The initiative could be a key to keeping Alphabet shares healthy in the long term as the myriad of major players pouring into the multi-trillion-dollar healthcare market speaks volumes about the opportunity executives see.
"So tomorrow, if AI can shape healthcare, it has to work through the regulations of healthcare," CEO Sundar Pichai said in an interview with NDTV on the subject. "In fact, I see that as one of the biggest areas is where the benefits will play out for the next 10 to 20 years."
As the market matures in its technological capabilities, and Apple CEO Tim Cook extolls the same basic ideas, Alphabet's big bet on healthcare could certainly pay off over that timeframe.
The healthcare and life sciences initiative, called Verily, is aimed at taking the lead in this space over those contemporary mega-cap names.
"Google is already knee-deep into artificial intelligence, in everyday things that we now take for granted, such as facial and speech recognition, but the potential is there to take AI to a whole new level," Ed Ponsi, technical and fundamental analyst for Real Money Pro said in a 2018 interview. "Perhaps the greatest potential lies in the field of healthcare. Imagine machines that actively search for signs of illness instead of passively awaiting a health-care practitioner's commands, and you can glimpse the possibilities. This is a huge potential growth area for the company."
The problem that arises is that the company is far from the only major company looking into healthcare disruption, as the aforementioned Apple pushes forward its own programs and a super-team of J.P. Morgan (JPM) , Berkshire Hathaway (BRK.A) (BRK.B) , and Amazon seeks to cash in.
The triple entente of healthcare has upset the insurance and pharmacy benefit management industries even with the simple announcement of its intention to shake up the healthcare industry.
"The ballooning costs of healthcare act as a hungry tapeworm on the American economy," Warren Buffet said in a statement announcing the alliance. "Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes."
"The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans," J.P. Morgan CEO Jamie Dimon added.
The resources are particularly valuable in terms of Amazon's insights into the daily habits of everyday consumers. For example, its ubiquitous Alexa device, offer the venture everyday access to patients that doctors would highly value and could even act as an at-home diagnosis device in the future.
Announced approximately one year ago, the joint initiative has already made strides in fomenting a talent advantage, hiring the highly decorated surgeon Atul Gawande to guide the joint effort.
"Talent and dedication were manifest among the many professionals we interviewed. All felt that better care can be delivered and that rising costs can be checked," Buffett said. "Jamie [Dimon], Jeff [Bezos] and I are confident that we have found in Atul the leader who will get this important job done."
Separating from the Pack
Yet, with the AI focus in healthcare noted by each company, Alphabet may have a head start on the mega-cap driven joint venture.
One key advantage Alphabet holds is in machine learning, a key technology for AI-based collection of health profiles and sequencing DNA.
"Among the big 5 tech giants (Facebook (FB) , Apple, Microsoft (MSFT) , Google, Amazon), Google emphasizes its progress on machine learning much more than the rest," a report from CB Insights states. "As software, and more specifically artificial intelligence, becomes a differentiating factor in the healthcare space, Google is well-positioned."
A complaint from Optum, a subsidiary of UnitedHealth Group, filed in January claims that former UNH Vice President David Smith acquired the company's "most confidential, competitively-sensitive, strategic information" and shared this information with the budding competitor, referred to as ABC in legal documents.
"Not only would this information provide a tremendous unfair competitive advantage to ABC, it is information of a type and nature that he could not perform his proposed duties...for ABC without drawing upon it," the complaint states.
Bridging the Gap
Alphabet has also clearly been striving to cut the skills gap between its healthcare segment and key competitors.
Late last year, the search giant furthered its competitive push by bringing former Geisinger Health CEO David Feinberg aboard to add to the effort spearheaded by Verily CEO Andrew Conrad, co-founder of the National Genetics Institute.
"On behalf of the entire Geisinger Board and family, we thank Dr. Feinberg for his exemplary leadership and vision during his tenure as CEO," Dr. John Bravman, chairman of Geisinger's Board said at the time of Feinberg's departure. "Dr. Feinberg has led Geisinger through a significant period of transformation focusing on developing innovative programs and models to further our mission of value- and community-based care that ensures we are positioned to serve our communities well into the future."
The expertise and focus on the future of healthcare will be key to Google's efforts as he seeks to bring vision to Alphabet's nascent healthcare endeavor.
The high-profile hire highlights the importance of the effort to Google, as he did not come cheap.
In 2016, Feinberg earned a salary of $3.6 million to head Geisinger. Presumably, his take home will be even higher at Alphabet.
Though that pales in comparison to investments received by the company to kick off 2019. Namely, a $1 billion investment from investors led by private equity giant Silver Lake.
"We are taking external funding to increase flexibility and optionality as we expand on our core strategic focus areas," Andrew Conrad said. "Adding a well-rounded group of seasoned investors, led by Silver Lake, will further prepare us to execute as healthcare continues the shift towards evidence generation and value-based reimbursement models."
Feinberg officially joined the now on January 3, the same day the funding was put forward by Silver Lake.
The coincidence will leave many hopeful for comments on his contribution as well as how this massive funding will be directed during the earnings call this evening as details of the potentially massively profitable program come into view.
For more on the healthcare program as it is mentioned in earnings results, follow TheStreet's Eric Jhonsa as he details the results in a live blog.