RAY HENNESSEY ENTREPRENEUR.COM AUGUST 10, 2015
Say goodbye to Google. Say hello to Alphabet.
Google Inc. says it is creating a new operating structure under a newly formed umbrella company it is calling Alphabet Inc. Co-founder and current CEO Larry Page will lead the new company, while Sergey Brin, the other co-founder, will serve as president.
Google itself will be an operating unit and get a new CEO: Sundar Pichai, who had been running Android and Chrome.
It’s not just a name change, but a reorganization of the company. In a blog post announcing the change, Page said they wanted a “slimmed down” version of Google, with other businesses, such as Life Sciences and the Calico biotech unit to be their own operating companies. Each unit, Page suggested, would get its own CEO.
Page sought to position the move as a further move toward the technology-driven disruption and innovation he, Brin and Google have all long espoused. “We did a lot of things that seemed crazy at the time,” Page wrote. “Many of those crazy things now have over a billion users, like Google Maps, YouTube, Chrome, and Android. And we haven’t stopped there. We are still trying to do things other people think are crazy but we are super excited about.”
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Yet, the move positions Google as far more traditional than disruptive. Many companies have found that a conglomerate model — which is essential what Alphabet will be — helps manage the overall company better by putting key executives in charge of the underlying companies, leaving the top management to focus on making the company work as a whole.
Indeed, Page, in his blog post, said as much. “In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed,” he wrote. “We will rigorously handle capital allocation and work to make sure each business is executing well.”
That also gives shareholders an advantage. Now, Alphabet can more easily spin off these units into their own public companies, with existing holders getting some shares. Indeed, the history of business shows that periods of consolidation with large conglomerates is generally followed by times when companies split off some of their holdings.
While the structure of Alphabet isn’t unusual, the timeline to create such a massive conglomerate is nothing short of breathtaking. Google is a company not yet old enough to buy beer, founded officially in 1997. Two years later, it opened its first official office, with just eight employees.
Then, growth exploded and within five years, the company went public. At the time, it even disrupted that process, holding an auction-style initial public offering so more retail investors could buy shares.
The company, just before the Alphabet announcement, is now valued by the market at $444 billion.
Alphabet Inc. will replace Google Inc. as the publicly-traded entity, the company said. All shares of Google will automatically convert into the same number of shares of Alphabet.
And, why the name Alphabet? “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,” Page wrote. “We also like that it means alpha-bet (Alpha is investment return above benchmark), which we strive for!”
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