When Sergey Brin and Larry Page first went public with Google 11 years ago (only 11 years ago!), they said at the time that the company would devote itself to moving beyond the search business, including making “smaller bets in areas that might seem very speculative or even strange when compared to our current businesses.”
Now, the company is codifying that strategy with a restructuring and the launch of a new publicly traded parent company dubbed Alphabet. With a cutesy URL (http://abc.xyz) and Brin at the helm as president, Alphabet will seek to live up to its name as an entity that contains the innovation building blocks upon which all Silicon Valley language is built.
“We also like that it means alpha-bet (Alpha is investment return above benchmark), which we strive for,” Page added.
And, as that indicates, Alphabet will be largely invisible to consumers—it won’t be a brand, per se, but rather a financial structuring tool. Alphabet Inc. will replace Google Inc. as the publicly-traded entity of the company, and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. Google will become a wholly-owned subsidiary of Alphabet. The company’s two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG.
With Alphabet as a holding company, the other businesses within Google will be split out as independent operating entities with their own CEOs, financial structures and independence. The move is also savvy in the sense that the structure allows risk mitigation via isolation—troubles at, say, the drone biz can now be isolated from the ongoing growth engine of Google and YouTube’s Internet advertising business. It affords transparency for investors, and clarity for Google itself in deciding what to fund.
“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,” explained Page.
He added that the move will give the Internet behemoth more management scale. “In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed. We will rigorously handle capital allocation and work to make sure each business is executing well. We'll also make sure we have a great CEO for each business, and we’ll determine their compensation.”
Some of the independent entities within Alphabet will be Life Sciences (which works on the glucose-sensing contact lens), and Calico (focused on longevity). It will also include X lab, which incubates new efforts like Wing, Google’s drone delivery effort, and the company’s investment arms, Ventures and Capital.
There’s no doubt that Google has stretched its wings in the past—and has done so only to soar to seeming world domination in certain areas. “We [have done] a lot of things that seemed crazy at the time,” Page said, noting that the Alphabet strategy gives Google more flexibility to innovate. “Many of those crazy things now have over a billion users, like Google Maps, YouTube, Chrome and Android. And we haven’t stopped there. We are still trying to do things other people think are crazy but we are super-excited about.”
Page is also “super-excited” about Sundar Pichai, who took on product and engineering responsibility for the Internet businesses last October. He’ll be the new CEO of the new Google subsidiary.
“Google itself is also making all sorts of new products, and I know Sundar will always be focused on innovation—continuing to stretch boundaries,” Page said. “I know he deeply cares that we can continue to make big strides on our core mission to organize the world's information.”
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