension funds and asset management companies.
Wow, I seriously never thought Google would be vulnerable to activist investor actions because it's market cap is too big and its shareholders too idealistic. I'm still not sure that's not the case? Activist investors are sending letters all the time, and it's not a given that they are taken seriously, only if a shareholder vote would approve of their company policy goals. How do you know that TCI has a serious chance of that happening? If not then it's likely that Google's leadership just ignores it.
What is the angle then for them sending such a letter then? I’m just curious who TCI is and what their deal is? Are they just myopic or is this a publicity stunt?
Investor desires congeal into a messy influence on the company. An investor pushing on the company helps direct that blob of influence a little bit.
It’s like when you’re annoyed about something local government is doing and you show up with 50 other people also annoyed. Now you’re part of a news story and a stakeholder faction. But you all got there because of your individual desires.
Also, the letter is a public artifact. The investor is also meeting formally and/or informally with Google or individual directors.
They do actually want people to act on their letter. This is the same as an analyst in an earnings calls saying "hey can you slow HC growth even faster?" They've got an opinion and put it out there.
But there is no evidence that this change is related to their letter (especially since none of the changes made in this case match any of the specific requests in the letter).
"Google Combines Maps and Waze Teams Amid Pressure to Cut Costs"
"...as the search giant faces pressure to streamline operations and cut costs."
"The activist hedge fund TCI Fund Management called on Alphabet to aggressively cut costs last month, writing in a letter to management that it thought the company’s head count was too high."
Are you suggesting that the WSJ is totally off base by drawing the conclusion that pressure from TCI, via this letter, is not the cause of the restructuring?
>Are you suggesting that the WSJ is totally off base by drawing the conclusion that pressure from TCI, via this letter, is not the cause of the restructuring?
What a masterclass in logical fallacies.
The implication of the article is that generally investors think Google is too liberal on spending (anecdotally, I will tell you this sentiment is very real).
The WSJ used a specific and public example of someone putting that into writing, but if you think a non-Top 20 shareholder can convince Google to do something (that Google doesn't believe most of its shareholders want), then you really don't understand how corporate governance works.
Even the more aggressive well-known activists rely on the idea that they can convince more than 51% of shareholders to agree with them
Google is doing this because it thinks the majority of shareholders agree with it, otherwise they'd tell TCI to kick rocks (as often happens with activists, Google knows that no-one can actually buy enough shares to influence their management decisions, unlike some SMID caps.)
>Google is doing this because it thinks the majority of shareholders agree with it, otherwise they'd tell TCI to kick rocks (as often happens with activists, Google knows that no-one can actually buy enough shares to influence their management decisions, unlike some SMID caps.)
I'm glad we agree. That's almost precisely the argument I made throughout this entire thread.
>Are you suggesting that the WSJ is totally off base by drawing the conclusion that pressure from TCI, via this letter, is not the cause of the restructuring?
That's a misrepresentation of what the WSJ piece says. All the article is doing there is highlighting that there has been external pressure on Google to cut costs.
The excerpt you highlighted points out TCI's request for reduced headcount, while a few paragraphs earlier, the article says that there is no plan to reduce headcount.
> Are you suggesting that the WSJ is totally off base by drawing the conclusion that pressure from TCI, via this letter, is not the cause of the restructuring?
Yes. In fact its off base enough that I don't think they actually make that claim in the article.
TCI holds something like .5% of alphabet market cap, that's less than is held by multiple individual human investors in Google, and likely less than rank-and-file employees hold collectively. It'd be weird to pay any attention to such a group.
General economic conditions--many companies thought that the pandemic bump would last forever and planned spending that way. It hasn't, so they adjust spending. It doesn't take an activist investor or outside consultants or anything to look at your numbers and the trendline, and then decide to adjust your business according to what you see.
Yes, I have read so many news articles about Google that are trying to tenuously piece together a narrative where there isn’t one. An investor with 0.5% of outstanding shares and effectively 0 voting power can’t make Google do anything. They can post pdfs and work the PR machine (which hates Google because news media sees Google and Facebook as their main competitors for revenue ie ads), and WSJ can try to link the two, but that doesn’t imply any causality
I suspect you mean, "at that point", talking about after "the coming months". If you do indeed mean today (at this point), then I'm actually curious why you think forming the opinion now isn't hasty.
That is very understandable, even many native speakers get the same sorts of things confused. Your comment just didn't seem so controversial as the lighter text suggested so I was hoping to clear that up. Thanks for confirming!
They don't need to do a layoff to do a layoff. If you just set the (new) HC to 0 or significantly below replacement rate, you get reduction in staff just due to churn. When teams are sizeable, even with very low churn they lose employees over time. And then if you are more insidious, you can start introducing unpopular measures "in the name of business" that increase churn.
I am saying that this move is largely unrelated to the TCI memo. The WSJ article goes further:
>In September, Mr. Pichai said he wanted Google to become 20% more productive and indicated the company could merge teams working on overlapping products.
TCI's memo highlights five areas they think need to be adjusted, none of which Alphabet acquiesced to with this restructuring.
To be frank: don't know, don't care, and I don't need to have an answer to that question in order to be able to disagree with your original point. You came to this thread telling Googlers that the blame for this lies with TCI. I was curious, so I read TCI's memo and the WSJ piece. Now that I've done so, I simply find your assertion far-fetched, for these differences:
TCI
- Sent letter to Alphabet in mid-November
- Holds a mere .5% of Alphabet's market cap
- Asked for headcount reduction
- Asked Alphabet to pay employees less
Alphabet
- Publicly commented in September that they intended to combine overlapping groups
- Combined overlapping groups
- Didn't lay anyone off
That's it. At this point, given your slightly elevated tone in your most recent responses, it's starting to feel as though you began commenting with an axe to grind, and are now left holding an axe but are unsure what you should do with it. Maybe just put it down?
The genesis here was me keying off of related phrases within the WSJ piece:
"...Amid Pressure to Cut Costs"
"...faces pressure to streamline operations and cut costs"
Ok, great. So, my question is where is this pressure coming from?
"The activist hedge fund TCI Fund Management called on Alphabet to aggressively cut costs last month, writing in a letter to management that it thought the company’s head count was too high"
This is the WSJ suggesting that there is a link (granted they do not give confidence intervals) between these things. You could argue that perhaps WSJ is just poorly suggesting that there is a general "background radiation" of "pressure" related to Google.
So it's not like I'm just fabricating this link :)
But since you asked, the larger point and the particular axe I have to grind (that is permanently attached to my hand) is that investors have more power than the collective google employees do, do not have employee interests in mind at all, and Google management and the board will always align with investors NOT employees.
If they intended to maintain it as a separate app, why did the leader of it leave? Knowing Google, I find it hard to believe that Waze under the Google maps lead will get resources and continue.
> If they intended to maintain it as a separate app, why did the leader of it leave?
You don't have much experience with corporate acquisitions, do you?
The Acquiree CEO always leaves after a year or three, unless Acquirer is a company like Cisco that's really good at it. Why?
Because Acquirer has middle manager drones, who continually complain about the how Acquiree is not "aligning with our strategy." Eventually, Acquiree's CEO gets sick of it and quits.
But you're right - they won't maintain it as a separate app. Because those drones can wear anyone out.
They won't. I was in Google Maps. They bought Zagat -- remember them? They had the best restaurant reviews in the U.S. pre-Internet. How much have you heard of them lately
Zagat was a loss. But it was also basically a creature of a different era when foodies filled out paper surveys and the results were a pretty decent guide for other foodies. Once it was opened up to the plebes, the results got increasingly bad for that audience as everything got more and more algorithmic. (And, yes, it sort of hung on for a while but it deteriorated more and more.)
Not sure what Google ultimately got out of Zagat rather than maybe a bit of kickstart for restaurant ratings.
My dad, who was an executive at a large non-tech company, used to get restaurant recommendations by calling the restaurant critic at the city's newspaper. Different times in a much less scalable world.
Its a big problem these funds that are essentially custodians are taking their customers voting power to break corporations to their will. Needs to be legislation that curbs this as many others have been saying.
I'm tempted to say "they're the owners, that means they have the votes."
Which is true. And "many others" is a vapid, meaningless phrase.
However, proxies are voted in accordance with the "recommendations" of a very few advisory firms. That means that if you buy 10 million dollars worth of ETFs, all of those many, many shares are voted without your input. I'd certainly support legislation to give the "final" owners of those shares the right to vote the proxies themselves.
'highest paid employee' usually means 'has arranged ones personal financial affairs badly'.
In the UK, being a salaried employee means you pay a rather high rate of tax, compared to other schemes used by rich people - like for example having some of the work done as charitable work, having mostly stock, getting paid via a company, etc.
Another explanation might be that tech companies are doing poorly in general at the moment, and Google is one of the few companies that hasn't done mass layoffs yet.
That's not "another explanation" that's the exact dynamic:
TCI, who do not actually run the business, are threatening the CEO (addressed to Sundar) that they will move their money if Google doesn't do what they say - namely cut costs etc...
Is it more likely that TCI investors know how better to run Google than Google does or that they don't care and are blindly seeking alpha with no care for the people that run it?
You can generalize that to say the average HN reader knows how to run anything better.
90% of management is equal to or worse than calling random() to make decisions. If the margins are large enough, and the competition is asleep, anyone can be a successful CEO.
> TCI, who do not actually run the business, are threatening the CEO (addressed to Sundar) that they will move their money if Google doesn't do what they say - namely cut costs etc...
What does "move their money" technically mean in this situation? Google is not a bank, they don't keep TCI's money. Is this a threat of tanking the stock price by selling all $6B at once? TCI would hurt themselves too if they do that.
>What does "move their money" technically mean in this situation?
Sell GOOG and buy META (or whatever)
>Is this a threat of tanking the stock price by selling all $6B at once? TCI would hurt themselves too if they do that.
The act of liquidating their position is what reduces the price. So they drop their ask to the lowest bid price that liquidates their position net positive and in theory that action would cause a price cascade. It's a threat, not a guarantee.
Yeah, the tech stock games around ownership vs control are real, and it's unlikely that GOOG owners can assert direct control. Still, if the company fails to listen to GOOG owners, the price will drop, almost as a matter of course.
Probably a bit of both but yes the rate hikes have been especially hard on tech. I think it is also a reasonable question why Google needs to have two competing products that do the exact same thing.
They're two products that ostensibly do the same thing. And, if your answer is WELL, having a separate product like Waze lets us do slightly (arguably) sketchy things like route people through residential neighborhood streets with pedestrians to save 30 seconds or flag police speed traps, I'm not sympathetic. Do or not do but own it in either case. It's the same company.
Is it true that tech companies are doing poorly or is it something else, like the free money is nowhere around and tech companies are now expected to actually make money like a traditional company?
The story seems about the same everywhere: When money was pouring and people were spending more time on their devices than usual, the projection was that people will just resign from the physical world and live in VR so hire as many people as possible but that projection looks silly now.
Google’s profitability came down as well. This affects the stock price, this in turn affects employees (not just hedge funds are invested in the stock, employees get a lot of their salary that way)
This creates a pressure on Google to try and raise their profitability, and one way to do that is cut on areas where it seems wasteful.
The letter mentioned above is just a trailing sign of this in my opinion.
TCI owns much less Google stock than employees do. Larry, Sergey, and Eric still have most of the voting rights.
TCI is making the news for being an activist investor calling for layoffs because 1) the media is frothing at the opportunity to announce Google layoffs, even though none have been announced 2) the goal of an activist investor is to drum up support to make their activist wish happen.
That's pretty normal communication from investors. Everyone cuts costs, so some of yours will see a chance to make you do the same. I would be very surprised if Sundar loses sleep over this pdf.
Source: been on receiving end of such messages (bit smaller endeavor than Google though :-)).
Nobody is arguing that Google is not legally allowed to do this. People here merely argue that it's not a smart business move to make employees unhappy when the company has spent (and wants to spend in the future) lots of money to make and keep employees happy. Google is not a shoe producer or Cobalt mine in case you haven't noticed.
The usual short-term thinking. Get more money quickly at the cost of the first major layoffs that demoralizes the company leading to nasty internal politics, gradually destroying the company from within.
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Google has no expectation to “support its employees” by employing them unnecessarily. It’s not a jobs program. Frankly the fact that Waze is a separate org NINE YEARS after acquisition is astonishing and would only be justified if there were strategic reasons for doing so.
Counterpoint - Google employees get a large portion of their compensation in stock, particularly in upper management, and consequently have incentive enough to keep the share price high on their own.
They're careerist, not bored. The promotion process at Google is how you advance your career, and shipping new applications and features is how you get promoted.
Larry and Sergei do not have to listen to owners. They can do whatever they want as long as they can credibly claim they believed it was good for the company in some sense.
Also, are letters like this normal? I have never seen a letter like this, but you always hear that all shareholders care about is money. And yet, here we are with a letter that brazenly says something just below “fuck all employees, we want more money just because we have you some money”. I mean, part of their argument is some random person’s quote that companies could be smaller. For one, that’s a weak and amateur argument for an investor to make. And sure, that’s probably true, but the tone of this email is extremely flippant towards anyone that isn’t themselves.
If TCI had a legit gripe it would be that too much revenue comes from one source (advertising, which at over 80% is indeed dangerously high). Google is lazily doing things to address that, but not trying that hard.
Google actually has three classes of shares. Class A common stock with normal voting rights, listed as GOOGL, Class B common stock which has 10x voting rights and over 90% of which is owned by Larry Page Sergey Brin or Eric Schmidt, and Class C capital stock with no voting rights traded under GOOG.
Yes dual class shares means most modern tech companies are de facto dictatorships but that doesnt change the point. Sergey's boss is the shareholders.
This is not theoretical. The most infamous example of one sided dual class shares is Meta. Zuckerberg decided to throw the middle finger to the board and share holders, highest employee growth in FAANG..
He ignored activist shareholder letters like the one from Brad Gerstner and now the stock is collapsing, way beyond the corrections the rest of big tech faced.
He has already began course correction but lets say he instead Zuck decided to double down. You can easily see more rounds of shareholder rout.
What is wrong with that exactly? Investors risk their own money to expect a return. Large investors have a say in the management. Google’s leadership has no obligation to support it’s employees at the expense of its shareholders.
Strange interpretation of ethics you have. So if you invest your money into an enterprise, then it should be OK for management to piss your hard earned cash away to enrich employees? Never mind that in this case, Google’s workers are some of the highest paid, privileged and employable in the world.
No I reject your assertion and assert the opposite. It would be unethical not to fire them.
"Shareholder Primacy" is the biggest most unethical scam that continues to go unchecked as though it were law, which it is most certainly not. It is an unethical and outdated relic of rapacious greed
"On August 19, 2019, 181 CEOs of America’s largest corporations overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return" [1]
> continues to go unchecked as though it were law, which it is most certainly not.
On the contrary, Andrew, corporations are chartered through a particular state's corporate code. In every case I'm aware of, the shareholders are the ones who own the company. The "stakeholders" (employees, customers, neighbors) have legally defined rights, which do not include ownership. So it most certainly IS law.
The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes,
These 181 CEOs: did they have any rule-making authority? Or was that result just the opinion of 181 people?
What about all the corporations and single-proprietor businesses that were not part of that? Or the state of Delaware, whose laws govern most of them? Not to mention the Congress and the courts.
A corporations primary goal is enacting shareholders wishes. You can talk about stakeholders all you want. It’s bullshit. Companies exist to do what shareholders want, and 9 times out of ten that is make as much money as possible.
There is nothing to say that additional stakeholders cannot be added in by law, though. Companies would dump mercury into the rivers to make a buck if the law didn't prohibit it.
Sure, companies follow the law because it's in their long term best interests and doing otherwise would interfere with their ability to make money down the line.
The stock is down over 30% YTD. One of the biggest investor is asking for cutting costs. I understand how this is hard for an employee, but I do not see what's wrong here. If it was your company or you were one of the biggest investor in the company, would be asking to cut costs and focus on efficiency, specially with the last 12 months of hiring and a likely recession to look forward to next year?
Google is still growing revenue YoY despite 2021 being a huge year for online services due to pandemic shifts.
They’re making hundreds of thousands in net profit per full-time employee.
A dumb CEO would do layoffs at this moment. They don’t need to financially, and the morale hit (and lost productivity) could be disastrous for the company.
But yeah, since other companies are doing layoffs, Google should too.
TCI sent Google a letter [1] telling them they need to cut people to get higher margins (>40%) as well as pay the investors more (stock buybacks).
Google is choosing to do what this group of investors says instead of supporting it's employees.
Just so you know.
[1] https://www.tcifund.com/files/corporateengageement/alphabet/...
Edit: This data came from me asking myself of the headline "ok who is it that is putting "Pressure to Cut Costs" on Google." Luckily TCI made it really clear