Google creates Alphabet

Google HQGoogle’s announcement that it has created a parent company called ‘Alphabet’ has most certainly taken the tech industry by surprise. Larry Page and Sergey Brin, founders of Google, moved to create Alphabet which, by their own description, is “mostly a collection of companies, the largest of which being Google”.

The restructuring of Google, or in other words the “slimming down” into its core products and services, into the larger corporate entity is a smart transition to shed some of the problems the company currently faces and will face in the near future. The core services such as Android, Chrome, Maps, Search, along with YouTube will remain with the Google subsidiary, under the supervision of its new CEO, Sundar Pichai.

Sundar Pichai

Sundar Pichai, who has been a rising star at Google for some time, has essentially already been in day-to-day control over the tech giant since 2014.  Initially placed in charge of Chrome, Pichai would then go on to eventually oversee Android and all of the Google core products such as Maps, Search, Ads and others.

Sundar Pichai

Sundar Pichai (Twitter Feed)

For Pichai, like Zuckerberg, the battle to be fought is not for the current billions using online services/networks. Rather it is for the next billions in the emerging markets. Therefore his tenure will see an increased focus on accessibility of Google’s services across all devices.

Separation of risk

Google, the search and advertising giant, has a history of promoting interesting new technologies and ideas, funding many ventures such as the self-driving vehicles, Google glasses, and more recently Project ‘Loon’. As interesting as these ventures may be, investors have not been as enthusiastic. Instead, they have raised concerns over how much these experimental projects have cost the company, particularly in light of the failure of some of these projects and their impact on the Google brand, (as we saw with Google Glass).

For the investors, the restructuring of the company and the creation of Alphabet offers slightly greater transparency with regards to revenues and allows for the core business to remain profitable and separate from the moonshot ventures successes or failures.  Alphabet have already stated that only two sets of revenues will be announced; Google’s and Alphabet’s. So do not expect extremely granular numbers or the number of nest smart web cameras sold. Judging by the 5% spike share in after trading hours, this move has nevertheless been well received.

The separation of Google from the moonshot ventures is an exciting prospect for future projects since they can now be treated more as start-ups, rather than side projects under Google. Under Alphabet, individual projects will be treated as semi-independent companies, each with their own CEOs, a lucrative opportunity to address Google’s ongoing talent retention problem as stiff competition within the tech industry has resulted in Google failing to attract new talent whilst losing some of their best. These companies would also be able to raise independent funding outside of Google. As the individual companies continue to develop, this will inevitably be rewarding for both the investors and the Alphabet shareholders.

PR stunt?

There are some concerns however that this is quite simply a PR show from Google as it already treats its moonshot ventures such as Loon, and acquired companies such as Nest or Boston Dynamic, as if they were independent subsidiaries. Therefore the creation of Alphabet in reality changes very little in terms of internal operations.

Moreover, it is a possibility that the creation of Alphabet is to avert potential problems resulting from shareholder pressure seen in Microsoft and Apple. The restructuring of Google could be seen as a method to protect themselves against the sort of pressure that Microsoft and Apple face from their shareholders; though Google are not believed to be under any particular pressure.

Fundamentally this move means very little for consumers in the short term but ensures that Sergey Brin and Larry Page will be free to go for the big ideas that we are used to from Google with less pressure from the markets and shareholders.

Written by Rekesh Vekariya (@reksveks) and Aayush Karki (@YushKaPoosh)