A Deeper Look At The New Google

From MIT Technology Review:

Before Apple’s Steve Jobs died in 2011, he told Google cofounder and CEO Larry Page that his company was trying to do too much. As Page later told the Financial Times, he replied, “If we just do the same things we did before and don’t do something new, it seems like a crime to me.” Yet Page also acknowledged that Jobs was right in one sense: he could manage only so many things before too many would get lost in the shuffle.

Those twin desires—to do new things regardless of how weird and unrelated they seem to Google’s core search and advertising business, and yet still find a way to manage them to fruition—explain Page’s surprise announcement Monday that he was creating a holding company called Alphabet. It will separate Google’s lucrative ad-related businesses, including Android mobile software and the video site YouTube, from the company’s wide-ranging efforts on self-driving cars, human longevity, Internet access balloons, the Nest connected-home devices, and more, each of which will probably become discrete subsidiaries.

But the move, while cheered by investors, is just the first step to fulfilling the company’s long-standing goal to “make Google a long term success and the world a better place.” In the view of several management experts, Alphabet will be successful only if the individual projects and companies can be successful enough on their own to be spun off into freestanding companies eventually. The new corporate structure enables that to happen, but it surely doesn’t guarantee it.

First, it’s important to dispel the assumption that Page and cofounder Sergey Brin have created something like the Berkshire Hathaway of the Internet, an updated version of Warren Buffett’s conglomerate. “The comparison is silly,” says Michael A. Cusumano, a professor at MIT’s Sloan School of Management. Buffett, he says, invests in existing, undervalued companies, a bit like a mutual fund—precisely the opposite of Alphabet’s VC-style focus on risky new ventures like Calico, which wants to somehow fight aging. ….

Read the complete analysis.

Spelling It Out: The Real Reasons Google Will Become Alphabet


From my Forbes blog:

Google CEO Larry Page never fails to surprise. Google just renamed itself Alphabet, creating a holding company that includes the search company (Google) and a bunch of others that no one could figure out why it was doing. Page will be CEO of Alphabet, Google cofounder and executive-in-charge-of-cool-stuff Sergey Brin will be president, and senior VP Sundar Pichai becomes CEO of Google.

It sounds like a big deal, and in a sense it is always a big deal when a company changes its name and corporate structure. But in other ways, not much has changed, because Google has essentially run its far-flung collection of businesses, from its Calico human longevity company to its X lab that’s working on Internet balloons, self-driving cars, and drone product delivery to investment arms Google Ventures and Google Capital, pretty independently already.

Either way, the move raises a few questions:

* What’s the big idea?

Well, it’s probably not just one idea, but let’s start with one: This will keep left-brain investors happy, or at least happier. They’ve always been wary of all the non-search, non-advertising businesses Google has entered, and their inevitably uncertain prospects have no doubt weighed on the shares if only because they’re much more of a cost for years to come rather than significant revenue generators.

So this is a way for the company, which will now report the core Google business results separately in earnings reports, to make the company’s various businesses clearer to investors. It worked, at least for now: Google’s shares rose more than 6% in extended trading after a nearly flat day today. As Pivotal Research Group analyst Brian Wieser put it in a note to clients, “Perhaps there will be incremental value assigned to the totality of the new Alphabet because, undoubtedly, real value exists within the company’s emerging ventures.”

But given that Google rarely seems to make big decisions to please investors, it’s probably best to take Page at his word that the main impetus was to make each business able to operate more independently–and thus more likely to succeed or at least to get the chance to succeed without needing to be related to the core ad business. …

* What’s with the name?

With a funny name like Google, you certainly have to come up with something for the holding company that’s at least a bit whimsical (the URL is abc.xyz) or you will look lame. So that’s one. Another interpretation from an esteemed analyst (my wife): “Are they going to control everything from A to Z?” I wouldn’t bet against their trying.

But as Page puts it in his blog post, the name also fits:

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!

Yeah, he’s still a nerd at heart. (And can you tell he’s stoked?!) …

Read the complete post.