Alphabet Aerobics

Now before you go thinking this is about that dope rap song by Blackalicous, let me just stop you there.(Although if you haven’t heard it yet,you’re missing out).

This is about the website that we all depend on now. This is about Google.

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Last week,Google announced that the company  is creating  Alphabet, a holding company for Google’s many businesses. Google will be a toned-down version of itself under the new shed, focusing on core products like search, email, YouTube and Android, the company’s software that powers smartphones and tablets. Inceptive projects like Google X, the company’s experimental lab focused on futuristic ideas like Project Loon,driver-less cars drones, as well as Fiber, Google’s high-speed Internet initiative  will be broken out into separate companies, with their own CEO’s, managed by Google’s co-founders and the Alphabet conglomerate.In a much more interesting move,the core Google will now be run by Sundar Pichai, former Head of the Android team.

From a business point of view, Alphabet is about growth and prospering through strong leaders and independence. The model is to have a strong CEO who runs each business, with Sergey Brin and Larry Page, the founders of Google, in service to them as needed. The company has assured that they will rigorously handle capital allocation and work to make sure each business is executing well.The brain trust at the holding company will rigorously handle capital allocation for each business. They’ll determine compensation for each business’ CEO.In a very interesting move (especially for Indians), the core Google will now be run by Sundar Pichai, the former head of Android. To quote Larry Page –

“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google. A key part of this is Sundar Pichai. Sundar has been saying the things I would have said (and sometimes better!) for quite some time now, and I’ve been tremendously enjoying our work together. He has really stepped up since October of last year, when he took on product and engineering responsibility for our internet businesses. Sergey and I have been super excited about his progress and dedication to the company. And it is clear to us and our board that it is time for Sundar to be CEO of Google. I feel very fortunate to have someone as talented as he is to run the slightly slimmed down Google and this frees up time for me to continue to scale our aspirations. I have been spending quite a bit of time with Sundar, helping him and the company in any way I can, and I will of course continue to do that. Google itself is also making all sorts of new products, and I know Sundar will always be focused on innovation—continuing to stretch boundaries. I know he deeply cares that we can continue to make big strides on our core mission to organize the world’s information”

With this new structure ,the plan is to implement segment reporting for  Q4 results, where Google financials will be provided separately than those for the rest of Alphabet businesses as a whole.

In layman terms,Alphabet was created for money matters. Let me dwell further.

For the past few years,Google’s been doing increasingly ambitious projects that are not really related to the core things for example-Project Loon,driver-less cars,digital contact lenses,etc.But the investors of the company have not always been much supportive about these projects because they don’t really see much financial return in the near future.They would rather prefer that google sticks to its search and advertising that has been making them ample amount of money for this long.So a lot of this is about changing the investors perspective  as to how the core google processes will now be independent and they can see that it would still be profitable.The other projects will now be handled independently so even if they fail ,it won’t affect google’s core business.Another point in making is that now these projects can receive funding from outside and have no fiscal effect on Google’s financials.

There’s also been much chatter about how Google is doing this to escape regulatory issues that it’s been facing, especially in Europe.I don’t really partake in this because eventually these regulations are part of the Google’s core products and even if they somewhat succeed, it won’t have much of a monopoly effect. The early insights that people gave that the breakdown was done for tax exemption has been shot down by the experts who have taken a good look at the corporate structure and believe that it’s not going to make much of a change in that particular sector.

So there you have it. You don’t have much to worry too much though. The google you know and so dearly love will remain the same for you. As for the new name, as Larry himself suggested, it might take some time getting used to.

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