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Google's 'Area 120' Incubator Aims to Keep Innovation In-House

By Richard Adhikari E-Commerce Times ECT News Network
Apr 26, 2016 11:54 AM PT

Google has been working on an incubator that would let employees pitch business plans and work full time on approved projects while remaining on its payroll, according to news reports published this week.

The incubator, to be called "Area 120," will be led by Don Harrison, VP of corporate development, and Bradley Horowitz, VP of streams, photos and sharing.

Employees whose pitches are accepted can take outside funding or create a company under Google's umbrella.

It's not clear whether Area 120 will be set up under the aegis of Google or its parent company, Alphabet.

The Natural Order of Things

That Google "would open up an incubator is not at all strange," observed Scott Strawn, a research director at IDC.

The company is "in the business of acquiring early-stage companies, and perhaps they feel like there's a better way of developing these companies than what else is out there, so they're getting involved earlier on in the process," he told the E-Commerce Times

As of a year ago, Google had purchased about180 companies, with its biggest acquisition being Motorola Mobility, for which it paid US$12.5 billion.

Hanging on to People

Google could be launching its incubator in an effort to hold on to its top talent.

Last year, it restructured, with Alphabet as its holding company. Google hosts its core business while other projects are run by Alphabet, each with its own CEO.

"An incubator is a good environment because typically it allows for a different set of incentives to be put in place so that people can have direct ownership in an independent company, as opposed to having shares in Google," remarked Strawn.

"That could be helpful in recruiting talent that they might otherwise have challenges recruiting" or when competition issues might arise, he added.

The incubator "can be viewed as the ultimate retention tool," said Andreas Scherer, managing partner at Salto Partners, who noted that several Google employees have launched their own businesses after leaving the company.

Further, it lets Google "build a structured process around the creative energy within its organization," he told the E-Commerce Times. "So instead of implicitly funding ideas by tolerating employee-driven side projects, there's a clear vetting process overseen by investment professionals."

A Step in the Wrong Direction?

"Google's latest financials showcase that their massive number of moonshot products are starting to dramatically hurt their financial performance," remarked Rob Enderle, principal analyst at the Enderle Group. "You'd think they'd bring on board a function that could bring products to market, not another moonshot or incubation function."

Having a hands-off incubation function "isn't a bad idea, but Google's already unable to manage the complexity they have," he told the E-Commerce Times. "Adding more would seem to be going in the wrong direction."

Further, Google's retention problem "is tied to a high value placed on employees who then go and found startups, and the incubator doesn't address that problem," Enderle pointed out.

It's the Management, Guys

Giving incubator participants the option of accepting outside funding "reduces risk, but only if they trust Google to keep their hands off the property," he said. "So far, Google has shown a distinct inability to keep from messing up their acquisitions, so they're also likely to mess up the startups."

Google's failure to bring innovative products to market "isn't a lack of innovative people; it's a management process that either makes it hard to bring innovation to market or kills it," Enderle suggested. Google is "aggressively ignoring they have a management and process issue and trying to dodge it by creating yet one more corporate structure."

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

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