Google solved two major issues by setting up an in-house incubator. First, the company is full of high potentials with bright ideas. Over the years Google employees have left the company to start successful businesses on their own. They are part of a network called Xooglers (short for ex-Googlers). Some have even started their own venture fund like Aydin Senkun who runs the angel fund Felicis Ventures. The incubator gives Google employees an opportunity to work on their ideas and build a business without leaving the Google ecosystem. So, this investment vehicle can be viewed as the ultimate retention tool. Second, the whole idea of Alphabet was to run all businesses that are not core to Google’s mission as separate entities under an umbrella company. This step was designed to increase visibility of all the various business activities such as X, Google Capital, Google ventures. Following the thought process behind the formation of Alphabet, the incubator gives Google the opportunity to build a structured process around the creative energy within its organization. So, instead of implicitly funding ideas by tolerating employee driven side projects, there is a clear vetting process overseen by investment professionals.
Here is the link to the E-Commerce Times article.