Google Alphabet – What does it mean?
Google Alphabet – What does it mean?In early August Google founders Larry Page and Sergey Brin announced they were starting a new company called “Alphabet”. Alphabet, as noted by Larry Page, “Is mostly a collection of companies. The largest of which, of course, is Google.” Essentially, Brin and Page have created a new holding company for all of their future endeavours, one in which Google will be housed. So what does this mean for the company and founders moving forward?
The role of Google’s founders
Brin and Page have now created a world in which Google is only a piece of what they see as a much larger puzzle. In this world, Google’s founders now take a step up above the company they created to manage a bigger picture. This creates a slew of new companies, each with a need for executives of their own. The most notable new executive being longtime employee Sundar Pichai who becomes the new CEO of Google. Pichai is a Google lifer with the company, and its employees, backing him as the successor for the CEO role. “You have Sundar focusing on the core business, and you will have Larry and Sergey kind of looking at the future growth businesses” one analyst noted.
New ventures, new companies
Previously the company had announced a raft of new ideas and projects like Google X, an experimental lab focusing on driverless cars and drones, and Fibre, a high-speed internet initiative. With the implementation of Alphabet, these ventures will no longer be part of Google, but rather, be created as separate companies and housed under the Alphabet holding corporation. This gives these new ventures the room to grow and operate in their own spaces, independent of the Google search engine behemoth. This also means that these new ventures are less likely to hold any liability in the case of lawsuits, like those currently being filed, against Google.
A slimmed down Google with more transparency
In the new world of Alphabet, Google is expected to cut itself down to a version of itself that will only focus on its core business operations like search, e-mail, Youtube, and Android. By parsing out new business ventures as separate companies’ altogether, Google will not have to weigh the costs of far-reaching projects and instead now only be judged on its results solely from its core operations, something that shareholders will certainly be pleased with.
An additional effect of Alphabet will be increased transparency of the companies spending and revenue numbers. Investors have always wanted Google to be more transparent with its capital spending, and now they will get their wish. On the revenue side, as one CNBC reporter noted after the announcement, “They’ll [Google] have to report line items for advertising revenue, search revenue, YouTube revenue. So you’ll be able to have more granularity in their different business lines to see where the real growth is and where the real drivers are.”
Alphabet to open the doors for M&A?
Over its time of emerging as a tech giant, it has become clear that Google has been hard to define. What does SEO have to do with driverless cars or chip-embedded contact lenses? In this way it has been hard for the company to communicate with the world (and especially its investors) the strategic moves it has made. When Google purchased Motorola in 2011 it was automatically assumed that the new acquisition would be merged in with the Android team in a dysfunctional relationship, something that never occurred.
In historical merger and acquisition situations, Google has been slowed down by getting deals approved by regulators as well as the chance of upsetting current partners. By using Alphabet as a massive umbrella, the door is now opened for Google to acquire even more companies in any market of their choosing. Does this mean that Twitter could be next up as an acquisition for Alphabet? What about Spotify? Or even Tesla? Only time will tell if the rise of alphabet, along with the over $10 billion in cash at the company’s disposal will bring along with it a stream of new business segments to add to Google’s ever-growing list.
Extending beyond its brand
When Google was founded in 1998 it was introduced as a better search engine for the entire internet. Over the years it has changed, evolved, and acquired new business to broaden its scope of work. However, over the more recent past, Google has gotten too far away from its original business model to justify some of its strategic moves. By spinning off all projects not associated with its intended business model and packaging them together under the Alphabet name, it allows Google to continue building its brand on its own, while allowing its other business segments to take off in whatever direction necessary.
It’s highly unlikely that the new Alphabet name tarnishes what Google has built over the past decade. All of its consumer facing products are still branded with the Google name and are unlikely to be re-branded. With further transparency, and a clearer understanding of the company, and crucially, it’s value – investors are likely to be cautiously optimistic regarding Alphabet.
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