The Internet went up in flames a few hours ago when Google announced a major shift in its organizational structure: the creation of a parent company called ‘Alphabet’ with the purpose of better managing the many branches spawned by Google in various fields (like the driverless car project). Alphabet will have one CEO and one President, while the subsidiaries (Google among them) will each have their own CEOs.
Co-founder Larry Page wrote in a blog post on Monday that Alphabet is merely an effort to make Google and all the projects that emerged from it over the years “cleaner and more accountable.” Parent company Alphabet will not be a consumer brand, Page said. In fact, the purpose of creating it was to allow each separate company to evolve individually and pursue its own branding. So, let’s answer some of the most pressing questions regarding Google’s surprising decision.
What is Alphabet?
Alphabet is a conglomerate created by Google’s founders to house the corporation’s various departments / projects as separate entities (standalone companies). These include Google, YouTube and other Web-based products, Android, Calico, Google Ventures, Google Capital, Google X, etc.
Who will run Alphabet and its subsidiaries?
Longstanding executive Sundar Pichai has been appointed head of Google, the rest of the companies will have their own respective CEOs, and Larry Page and Sergey Brin will run the whole shebang as CEO and President of Alphabet.
Pichai was born in Chennai, State of Tamilnadu India, and earned his Bachelor of Engineering degree from Indian Institute of Technology in Metallurgical Engineering. He joined Google in 2004 and oversaw such projects as Google Chrome, Chrome OS, Gmail, Google Maps, Android, and others. Page said he was extremely pleased with Pichai’s progress over the years, suggesting that no one would be a better fit for the CEO role at Google than him.
What is the goal of Alphabet?
According to Larry Page, these are the parent company’s main objectives:
- Getting more ambitious things done.
- Taking the long-term view.
- Empowering great entrepreneurs and companies to flourish.
- Investing at the scale of the opportunities and resources we see.
- Improving the transparency and oversight of what we’re doing.
- Making Google even better through greater focus.
- And hopefully…as a result of all this, improving the lives of as many people as we can.
What will happen to Google?
Nothing major (at least as far as consumers are concerned). Google stays in place just the way it is, and it will be the biggest entity in this collection of new companies housed under the same roof. Here’s Page explaining the rest:
“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. Alphabet is about businesses prospering through strong leaders and independence. […] In addition, with this new structure we plan to implement segment reporting for our Q4 results, where Google financials will be provided separately than those for the rest of Alphabet businesses as a whole.”
Google Inc. will be replaced with Alphabet Inc. as the publicly-traded entity, but GOOGL and GOOG will continue to trade on Nasdaq.
What do analysts think about the move?
Well, the unexpected announcement sent shares of Google up 7 points to reach $708 in after hours trading. So yeah, Wall Street is pleased.
“They are aware that they’ve got this hodgepodge of companies,” said Roger Kay, an analyst at Endpoint Technologies Associates. “Maybe it’s better to sort them out a bit and make it clearer which ones are bringing in the bacon and which ones are science projects and which ones are long-term bets.”
The name represents language, “one of humanity’s most important innovations,” as Page himself said. The co-founders chose it because language sits at the core of how Google search indexes searches. Page and Brin further justify the nomenclature saying it means alpha-bet, where Alpha is investment return above benchmark.
Does Alphabet have its own web site?
Yes it does. You can access it at: https://abc.xyz/. Nice word play there, Google!
For even more details about the transition (especially those related to financials), see Google’s SEC filing.