The ABCs of Google and Alphabet
Earlier this week, a shock rippled through the tech world – Google announced it is becoming a small fish in the big pond of Alphabet; a much larger holding company.
Under the new structure, Google will become much more streamlined, focusing on it’s core offerings of search, email, YouTube and Android. The existing off-shoots of Google such as Google X (the company’s moon-shoot experimental lab focused on driverless cars and drones) and Fiber, Google’s high-speed Internet initiative, will be segmented into separate companies with their own CEOs, managed by Google’s co-founders and the Alphabet conglomerate.
The main function of Alphabet is to control capital allocation for each business, including determining compensation for each of the businesses’ CEO. Beginning in the fourth quarter of this Financial Year, the company will also report financials for Google on its own, as well as the rest of the exploratory (and often loss-running) enterprises, allowing stakeholders a better sense of the health of Google’s core business.
“We liked 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!” – Larry Page
In a blog written by Larry Page, ‘G is for Google’, he refers to a statement which defined the core value of Google in the original founders letter which he and co-founder Sergey Brin wrote 11 years ago ‘Google is not a conventional company. We do not intend to become one.’ Larry Page states that from inception, they have always ‘strived to do more, and to do important and meaningful things with the resources we have’. This has led to a multitude of successes across a broad range of businesses, and thus the co-founders agreed that it was time to ensure transparency of each business unit long into the future with the creation of Alphabet. Page is the CEO of Alphabet, Brin is President, and Ruth Porat the former CFO of Google will now be CFO to both companies, a huge role especially considering Alphabet’s financial purpose. Sundar Pichai, who took on responsibility of product and engineering for Google’s Internet business late last year was selected by the co-founders and the board to be the CEO of Google.