What’s a midlife crisis?
Joseph Campbell writes that a mid-life crisis happens when you climb to the top of the ladder and discover it’s against the wrong wall. Studies have found that after the kids grow up, once the career is settled, when signs of aging begin to show—sometime between age 40 and 60—a lot of folks begin to question what their life is really about. Sometimes they make erratic choices—changing jobs, buying fancy cars, obsessing over personal appearance, having affairs.
Is Google having a mid-life crisis? They’ve been extraordinarily successful at their core search and ad businesses. Android is everywhere. Chrome is a fast and efficient browser. The 16-year old company has a market cap of over $450 billion—one of the biggest in the world. Its founders, Sergey Brin and Larry Page, own 14% of the company and control 56% of the voting shares. By any account, the company that started out in in Susan Wojcicki’s garage in Menlo Park, California has been a smashing success.
But what are they accomplishing? They began by building a better search engine, a modest goal. But they’ve moved on to digitizing the world’s libraries, designing self-driving cars, and trying to find out how to live forever. Some of these projects seem quixotic, even erratic. Page and Brin are in their forties—are they having mid-life crises? Some think their firm is trying to do too much.
So the company’s move to reorganize itself into a holding company with a decentralized structure, a source of cash-flow, and capital allocation run from the top isn’t a shock. In some ways, it could be quite positive, if they report on their cash-generating businesses separate from their “moon shots.” The new structure may allow them to attract talented workers to their start-ups by creating private shares to serve as incentive compensation.
But conglomerates are notoriously difficult to manage–just look at Hewlett-Packard or GE. It’s hard to pull the plug on money-losing aspirational alternatives, or to back ventures that could cut into the cash-engine’s revenues. Diversification reduces risk for an investment portfolio, but companies need to focus on their core mission. There’s a reason why “Amalgamated” isn’t a popular corporate name
A mid-life crisis happens when folks realize they aren’t young any more. Google’s unofficial motto has been, “Don’t be evil.” Maybe Sergey and Larry want to change it to, “Don’t be old.”
Douglas R. Tengdin, CFA
Chief Investment Officer