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Table of Contents Alphabet Inc. and Google Inc.
4
We won't become complacent, relying solely on small tweaks as the years wear on. As we said in the 2004
Founders' IPO Letter, we will not shy away from high-risk, high-reward projects that we believe in because they are
the key to our long-term success. We won't stop asking "What if?" and then working hard to find the answer.
As explained in the letter from our CEO in August 2015, our Alphabet reorganization was implemented to better
allow us to structure teams in ways that we believe will produce the fastest, most focused innovation possible for
moonshot projects.
Research
We continue to invest in our existing products and services, including search and advertising, as well as developing
new products and services through research and product development. We often release early-stage products. We
then use data and user feedback to decide if and how to invest further in those products.
Our research and development expenses, which includes the vast majority of engineering and technical headcount
responsible for research and development, as well as their associated costs, were $7.1 billion, $9.8 billion, and $12.3
billion in 2013, 2014 and 2015, respectively, which included stock-based compensation expense of $1.6 billion, $2.2
billion, and $2.7 billion, respectively. We expect to continue investing in hiring talented employees and building systems
to develop new products and services and improve existing ones.
Competition
Our business is characterized by rapid change as well as new and disruptive technologies. We face formidable
competition in every aspect of our business, particularly from companies that seek to connect people with online
information and provide them with relevant advertising. We face competition from:
• General purpose search engines and information services, such as Yahoo, Microsoft's Bing, Yandex, Baidu,
Naver, WebCrawler, and MyWebSearch.
• Vertical search engines and e-commerce websites, such as Kayak (travel queries), LinkedIn (job queries),
WebMD (health queries), and Amazon and eBay (e-commerce). Some users will navigate directly to such
content, websites, and apps rather than go through Google.
• Social networks, such as Facebook and Twitter. Some users are increasingly relying on social networks for
product or service referrals, rather than seeking information through traditional search engines.
• Other forms of advertising, such as television, radio, newspapers, magazines, billboards, and yellow pages.
Our advertisers typically advertise in multiple media, both online and offline.
• Other online advertising platforms and networks, including Criteo, AppNexus, and Facebook, that compete
for advertisers with AdWords, our primary auction-based advertising program.
• Other operating systems and mobile device companies.
• Providers of online products and services that provide answers, information, and services. A number of our
online products and services, including Gmail, YouTube, and Google Docs, compete directly with new and
established companies, which offer communication, information, storage and entertainment services, either
on a stand-alone basis or integrated into other offerings.
Competing successfully depends heavily on our ability to rapidly deliver innovative products and technologies to
the marketplace so that we can attract and retain:
• Users, for whom other products and services are literally one click away, primarily on the basis of the relevance
and usefulness of our search results and the features, availability, and ease of use of our products and services.
• Advertisers, primarily based on our ability to generate sales leads, and ultimately customers, and to deliver
their advertisements in an efficient and effective manner across a variety of distribution channels.
• Content providers (Google Network Members, the parties who use our advertising programs to deliver relevant
ads alongside their search results and content, as well as other content providers for whom we distribute or
license content), primarily based on the quality of our advertiser base, our ability to help these partners generate
revenues from advertising, and the terms of our agreements with them.
Intellectual Property
We rely on various intellectual property laws, confidentiality procedures and contractual provisions to protect our
proprietary technology and our brand. We have registered, and applied for the registration of, U.S. and international
trademarks service marks, domain names and copyrights. We have also filed patent applications in the U.S. and foreign