12 Aug Alphabet Poised to Replace Google as Parent Company
Google recently launched plans to reorganize under a new name – Alphabet. The company that began as a search engine has expanded into areas as varied as drones, biotech, venture capital money, none of which make as much money as the search engine.
Listening to investor demands, Google has decided to create a parent company to accommodate both its research projects and its core business.
“For Sergey 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.”
In the new structure, Page will operate alongside Sergey Brin, who cofounded Google in 1998. Alphabet would be the parent company, housing many of Google’s lesser known subsidiaries. Google’s move is a significant step that will help the company better manage its several entities.
“As you ‘age’ — even when you’re still a teenager like Google — you have to work hard to stay innovative,” Mr. Page wrote in the memo. As other technology companies aged, they made the mistake of clinging tightly to their main product and fell behind their competition. With Google’s new structure, divisions within the company will be given more leeway within their own departments, bringing more flexibility to the company.
“A holding company also gives Google executives more room to add acquisitions to their growing portfolio, in addition to providing better financial transparency. Starting in the fourth quarter of this year, Alphabet will break out financial results for Google Inc., as well as for the company as a whole. Although investors will not be able to see specific performance indicators from Google, they will be able to see how Google’s core business is doing.
Colin Gillis, an analyst at BGC Financial, said, “The reorganization laid a foundation for making further disclosures later, such as unveiling results for YouTube — which has become a driver of the company’s advertising business — or a better sense of how much money is being spent on initiatives like drones. How much money are they wasting or investing outside of their core?” he said. “We’ll get to see how much is that overhead.”
Larry Page explained that there was no model for the organization that Google wanted to become, but he said he admired Warren Buffett for establishing a precedent in this arena, according to an interview with The Financial Times.
Google’s management team is set to re-organize extensively, with Sundar Pichai, who had been senior vice president in charge of products, will be chief executive of Google, which will encompass Internet products like search, maps, YouTube and applications like Gmail.
Whereas Omid Kordestani, Google’s current business head, will become an advisor to Alphabet and Google. Other projects under Alphabet will include Google Fiber (ultrafast internet service), and two financial businesses, Google Ventures and Capital, respectively.