11 Aug 2015

Google’s surprise restructure into Alphabet

Google surprises the business world by creating a new holding company that will oversee its latest ventures like drones and driverless cars.

The restructuring separates Google’s core web activities, such as its search engine, from its newer businesses.

Google, co-founded by Larry Page and Sergey Brin in California in 1998, has grown to more than 57,000 employees worldwide.

Under the new structure, the Google unit will include the search engine, which is the most popular in the world, as well as Google Maps, YouTube and Android.

The company’s new ventures – including drone delivery business Project Wing and its life sciences division, which is developing a glucose-sensing contact lens – will be managed separately under Alphabet.

Alphabet will replace Google as the publicly traded entity and all Google shares will automatically convert into the same number of Alphabet shares, with the same rights.


Google Chief Executive Larry Page, who will head Alphabet, said: “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. Our company is operating well today, but we think we can make it cleaner and more accountable.”

It's probably hard for many Brits to imagine working for a Silicon Valley company, writes Technology Producer Geoff White. Can you picture your boss blogging about being "super excited" about "crazy" projects, and "stoked" about investment opportunities? 

But to find the real meat of yesterday's announcement from Google you have to skip to the part where the skater-boy lingo suddenly switched to stock-market speak:"Alphabet Inc. will replace Google Inc. as the publicly-traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet".

What this means is that Google's valuation (currently close to half a billion dollars) will now be based less on its traditional search+advertising business, and more on those "crazy" ideas that Chief Exec Larry Page is so "stoked" about.

Investors' returns will now increasingly depend on Google's success in making driverless cars, smart robots and delivery drones, as well as it's prowess in funding start-ups. It feels like a change of pace: the company that made money connecting people with products in virtual space is now firmly in the real-world product business itself.

Mr Page said the name Alphabet was chosen because it refers to a collection of letters which make up a language and “is the core of how we index with Google search”.

Sundar Pichai, a Google executive, will be in charge of Google. Sergey Brin becomes president of Alphabet, and Eric Schmidt will be executive chairman.

Analysts said the new structure could herald a new era of transparency in Google’s more experimental ventures.

Roger Kay, an analyst at Endpoint Technologies Associates, said: “They are aware that they’ve got this hodgepodge of companies. Maybe it’s better to sort them out a bit and make it clearer which ones are bringing in the bacon and which ones are science projects and which ones are long term bets.”

In July, Google reported growth in profits and revenue, but the company has had to grapple with faling advertising prices.