Google Surprises Everyone By... Breaking Itself Up (Kinda)

from the huh? dept

For years, there have been efforts by various competitors and governments to try to break up Google. But now the company appears to have done it itself. Sort of. Taking basically everyone by surprise, Google announced that it has formed a new "holding company" called Alphabet, and made Google a wholly owned subsidiary of Alphabet, while at the same time carving out other businesses from Google and making them separate from Google, but still under the purview of Alphabet. The whole thing is... weird. There's lots of speculation going on as to why, and no one seems to agree. Larry Page's letter suggests it's to allow the overall company to be more innovative -- which actually is a legitimate possibility. Just this morning we noted that Google's failure with Google+ shows how the company can sometimes lumber around things while startups are much more nimble. Splitting the company into totally separate entities (even if owned by the same holding company) at the very least has the possibility of forcing the separate units to focus on executing on their own businesses, without worrying about stepping on the toes of other businesses. But... it also loses the ability to cross-subsidize parts of the business.

Others have speculated that this was also a way to "reward" top execs like Sundar Pichai, who is now Google's CEO -- while Larry Page becomes CEO of Alphabet (and Sergey Brin is President of Google). Even if he's still reporting to Larry, having "Google CEO" on the business card has to be seen as a promotion.

The only other thing that came to my mind was that this was some sort of reaction to all those lawsuits and investigations into possible anti-trust. Not that reorganizing the company is going to "fool" any regulator, but at the very least, it perhaps sets things up in a manner that if regulators try to break up Google, there are preset "fissures" that allow Google to "direct" the cuts more strategically.

Frankly, the whole thing seems to be leaving a lot of people scratching their heads (myself included). It may turn out to be nothing beyond just a different take on a corporate restructuring -- or it may be a prelude to the company doing something much bigger that would fit much more readily into this holding company structure.

Oh, and in case you're wondering, the company (for now at least) has taken the URL abc.xyz and it includes a weird little Easter egg, giving tribute to the fictional Google-like company in HBO's Silicon Valley, Hooli.
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Filed Under: holding company, larry page, restructuring, sundar pichai
Companies: alphabet, google


Reader Comments

The First Word

It's not hard to see all sorts of advantages for both Google and Alphabet. These are both financial and legal.

First and foremost, having everything under one company means that any legal risk in any part of the company is a combined and global risk. So as an example, if the sugar detecting lenses turn out to make people blind, the legal obligation would under the old structure go back to Google as a whole. Now, it would be Alphabet, and Google would be much more insulated.

The structure also makes it easier to break off pieces and handle them uniquely. That means you can lose the failing businesses, sell under performing units to others, and also take successful projects public, perhaps on a more individual case basis.

My guess at this point is that the "new" Google will be at some point chopped off of Alphabet, and listed publicly on it's own. Alphabet would still be the majority owner, but in legal terms the separation would be complete. Basically current shareholders would end up with shares of Google and shares of Alphabet, and the two listings could go from there. They could use this move to create the arms length separation between their business units, creating a very powerful defense against anti-trust.

For what it's worth, it would allow Google (the search company) to sell those top spots to whoever pays the most, and not keep the always in house. I think that Alphabet has come to realize that many of their projects are not as successful as they should be in part because they don't have to fight for eyeballs or attention. If they actually had to pay for that traffic at a level similar to what other companies might pay Google, they may not be so successful. That might lead to actual innovation and development to make the products better.

This could also lead to an improved bottom line for Google (the search and ad company), as they would be freer to develop new ad spots without having to worry about supporting their own in house products.

I think of all of this as a mature strategy for Google. It's not unreasonable to consider that at some point in the future, Google will fall like every other search engine before it has. By breaking the parts up, Alphabet can work to develop it's own future without being tied to the search mothership, and produce long term value for shareholders. At the same time, it may encourage the search team to getting back to providing the best search results, and not the best results for Google companies.
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  1. icon
    PaulT (profile), 11 Aug 2015 @ 2:21am

    Re: Re:

    It's nice to see an attempt at honest debate and opinions rather than personal attacks, lies, etc. Hopefully, this means a change in mindset, and not that he accidentally used his troll account to post such things.

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