Google, Inc. as we have once known it is no longer with the tech giant announcing Monday a massive restructure of the company that will see the organization become known as Alphabet, Inc.
Google, the brand and services we all know and mostly love isn’t going anywhere however, with a slimmed down version of Google (the core search, maps, videos, advertising and related core businesses), along with previous non-core companies owned by Alphabet now being operated as separately owned entities complete with each having their own Chief Executive Officer; the new structure can best be compared to Warren Buffet’s Berkshire Hathaway, Inc. in that there is a parent owner to various different companies within the group.
Larry Page, now Chief Executive Office of Alphabet, explained in a statement that while the company is operating well today, he believes it can be made cleaner and more accountable:
Alphabet is mostly a collection of companies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main internet products contained in Alphabet instead. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.
The new divisions of Alphabet (all previously under Google) are:
- Calico (longevity)
- Fiber (high-speed internet)
- Google (Search, Maps, YouTube, Android, Ads, Apps)
- Google Ventures (venture capital business)
- Google Capital (investment fund)
- Google X (auto-driving cars, Google Glass, internet by balloon)
- Life Sciences (glucose-sensing contact lens people)
- Nest (smoke alarms, home cameras, thermostats & connected home devices)
The first appointment to an Alphabet division is former Google Head of Product and Engineering Sundar Pichai who takes the role of Chief Executive Officer of Google.
“For Sergey and me this is a very exciting new chapter in the life of Google—the birth of Alphabet,” Brin continued. “We liked the name Alphabet because it means a collection of letters that represent language, one of humanity’s most important innovations, and is the core of how we index with Google search!”
“We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for! I should add that we are not intending for this to be a big consumer brand with related products—the whole point is that Alphabet companies should have independence and develop their own brands.”
Divestment and investment
Breaking the different parts of Google down into separate entities under the umbrella ownership of Alphabet is an inspired move that will not only strengthen the various aspects of the business, but opens the doors to divestment and investment opportunities in the future that won’t be judged, as they are now, against Google’s traditional search business; it may be a paper move and more psychological in terms of perceptions (not obviously including the advantages of each business being run independently), but it can only help the new Alphabet going forward in allowing it to do new and interesting things.
In terms of divestment, Alphabet could in future float parts of its owned entities off to raise capital for them if required, or even break out products into new companies that are able to then raise capital; the obvious one that pops to mind is that GoogleX comes up with a killer device that justifies being spun off into its own company under Alphabet.
The other door opened under the new structure is that if Alphabet wants to buy a new company not directly related to its now fully owned subsidiary Google, it could easily do so without pundits and the market comparing that buy to how it fits in with the search business; this, along with the advantages of running each unit separately, is likely one of the core reasons for the move as the capital is there, but there were perception walls before about what Google should be investing in that won’t apply as much now.
Alphabet will replace Google on the NASDAQ with all existing shares converting to the new company, with shares continuing to trade under the stock tickers of GOOGL and GOOG; the market loved the announcement with shares in GOOG rising 6.2 percent to $39.27 at the close of trading.