As Google’s founders have said, it is not about keeping the status quo or about being a “conventional company.”
That’s why when Google released a new blog post yesterday afternoon (Aug. 10) that stated the company would be shaking up its corporate structure, it might not have come as a shock to many.
Google announced the formation of Alphabet Inc., Google’s new parent company. Alphabet will encompass Google Inc. (more on this later), Google Ventures, Google Capital, Google X and other subsidiaries — including its health care businesses. Alphabet Inc. will also replace Google Inc. as the name of the publicly traded company as Google Inc. will be a wholly owned subsidiary of Alphabet.
As part of this change (and the big news) is that Sundar Pichai will become Google’s new CEO. Google Inc. for all intents and purposes is Google’s “core business” — search, YouTube, advertising, commerce, etc. Pichai will be running — and continuing to grow — this business.
Google’s cofounders will be focused on initiatives that are intended to foster, in some way, its next big hit. Larry Page will serve as CEO of Alphabet while Sergey Brin will serve as President. They will also be overseeing other companies under the Alphabet umbrella, such as a project called Wing (a drone delivery initiative).
“We’ve long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes. But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant,” Page wrote on Google’s blog. “Our company is operating well today, but we think we can make it cleaner and more accountable. So we are creating a new company, called Alphabet. I am really excited to be running Alphabet as CEO with help from my capable partner, Sergey, as President.”
This new structure creates a more organized and transparent way for investors and analysts to assess the impact and effectiveness of (now) Alphabet’s investments in its future — and quite possibly for Alphabet to more easily spin out, partner with and/or acquire related companies that complement or support its focus.
“This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead,” Page wrote. “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related. Alphabet is about businesses prospering through strong leaders and independence.”
The new leadership plans will also enable Page to focus on bigger picture items for the company.
“I feel very fortunate to have someone as talented as [Pichai] is to run the slightly slimmed down Google, and this frees up time for me to continue to scale our aspirations. I have been spending quite a bit of time with Sundar, helping him and the company in any way I can, and I will of course continue to do that. Google itself is also making all sorts of new products, and I know Sundar will always be focused on innovation — continuing to stretch boundaries,” Page wrote.
As for his and Brin’s role, Page explained that the goal is to have a CEO behind each business but to have both of them available to advise as needed. He also explained how this management change will impact how Google announces its quarterly earnings.
“We will rigorously handle capital allocation and work to make sure each business is executing well. We’ll also make sure we have a great CEO for each business, and we’ll determine their compensation. In addition, with this new structure we plan to implement segment reporting for our Q4 results, where Google financials will be provided separately than those for the rest of Alphabet businesses as a whole,” Page wrote. “This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google.”
So why the name? Well, in Page’s blog post titled “G is for Google,” he also gave details about the inspiration behind 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! We also like that it means alpha-bet (Alpha is investment return above benchmark), which we strive for! I should add that we are not intending for this to be a big consumer brand with related products — the whole point is that Alphabet companies should have independence and develop their own brands,” Page wrote.
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