August 11, 2015
Google (GOOG), which seems rarely to miss a beat, said it will restructure its corporate operations to more accurately mirror what it has become–a conglomerate comprised of a variety of businesses.
Fittingly, the name of the new entity is Alphabet, which will operate as a parent company housing not only smaller businesses such as Nest and Calico but also the former Google.
In effect, the new structure separates Google’s core business from its myriad of other endeavors–ranging from biotech, smart cities, connected homes and fiber to venture investments, self-driving cars and drones–but still fits it all under one roof. Under Alphabet, there’s Google–with Search, Advertising, Maps, YouTube and Android–and then everything else, namely Calico, Nest, Fiber, Sidewalk, Google Ventures, Google Capital and Google X.
While the portfolio approach offers more latitude to the various smaller businesses to make decisions at the micro level it also addresses nagging questions from investors that Google has swayed from its knitting.
“For Sergey and me this is a very exciting new chapter in the life of Google—the birth of Alphabet,” wrote Larry Page, Google co-founder and chief executive of the new Alphabet operation, in a blog post. “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.”
Google detailed the ground-level-up overhaul in an 8-K SEC filing in which it said it created the new Alphabet public holding company to “increase management scale and focus on its consolidated businesses.”
Under the new structure, Page will be Alphabet’s chief executive and Google co-founder Sergey Brin its president. Eric Schmidt will become Alphabet’s executive chairman and David Drummond will serve as its chief legal officer and secretary. Omid Kordestani, Google chief business officer, will become an adviser to Alphabet and Google.
Sundar Pichai, Google Products senior vice president overseeing product management, engineering and research whose star has been on the rise for some time now, will run the new Google as its chief executive. Ruth Porat, Google chief financial officer will remain in that role and also serve as CFO for Alphabet.
“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,” Page wrote. “He has really stepped up since October of last year, when he took on product and engineering responsibility for our internet businesses.”
Later this year, Google will reorganize the holding company so that Alphabet owns all of the capital stock of Google, with Google ultimately maneuvered to operate as a direct, wholly-owned subsidiary of Alphabet. Each share of Google stock will convert into an equivalent share of Alphabet stock.
Investors will be able to see financial results for Google–particularly its core businesses–and the overall company but not the individual figures for the other, smaller entities housed under Alphabet.
YouTube, the video service
Android, the company’s mobile operating system
Sidewalk smart cities
Nest connected home devices
Fiber high-speed Internet service
Google Ventures, Google Capital
Google X, self-driving cars and delivery drones
Tony Fadell will continue to run Nest and Art Levinson will head the health research Calico business, Google said. Sidewalk, a smart cities business, will be led by Dan Doctoroff.
“We’ve long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes,” Page wrote. “But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant,” he said.
“Our company is operating well today, but we think we can make it cleaner and more accountable,” Page said.
He described Alphabet as “mostly a collection of companies,” and the “newer Google” as a bit slimmed down,” perhaps in a nod to critics suggesting the company needed to tighten its core focus. As for the “far afield” companies housed in Alphabet, Page said the restructure means “we can run things independently that aren’t very related.”
At this point, it’s not clear where Google’s Project Fi, its MVNO business, will be slotted in the new structure.
Google disclosed the new structure after the market closed with shares spiking more than 6 percent in late trading.
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