What is the second biggest tech company in the world? If you said Alphabet, you get bonus points. If you have never heard of Alphabet, then perhaps you have heard of Google.
On Monday, Google announced that it was going to reorganize its corporate structure. This would usually provoke a big yawn but this could turn out to be significant. Google is creating a new holding company called Alphabet that Page and Brin will run. One of the subsidiaries is what you might think of as the old Google. It consists of search, search advertising, the datacenters, YouTube and Android. Alphabet will also own Calico, Fiber, Nest, Google Ventures, Google Capital, and Google X. One aspect of the reorganization is that these companies will be run largely independently of Google and, in particular, will have to establish their own brand identities in the way that Nest has done since Google acquired it (and ran it independently). I would be willing to bet that Google Capital will soon have a new name, and probably not Alphabet Capital (nor anything beginning with the letter G).
The other reason for making this change is that Google needs to really focus. Advertising is in transition as millennials cut the cord (and don’t read newspapers). So TV advertising and newspaper advertising is continuing to shift more and more online and still has a deficit in terms of time spent on the medium versus advertising spend (whereas newspapers in particular are the other way around: lots of advertising spend but declining eyeballs). Two huge competitors are also out there in Facebook and WeChat. If you don’t live in China, then WeChat doesn’t even seem that significant but it is simultaneously the Chinese WhatsApp (owned by Facebook, of course), Facebook itself, online portal for purchases and more. Its revenue per user is reckoned to be 7-8X what WhatsApp makes. Anyway, investors have been saying for ages that Google needs to focus on its core and not get distracted by these pie-in-the-sky things like autonomous vehicles or Google Glass. Or the glucose sensing contact lens that was the subject of one of the keynotes at DAC. This restructuring is a way to do both. Google (the search and advertising business) will now be run by Sundar Pichai who has no responsibility for any of these other businesses that will have to sink or swim depending on how successful they become.
In an interview with the Financial Times last year, Larry Page said:Looking forward 100 years from now at the possibilities that are opening up, we could probably solve a lot of the issues we have as humans.
As the FT says: Even Google’s famously far-reaching mission statement, to “organize the world’s information and make it universally accessible and useful”, is not big enough for what he now has in mind. The aim: to use the money that is spouting from its search advertising business to stake out positions in boom industries of the future, from biotech to robotics.
If you read between the lines, I think it is clear the Larry (and probably Sergey too) is pretty much bored with the search business and wants to spend his time focused on some of these other areas, using the money pump from traditional Google to do it. Google has a weird corporate structure with two tiers of shares so that they maintain control and, basically, nobody can stop them doing something like this whether they like it or not. They can only sell their Google stock if they choose to.
Before he died, Steve Jobs used to argue with Larry that Google was doing too much. Larry would push back that Apple was not doing enough:It’s unsatisfying to have all these people, and we have all these billions we should be investing to make people’s lives better. If we just do the same things we did before and don’t do something new, it seems like a crime to me.
Alphabet seems to be the way to do the “something new” parts.