Google has taken the idea of a company reorganisation to a new level with a restructure that sees the creation of a new overall parent company called Alphabet.
Founder Larry Page will be Alphabet’s CEO with his co-founder Sergey Brin, its President. Sundar Pinchai will become the new CEO of the existing Google company.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
Google itself will be slimmed down and will become one of the subsidiary companies, along with:
- Calico – a biotech focused on life extension
- Sidewalk – smart cities or urban innovation
- Nest – home automation
- Fiber – internet provider
- Google Ventures and Google Capital – investment and venture capital
- Incubator projects – including Google X and others
What’s in a name?
Alphabet’s new url, https://abc.xyz/, reflects the quirkiness of the new structure, although this may have been because the domain alphabet.com has already been claimed.
In fact, Alphabet’s creation has spurred a race to create domains, Twitter, Instagram and other social media accounts that Google may want. An earlier Twitter account, @aIphabetinc (with a capital “i” instead of an “l”), was mistaken as Alphabet’s official account and has now been suspended. Another account, @GoogleAlphabet is likely to meet the same fate.
There are a range of business reasons why the restructure makes some sense. First and foremost, Google found it difficult to justify the diversity of its interests when its primary moneymaking business is online advertising.
So being a division rolling out high speed internet within a company that is focused on advertising proved a very tough sell. There is a difference in priorities, culture and, ultimately, moneymaking objectives. Being a separate company increases transparency and allows it to develop its technology and products in its own way.
Three other possibilities exist for what triggered the creation of the new structure. The first is that it is simply another way of reducing tax and the second that it is the imposition of financial discipline by Google’s CFO Ruth Porat.
The third reason is based on rumours that Twitter was desperate to hire Sundar Pinchai as its new CEO and that Google decided to clear the path so that he could be CEO of Google.
The last reason seems a little far fetched, given that being the CEO of Twitter wouldn’t be a particularly attractive proposition given its difficulties in turning a profit.
Searching for a purpose
Ever since search, where Google has dominated, it has had great difficulty in achieving anywhere near the same success with any other technology. This has led to an almost shotgun approach to its technological purchases which have been as diverse as home thermostats from Nest to weaponised robots from its acquisition of Boston Dynamics.
Buying into these areas, and others, seemed to have had more to do with the personal interests of Page and Brin than a meaningful business strategy or technological vision.
Splitting its diverse technological portfolio into separate companies makes each company responsible for a particular line of business, and more importantly, for their profit and loss.
However, as separate companies, they lose the opportunity to share skills and knowledge that they may have had when they were all under one corporate structure. Having everything separate makes that much harder. Worse, the companies could end up competing against each other.
Show me the money
Another problem with this structure is the imbalance of where the money for the overall structure comes from. 90% of Google’s revenues are from advertising. All of the revenue will continue to be generated from Google.
The only way that any of the other companies will be able to get access to money to expand and invest would be from the parent company, and it is not clear how that will work.
Google may see itself as an advanced technology company with diverse interests, like cars, home automation and internet infrastructure, but ultimately, it is still an advertising company. All of its technology underpins that single fact.
Its mobile platform Android is a sophisticated electronic billboard for its ads. YouTube is all about delivering content in order to display yet more ads, and even its autonomous cars could be argued to be a precursor for advertising to passengers without the distraction of having to actually drive.
Google’s attempts in the past to branch out into new businesses have not fared particularly well. Its wearable spectacles, Google Glass, never lived up to expectations and its foray into producing mobile phones with the Motorola acquisition ended as badly for them as Microsoft’s failed attempt with Nokia.
Nothing about this restructure suggests any new coherent technological strategy on Google’s part. Rather, it provides a way for Google to experiment with “Moon shots” that can live, thrive and possibly die, in a sandbox without impacting the central business.
Splitting the companies and making them financially responsible for their futures could work out better for Google, but it replaces an existing set of known problems with new and perhaps even more challenging ones in their place.