Monday, August 10, 2015

Google restructures under new company called Alphabet

Credit:  Google

Eleven years ago, the original founders of Google wrote, "Google is not a conventional company. We do not intend to become one.”  So far, the founders seem to be living up to their word, and they proved it more so on Monday in an announcement.  The parent company will now be known as Alphabet.

The Internet giant that has brought you products such as Android, Chrome, YouTube, and Google Maps is taking on a new identity -- sort of.  In effect, the move marks major restructuring and rebranding.

Chief Executive Officer Larry Page wrote, "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 [Brin], as President."

(Note:  Pay attention to the web address for Alphabet because typing in a search engine will not get you to the site of Google's parent company.  Learn why.)

By rebranding, Google seems to be positioning itself far beyond its humble beginnings as a first-class search engine. Alphabet will act as the tech giant's holding company.  In his blog post, Page wrote, 
"We liked the name Alphabet because it means a collection of letters that represents language, one of humanity's most important innovations, and is the core of how we index with Google search."

Google will become a subsidiary of Alphabet with a new CEO: top Google executive Sundar Pichai.

So what exactly is Alphabet?  Page explained.

Alphabet is mostly a collection of companies. The largest of which, of course, is Google. 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. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). 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. In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed. 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.

If you find the announcement a bit confusing, you're not alone.  On the positive side, analysts believe Monday's move will allow investors to better track how the company's money is being spent. 

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