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Google’s “moonshot” factory, dubbed “X,” encouraged researchers, engineers and developers to dream big for years – no project was too ambitious or too expensive. But recently there’s been a shift. With the tech boom in the rearview mirror, tightening budgets and the rising popularity of ChatGPT, Google has turned its focus away from chasing long shot inventions to expanding its search engine business and AI operations. In today’s episode, Bloomberg’s Julia Love tells host Sarah Holder what this means for Google and tech innovation at large.

Read more: Google’s Moonshot Factory Falls Back Down to Earth

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Here is a lightly edited transcript of the conversation:

Sarah Holder: There’s a place on the Mountain View campus of Google’s parent company, Alphabet, where many of its most ambitious, experimental ideas have been immortalized in a kind of technology museum. 

Some of the projects on display are considered successes — like Waymo, Alphabet’s self-driving car company that has deployed driverless vehicles on the streets of San Francisco. 

Bloomberg TV, Saswat Panigrahi: We have been the first company to open up the first riding self-service to the public. Now we’re expanding it to the largest continuous area on the planet.  

Holder: Others are infamous flops — like Google Glass, an attempt at high-tech glasses — or Project Loon, a network of high-flying balloons that were meant to soar over remote parts of the world, beaming internet down to homes and businesses. 

Bloomberg TV:   Host: Do we have any idea of when there might be a commercialization of the balloon project? Reporter: Of Project Loon? Remains to be seen, I mean...

Holder:  The last ones grounded in 2021. All of these came out of one corner of Alphabet’s business that’s long been shrouded in mystery: a special-projects group called X. No, I’m not talking about Elon Musk’s rebranded Twitter. This is Alphabet’s X — also known as the moonshot factory.

Love:  X, I think, captured the public imagination, and it really captured my imagination, too. I remember hearing about X in particular when I was a young tech reporter getting started in the Valley, and it was shrouded in secrecy.

Holder: Julia Love covers Google and Alphabet for Bloomberg News. And she recently visited X’s headquarters, for a tour of the lobby where the X museum is housed.   

Love: So it's a really cool space. So you walk in and there is a gigantic Loon balloon suspended from the ceiling. But then, right across the way, there is a telecommunications terminal from Project Taara, which is an offshoot of Project Loon that is still a live business that could spin out soon. And so I think it's really a space that captures the story of X.Holder: But Julia says it’s the future of X that is the most uncertain. 

Because in the past few years, Julia’s reporting found the moonshot factory has seen its budget shrink, its ambitions curtailed, and its freewheeling spirit reigned in — as Alphabet has doubled down on its core products, and shifted focus to artificial intelligence. 

Some former employees say, X has evolved from a renegade team encouraged to invent the next Google, into a glorified startup incubator. Today on the show: how Alphabet’s moonshot factory came hurtling down to earth — and what it means for the future of tech innovation in the age of AI.  

This is the Big Take, from Bloomberg News. I’m Sarah Holder.

Holder: So Julia, bring us back to the launch of Google's Moonshot project. What was the lab created to do in 2010?

Love: This lab was born at a moment of really high ambition for Google. It was 2010 and the search engine was already thriving, pretty much ubiquitous, but the founders had big ambitions, far outside of search. And so they were already very interested in self-driving cars and they were  in touch with a professor at Stanford known as Sebastian Thrun, who they wanted to work with and they decided that they would like to create a special lab to house that self-driving car project and some other aspirations they had that were very far from the core business.

Holder: And this was in Google's heady, don't be evil days, right? How did X fit into that vision of the company?

Love: Yeah, so I think that X really symbolized this impact that Google hoped to have in the world. They looked into things like teletransportation. 

Holder: Whoa. 

Love: Really nothing was off limits. 

Holder: You mentioned Thrun, the head of X in its early days. What was Thrun's priority early on?

Love: Thrun is a really interesting figure. He was skeptical of corporate innovation labs, but he did ultimately agree to come on board. And before he set up X, he took a look back at, The other labs that had existed previously, places like Bell Labs, the famous Xerox PARC. And he tried to assess the key principles that he wanted to emulate. And that was to have very lean teams to hire the very best people in the world and to dole out bonuses to incentivize them.  

Holder: How did X interact with the rest of Google at the time?

Love: X was really isolated. It was viewed as the place where the cool kids in Google sat. I think its leadership felt that in order to really achieve their mission, they had to be not only isolated from the rest of Silicon Valley, but isolated from Google.

Holder: How unique was this approach in the tech industry at the time, where there's this sort of side project, secret lair, where all the cool stuff is made.

Love: X really kicked off a wave of greater ambition in Silicon Valley. There are now many corporate labs that kind of tacked on X to their name. We saw Facebook setting up an initiative like this, Amazon, Google itself created an in house innovation lab, Area 120. I think it was a time when tech companies were flush with cash and they wanted to experiment.

Holder: With experimentation as their goal -- making a bunch of money wasn't the number one priority for X. 

Love: Sebastian Thrun told me he gave projects as much money as they wanted. He was not really aware of his budget but that became very top of mind as the years wore on.

Holder: Thrun ended up leaving in 2012. Who took over?

Love: The person who took over is Astro Teller. He was Thrun's right hand man when the lab was being founded, and then he took the reins. He's the grandson of Edward Teller, who's the father of the hydrogen bomb. And he has really devoted his life to finding the formula for innovation within big companies.

X was a little more mature when he took the reins, I think that he sought to really systematize X's approach; to have an engine so that they could be birthing new projects. He set up a team called Rapid Eval that would stress test dozens and dozens of ideas to find the most promising.

And along the way, it was almost kind of like a video game where they would set goals for the projects, and if they met them, then they would unlock more resources.

And the vision was that X would be the birthplace of new companies that, when they reached a certain point of maturity, would graduate into the family  and become a letter in the Alphabet. 

Holder:  So what were some of the signs X's vaunted position was starting to change? When does that pivot point start to happen?

Love: All along, projects were being killed from the very early days of X. It was always a place where the vast majority of ideas just wouldn't work out. But over time, there was much more of a sense of the moonshots having to show a business plan. Alphabet didn't want to pour money into a venture and figure out a business plan later.

The lab was definitely under more scrutiny, ever since the formation of Alphabet because that gave investors a lot more visibility into just how much money Alphabet was spending on the moonshots and so that was when the, when the heat started to turn up a bit.

And then during the pandemic I think the lab started to fall on some hard times. It was a moment, ironically, when budgets were tightening within X, but in Silicon Valley, it was a huge venture capital boom. VCs were looking for startups to write checks for and so some startups at X had a feeling that they would be better funded if they were on the outside. 

And then I think the other real turning point was the launch of ChatGPT, which really just became, you know, a five alarm fire for Google and prompted the executives to really, um, focus on the core business and artificial intelligence.

Holder:  After the break, how that five-alarm fire turned up the heat at Alphabet… and what it meant for the X lab, for its employees, and for the company’s vision of its future.

Holder:  By the mid 2010s, X had become this moonshot factory. 

It survived changing leadership, Alphabetization... But then, in 2022, something else happened that causes Google to panic: the rise of generative AI and the launch of ChatGPT. How does Google react to ChatGPT?

Love: ChatGPT touches off a panic within Google. It's uncomfortable because. They actually invented much of the technology that underpinned ChatGPT, but now it seems like they're being leapfrogged in this field that they helped create, and there's a real fear that people will start using ChatGPT for search, and that Google will be left in the dust. At the end of the day the search advertising is what funds everything else, and so if people stopped turning to Google for search, then everything else would grind to a halt.

Holder: And then what does that panic mean for X?

Love: I think it means that the company really drills down much more on its core competencies in search, making sure that search is innovating and keeping up with the times, and also in artificial intelligence. And so it means that X is just less top of mind for Alphabet leadership.

Holder: This was an important turning point for X. Sources told Julia that X has become less willing to bet on expensive, out-there ideas. The lab’s budget has shrunk this year, and projects that originated within X are increasingly being spun out as standalone startups. Julia spoke with one former X employee who’s experienced this transition firsthand: Kathryn Zealand.

Love: Kathryn Zeland came up with a really interesting project. She was inspired by her grandmother, who was struggling with mobility And so Kathryn wanted to create a product that could help her grandmother and others move about the world. And so she started tinkering with an exoskeleton and it was a project that just really became beloved by X leadership and the people within the lab. But as time went on, the tone started to shift. They started encouraging her to pivot, to look into making an exoskeleton for warehouse workers, or to look into making immersive video game controllers.

And that just wasn't what Kathryn wanted to do. She and her team were always really drawn to that original vision of helping everyday people to move. And so Kathryn started to question whether her future was within X.

Holder: Eventually, Kathryn decided to leave X, and spin out her exoskeleton project into a startup called Skip Innovations Inc. Her salary is lower — and the office is less cushy — but she can control how the technology is developed and marketed. 

But inside Alphabet, current employees are also grappling with the effects of X’s shift. 

Love: I think that feelings are mixed. I've heard from sources that some people are excited about the freedom that they will have under this new structure. But it is a big change for employees. I think there are some people who feel like this changes the purpose of X; that it distances itself from birthing the next Google. And so there is some sadness about that. 

Holder: And what does the company say about this new chapter for X?

Love: They are really framing this as just an organic evolution of their mission. They see it as something that will really amplify their impact in the world by helping these companies go to market  faster. 

And so now X is really formalizing that path. They're putting in place a team that is helping startups meet with investors, helping them learn how to pitch, and they seem to be gearing up to bring many more of these startups into the world.

Holder: This broader pullback of some of these ambitious projects is happening at other companies, too. We've seen Apple abandoning its Apple car project, Meta walking back some of its hardware efforts. What does this story at X tell us about how big Silicon Valley is willing to dream these days?

Love: So it's an interesting moment for innovation because I think that you see big tech companies still innovating, but in a very focused way. Google, for example, is all in on AI. Amazon and Microsoft are also pouring resources into that. And so I think that there's more innovation happening outside of these big companies than we once saw. 

Holder: Love says in some ways, the story of Alphabet’s moonshot lab is also a story of a wildly successful company settling into middle age; focusing its energies and resources. Moving forward, Love expects to see X hone its focus around projects that involve AI, and to bring some of its moonshot ideas — back to earth.

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