Top Alphabet (GOOGL - Free Report) news stories from last week were more to do with public relations than technology. So the headlines included news that it had to succumb to an employee demand on DoD deals, that congressmen questioned its data sharing agreements with Chinese companies, that Washington ads had to be pulled for non-compliance with new government directives and that a diversity motion was shot down at the shareholders meeting.
It was also reported that the EU was getting ready to charge an Android-related antitrust fine, even as its self-driving unit Waymo announced it was considering a taxi service in Europe.
Pentagon Deals in Jeopardy After Employee Revolt
The 4,000+ employees that petitioned Google CEO Sundar Pichai have scored a small victory. With help from one of them, Google has framed a code of principles that say it will not allow its artificial intelligence to be used in weaponry or unreasonable surveillance efforts, particularly with respect to certain sections of the society, such as minorities, LGBTs, etc., calling it "violating internationally accepted norms of human rights."
Pichai’s blog post did however say that "We want to be clear that while we are not developing AI for use in weapons, we will continue our work with governments and the military in many other areas." Thank God for small mercies because the government has been increasing spending on cloud supported defense services and Google was trying to win some of that business.
Its chances have however dimmed if New York Republican Pete King’s tweet about "a defeat for U.S. national security" is any indication. It has also earlier been reported that a senior defense official earlier commented that the attitude within Google was “baggage” that made the company less attractive as a partner.
The protests started with a DoD project called Maven, that uses artificial intelligence to analyze drone footage. Google says it wasn’t for offensive purposes, but employees feel that it’s a fine line.
Questioned on Huawei Ties
All U.S. technology companies have by and large taken the government to court whenever they didn’t want to share information, even when criminal activity was involved. But that isn’t the way they play with foreign governments, it seems.
Lawmakers have begun to take notice. So after questioning Facebook (FB - Free Report) on its data sharing agreements with Chinese phone makers, they have turned attention to Alphabet and Twitter (TWTR - Free Report) . The group questioning the companies includes Sen. Tom Cotton (R-AR), Sen. Marco Rubio (R-FL), Rep. Mike Conaway (R-TX), Rep. Robert Pittenger (R-NC) and Sen. Mark Warner (D-VA).
In Alphabet’s case, the question was about "third party partnerships" with ZTE, Lenovo and TCL and whether there were audits on the way they were handling user data.
The company already has “strategic” deals with Huawei and in India, where a new data privacy bill is awaiting approval in parliament, it has also partnered with Xiaomi. It also has an agreement with Tencent. Unlike in the U.S., companies go out of business in China if they don’t do as the government says (as Google found out a few years back). So sharing any data with Chinese companies is like sharing data with the Chinese government.
Alphabet, however, offered an email statement that said, "We have agreements with dozens of (manufacturers) around the world, including Huawei. We do not provide special access to Google user data as part of these agreements, and our agreements include privacy and security protections for user data."
Washington Election Ads
Google has stalled election ads in Washington state to take stock of changes to the recently modified campaign-finance reporting requirements and enforcement procedures a few days after state Attorney General Bob Ferguson sued it.
The new law requires ad-serving platforms like Google to release details like the geographical locations of advertisers, the types of audience targeted and the number of views, among other things.
"We take transparency and disclosure of political ads very seriously which is why we have decided to pause state and local election ads in Washington, starting June 7, while we assess the amended campaign disclosure law and ensure that our systems are built to comply with the new requirements," Google spokeswoman Alex Brasov wrote in an emailed statement.
Google may not get off the hook very easily however because a couple of King County lawsuits say that it has been in violation of the law for years.
Could See Android-Related Antitrust Fine
After fining the company last year over Google Shopping, the EU is getting ready to fine it again, this time over its monopolistic practices regarding Android.
Complaints against Google, which started with Russian search engine Yandex, included the company’s policy of requiring hardware manufacturers to pre-install its suite of apps while preventing them from pre-installing certain competing apps. Google has since modified the practice, allowing pre-installation of competing apps as well.
The decision is expected in July.
Company Defeats Diversity Motion
Diversity is another pain point for Alphabet because in spite of spending $265 million a year on these efforts, the company has 51% whites, 39% Asian and only around 30% female employees, according to some reports. Moreover, female employees are paid less than male, according to a recent lawsuit.
On the other side of the fence, a lawsuit by James Damore blamed Alphabet for wrongful termination when he, in a highly controversial memo, said that the recruitment process was a discrimination against whites and that females were less capable of doing tech jobs.
The fact of the matter is that when you have diversity goals, you have a discriminatory practice because where there will be two people equally qualified for a job, you will be preferring the underrepresented one based on nothing more than his/her sex, race, ethnicity or some such thing.
At the same time, this may be necessary to ensure that some groups are not prejudicially excluded either because that might be unfair to the person concerned, or because the company may suffer, or both. Considering that a quota system is detrimental to a company’s prospects and may affect team work, it’s understandable that technology companies would want to take this slow.
So when a Google employee represented the discrimination story to investors, suggesting that executive compensation be tied to diversity goals, the company advised against the motion, saying that diversity and sustainability were already included in its policy measures. And since founders Page and Brin control 51% of the voting power, the motion was easy to shoot down.
Alphabet is not alone in this situation: Microsoft (MSFT - Free Report) reportedly links 17% of bonuses to cultural factors including diversity, Intel’s (INTC - Free Report) annual cash bonuses are also similarly linked to diversity-based hiring and retention, while Qualcomm (QCOM - Free Report) and IBM (IBM - Free Report) include diversity in qualitative assessment of executive pay.
Waymo Taxis in Europe
At the Automotive News Europe Congress in Turin, Waymo CEO John Krafcik said that the company was considering a partnership to enter Europe and that officials were currently engaged in studying the regulatory, policy and other differences with the U.S. The partnership is expected to help the company pick up share in a market where brand “Waymo” isn’t as well recognized as local players.
From the start, Waymo has had close ties with Italy’s Fiat Chrysler (FCAU - Free Report) , and recently showcased its level 4 self-driving car at FCA’s investor day. The company is set to deliver an additional 62,000 Chrysler Pacifica hybrid minivans to Waymo, further expanding its fleet. It is also going to add 20,000 Jaguar Land Rover electric vehicles soon.
The company hasn’t announced its self-driving partner in Europe, but its deep relationship with FCA could be indicative of its future plans.
Alphabet shares carry a Zacks Rank #3 (Hold).
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