Google restructures under holding company Alphabet
GOOGLE IS HOPING CREATING A HOLDING COMPANY WILL AFFORD IT THE FREEDOM TO INNOVATE SAFELY
Google has always been a company that has been hard to define. It started as an Internet search engine, then branched out into broader tech fields like drones and driverless cars. Soon after it made a foray into non-tech fields like pharmaceuticals and venture capital. Now the company is continuing to defy definition by reorganizing its corporate structure under a new name: Alphabet.
The decision to restructure was mostly a financial one, as many of Google's offshoot ventures don't make much money and have caused some investors to get spooked by the prospect of dwindling returns. With the creation of Alphabet, investors can be offered a sense of stability while the company is able to continue innovating in a safe environment.
"For Sergey [Brin] and me this is a very exciting new chapter in the life of Google — the birth of Alphabet," Larry Page, the chief executive of Google, wrote in a blog post on Monday. "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."
Run by Page and Brin, Alphabet will become the parent entity of several companies, the largest of which will be Google. Other organizations housed under the Alphabet umbrella will be smart-home business Nest and Calico, a biotech firm focused on longevity. Under the new structure, Sundar Pichai, former senior vice president in charge of products, will become Google's new CEO. With the reorganization, Google will be focused on Internet projects such as search, maps, applications like Gmail and acquisitions like YouTube. The financial divisions of Google, Google Ventures and Google Capital, will shift under Alphabet's control, as will incubator projects like Google X that develops delivery drones and self driving cars.
Google has always proven itself to be ahead of the pack among other Silicon Valley giants, and the creation of Alphabet is further proof of that. As large technology companies like Amazon and Facebook continue to branch out from their original objectives, it is becoming increasingly difficult for them to control the growing sprawl.
Take Amazon, for example. What started as a online bookseller has become one of the most diversified companies on the Web, known internally as the "Everything Store." CEO Jeff Bezos has branched out in numerous directions, offering not only commercial goods but cloud computing solutions, delivery services, streaming media and even creating original content. But even with so many ventures, the majority of them successful, Amazon has yet to turn a profit because each of its new business ideas requires capital to keep the engine turning. While this may be the price of doing business, it can scare investors away if they don't believe they'll ever see significant returns.
Financial stability and technological innovation
By creating Alphabet, Page and Brin have made a move to avoid speculation and distrust of their companies' financial situations. Structuring Alphabet like a holding company provides investors with more financial transparency, helping to ease fears that Google was becoming distracted by outside business ventures and losing focus of its founding principles. In the final quarter of 2015, Alphabet will make financial results for Google Inc. available, as well as those for the company overall. Investors won't be able to see results from the other companies individually, but it will offer them a general sense of how Google's core business is fairing.
"Alphabet's portfolio-like approach allows Google itself to stay innovative."
The portfolio-like approach to managing the pair's menagerie of business ventures allows Google itself to stay innovative. Under the new structure, Google is able to provide operating divisions with greater leeway in making decisions and keep the various business operations more agile.
"We've long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes," Page wrote in his blog post. "But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant."
Complacency and comfort can be disastrous in the technology world, leading to the downfall, or at least downsizing, of many giant companies past. IBM had massive success creating mainframes, but it lost the opportunity to maintain dominance in the PC market to more agile companies like Microsoft. While Microsoft was in the smartphone game before Apple, it missed out on cornering the market because it was focused on its money-making machines Windows and Office. All companies have to concern themselves with making money and keeping the lights on, but it can't distract them from innovating and staying current, especially in the tech space. With Alphabet, Google's founders are trying to kill two birds with one stone, but only time will tell if it will be a successful hunt.