It’s a move that has taken both Silicon Valley insiders and Wall Street watchers by surprise: Google is undergoing a huge corporate restructure, transforming from an internet giant with a few R&D add-ons to a tech conglomerate called Alphabet in one fell swoop.
Google itself is being relegated to the status of subsidiary – albeit one with more than $60bn (£38.5bn) of annual advertising sales, containing the search business that started everything, Android, Chrome, YouTube and more. It’s being led by Google’s senior VP of product Sundar Pichai (who got himself congratulations from the Indian prime minister in the process).
Google’s venture capital arms and blue-sky businesses, including its secretive X research lab, ‘smart home’ products business Nest and biotech arms will now be separate companies under the Alphabet umbrella. Chief exec Larry Page will take up the same role at the conglomerate, as will executive chairman Eric Schmidt, while Page’s co-founder Sergey Brin will be president.
Investors are happy: shares were up 6% in after-hours trading, giving the tech titan a market cap of $672bn. But why the shake-up?
Page claimed the restructure would create a ‘cleaner and more accountable’ company in a blogpost at its new domain abc.xyz (awkwardly, alphabet.com, as well as associated social media handles, were all taken). And it will certainly make it clearer how much cash Google has been splashing on its long-term bets, which will also now be easier to spin off in the future should the bosses want to flog their babies. So it’s arguably the Wall Street-friendly shake-up shareholders were hoping for when former Morgan Stanley finance chief Ruth Porat joined as CFO.
But all the non-Google companies will be reported as one lot financially. Aside from not being a whole lot more transparent, setting out how much money is being splurged on the R&D-heavy units could easily have been achieved within Google’s old structure.
The more important reason seems to be the people. Page gets to hand over the day-to-day business and spend more time on the driverless cars, drones and nerd glasses of the future. Pichai gets a promotion that Page et al no doubt hope will stop him being poached for a CEO role elsewhere.
As Page himself put it. ‘This frees up time for me to continue to scale our aspirations… Sergey and I are seriously in the business of starting new things.’
The challenge for the new Google, then, is to convince investors that whatever it’s spending on the non-core businesses will pay off in the long-term. And to keep the CEOs of its newly ‘independent’ businesses happy under their alphabetical overlords.