Alphabet Is The New Umbrella Company For Google And Other Projects

Larry Page announced a major restructuring of Google today. The company will now be owned by an umbrella corporation called "Alphabet," of which Google will be a subsidiary run by Sundar Pichai. Larry Page will be the new CEO of the Alphabet group, while Sergei Brin will be its president.

The main reason for this major restructuring seems to be that Google was becoming the home of too many unrelated businesses and projects, such as the self-driving car project, the drone project, Nest, and then there is also Calico, the life-extension company Google created, and so on.

When Larry Page became CEO of Google, he promised that he would refocus the company -- advice he took from Steve Jobs. However, just as he was trying to focus the related Internet services and kill the redundant or less useful ones, the company also seems to have gotten into many other projects that have little or nothing to do with Google's core products.

Alphabet will give Google the opportunity to truly focus, slim down to its core products around Internet services, and take out the unrelated businesses that could survive on their own in the Alphabet group.

Larry Page named Sundar Pichai as CEO of the "new" Google, and he also said in a blog post that he and Sergei will try to find strong CEOs to be in charge of other Alphabet subsidiaries and businesses. The goal here is to keep these businesses independent so they don't step on each other's toes. Larry Page and Sergei Brin will handle all capital allocation to these businesses and the CEO compensation.

This is actually not too dissimilar from the original Google, which had various teams working completely independently from each other inside Google, but now they get to become actual companies with their own CEO and revenue.

Among the divisions that will be separated into their own companies that will be part of Alphabet is also the "Fiber" project. This is interesting because it is somewhat related to Google's Internet services (the services run over the fiber cables after all), but not directly related to its ad business, which is likely why Google believes "Fiber" should be separated. The Fiber division already has its own business model and revenue that doesn't depend on ads, although right now Google is likely still funding the majority of deployments.

Plus, by separating Fiber into its own company, Page also gives us a clue that he's serious about turning it into a strong competitor to other ISPs in the U.S., and it's not just a pet project.

Alphabet will not become a consumer brand, according to Page. Instead, the focus will be on each company creating its own brands. By not allowing Google to include so many separate businesses and keeping them independent from each other, Alphabet may also avoid some of the anti-trust issues facing Google today.

Google could become a smaller company in the Internet services industry, and therefore it could start being seen as less of a threat, especially if the independence policy remains strong inside Alphabet. However, it may already be too late for this to work in Europe, but it could help Google in future interactions with governments.

The main risk for Alphabet would be that none of the other companies would be nearly as successful as Google, but at the same time they could drain Google's financial resources. Currently, many of Google's projects aren't self-sustaining and still need their own budgets from the core advertising business.

Larry Page, and whoever will be the CEOs of those other companies, will need to find a way to be profitable quickly. However, that may just be too difficult for companies such as Calico or the self-driving car business, which are many years or even decades away from profitability. That means Google will need to keep giving them money, which could be unsustainable if those companies grow much larger than a simple project. On the other hand, some of them could become large businesses on their own, perhaps even bigger than Google itself one day.

Ultimately, this conglomerate of companies may have been created to allow Page and Brin to explore many more opportunities and technologies that they feel are world-changing, without feeling burdened by the need to "focus Google" around Internet services.

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  • mahanddeem
    Too much distraction for Google. Bad move imh
  • nitrium
    Yeah, I don't see the point personally. They already had all these things separated anyway, e.g. Google: "Search", "Maps", "Docs" etc. Why the stock would be up 6% in after hours on this news trading is a complete mystery to me. It's not like this will somehow guarantee them making more money now - all they did was change the name of the company ffs. Indication of peak stupidity perhaps?
  • ravewulf
    I think it makes sense in some areas, especially separating the ISP part into its own business. I'm not sure about the name "Alphabet" though.