Google shocked, well, everyone with the announcement that it is restructuring itself under a new company called Alphabet.
Larry Page dropped this bombshell in a blog post today —- a post he signed as CEO of Alphabet.
Sergey Brin is the president and Sundar Pichai, whom Page generously praised, will be the CEO of Google.
Pichai is the former vice president in charge of products at Google. The two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG.
“A Collection of Companies”
Page describes the new structure as “mostly a collection of companies.”
Google is the largest entity in this collection, albeit one that has been slimmed down. Many of the various operations and projects that had previously resided under the giant umbrella that once was Google will be housed under Alphabet instead.
These operations are the newer and more outré tech initiatives for which Google has become famous, such as its project to develop a glucose-sensing contact lens or its project Calico, which is working to crack the secret to longevity.
Alphabet will also include the X lab, which is developing such new projects as drone delivery. Alphabet will also house the company’s investment arms, Ventures and Capital.
Page makes clear the hierarchy of the two companies: Google will become a wholly owned subsidiary of Alphabet.
A Streamlined Company?
All of this upheaval is being done in the name of efficiency, simplicity and streamlining, according to Page.
“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” Page wrote.
If this complete corporate realignment seems like a lot of work to reach that rather standard goal most companies have — that is because it is.
It is an odd way to go about streamlining a company, Rob Enderle, principal of The Enderle Group, told CMSWire. “You don’t typically do that via a complicated, convoluted corporate restructuring.”
'Google Wants To Localize and Limit Liability'
Enderle gets straight to the point: “I think this is all about Google seeking to localize and limit liability of any future endeavors. It sounds to me as though they are anticipating problems or regulatory issues and then want to concentrate those problems in one unit or division.”
For instance, Google is moving increasingly into the telecom space, putting itself at risk for oversight by the Federal Communications Commission, he said.
Also, the EU re-emerged as a trouble spot for Google this spring, after the company thought it had its anti-trust problems there settled in February of this year.
It clearly was wrong though — and the extent of its miscalculation was made clear two months later in April, when it was blindsided with the European Commission’s decision to open a formal investigation on Google.
In its Statement of Objections, the EC accused Google of using its dominant position in the search engine market “by systematically favoring its own comparison shopping product in its general search results pages.”
The Commission's preliminary view is that “such conduct infringes EU antitrust rules because it stifles competition and harms consumers.”
The EU is not above levying gigantic fines proportionate to a company’s overall financial picture, Enderle noted.
A Conga-Line of CEOs
Enderle also pointed out a side benefit to the new corporate structure that, while surely was not the driving goal may well have played a part. As Google continues to acquire companies it will want to keep on the CEOs of these companies. Problem is, CEOs tend to like their titles and status and many choose to leave a company -- even of Google’s stature – because they miss those trappings.
Sure enough, Page also notes in his post, “We’ll also make sure we have a great CEO for each business, and we’ll determine their compensation.”
“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 explained.
Page and Brin, however, are keeping control on the purse strings. “We will rigorously handle capital allocation and work to make sure each business is executing well,” Page writes.
The investor community will surely take a bit of time to digest this latest turn of events.
There is one factor in Google's … make that Alphabet’s favor, though that could turn the tide in favor of this move: under the new structure, the company plans to implement segment reporting for its Q4 results.
Google’s financials will be provided separately from the rest of the Alphabet businesses as a whole.
There is little doubt investors will be pleased: one common complaint they have with tech companies is there tendency to hid how various divisions or projects were faring under the excuse that the company doesn’t segment its earnings.
With this streamlined approach to management, it is impossible for Alphabet to make this argument.
Title image by Sister72.