The news that Google is launching a new holding company will be a surprise to some.
From today, ‘slimmed down’ Google will be the largest subsidiary of a parent company, Alphabet, whose structure is said to be similar to that of Warren Buffet’s Berkshire Hathaway. (Berkshire Hathaway wholly owns a number of diverse holdings and has stakes in several others.)
Investors have been pushing for a re-organisation of the bits that make up the Google portfolio for some time. They claim that the diversity of the business, comprising the huge Internet core – ‘Search’ and ‘Advertising’, ‘YouTube’ and others, but also ‘Driverless Cars’ and a ‘Moonshot’ programme – make the business difficult to interpret and calibrate.
The new company, Alphabet, will preside over a collection of companies, the largest of which will be Google. Companies that are far afield from the core Internet products will be branded Alphabet.
The reason for the name Alphabet is, unsurprisingly, nothing conventional. It was chosen for two reasons – Alphabet is at the core of how Google indexes search and also Alpha-bet means “investment return above benchmark”. Even the site’s new web address shuns convention, www.abc.xyz
Analysts generally approve of the move, saying it will provide for incremental transparency into Google’s business and that it suggests the company is looking for ways to balance founder and employee interests with those of investors. (There has been an equally surprising simultaneous reallocation of executive responsibilities at the top.)
It will be interesting to see whether the new structure gives investors greater clarity on strategy and how much Google is spending on new products. The share price was up 5% on the morning of launch.
Businesses that will stay a part of Google:
Businesses spinning off from Google to become separate companies under Alphabet:
– Calico (life extension bio-research)
– Nest (maker of the Nest Thermostat and other smart home products)
– Fiber (high speed internet service)
– Ventures and Capital (early and growth stage investing)
– X lab (‘moonshot’ research incubator including self driving cars and delivery drones)