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What does Google’s new reorganization spell?

August 11, 2015
Everyone's "scrabbling" to figure out what Google's company Alphabet means.

Everyone’s “scrabbling” to figure out what Google’s Alphabet Inc. means. — public domain

On Monday (August 11) Google’s CEO Larry Page announced a major restructuring that will see Google and its diverse portfolio of corporate holdings become co-equal, wholly-owned subsidiaries of a newly-created holding company called Alphabet Inc.

The biggest subsidiary — Google itself — made up of all the profit generators: the search engine, Gmail. Maps, YouTube and Android, will be headed by Sundar Pichai, the current Product Chief of Google Inc.

Page says that under the the new leadership of CEO Pichai, Google can continue to make big strides on its “core mission to organize the world’s information”.

All the other holdings, such as X labs (self-driving cars and drone delivery) will be organized into subsidiaries one way or another and run independently by strong CEOs.

Page says that Alphabet will allow the various Google holdings, which aren’t very related, to run independently and maintain their necessary focus.

Protecting the goose that lays the golden eggs

Another way to look at it is that Google is separating its money-losing projects: self-driving cars, drones, robotics, life sciences and the like — often described as “moonshots” — from the core money-making Google businesses that pay for everything.

Larry Page will move to become the CEO of Alphabet Inc. and from this vantage point, the two Google founders, Page and Sergey Brin, will sit above the day-today fray, available to offer wise counsel and otherwise pursue their broader interest of, as Page puts it, “starting new things”.

Page explains that the new structure of Alphabet is designed to make the operations of Google and company cleaner and more accountable and by that I think he means make Google more attractive to investors.

Financial markets certainly seem to appreciate that Alphabet Inc., which will replace Google Inc. (share-for-share) as a publicly-traded entity, is closely modeled on the structure of Berkshire Hathaway, the holding company of billionaire Warren Buffet, who is widely revered in financial circles as the smartest and wisest investor in the world.

And investors will also like Google’s new structure in so much as it allows them a better look at how the various parts perform.

In recent years, Google like many Fortune 500 companies, has been telling potential investors less-and less about its subsidiaries, preferring to appear monolithic.

Google’s new structure may offer investors more transparency but (fiscally-challenged though I may be) I see the whole exercise as one of putting fire breaks around and between Google’s various holdings, particularly its lucrative advertising business.

It’s a bit like Google’s two operating systems. Both Android and Chrome wall off apps from each other so that an app can fail or crash without affecting other running apps — no domino effects and no crashing the core operating system.

I see the Alphabet Inc. restructuring as “protected memory” at the corporate level.

As long as it fiscally swallows them, Google runs the risk that the failure of any of its subsidiary “blue sky” ventures will be seen by investors as a failure of Google itself, which could, in effect, crash Google.

By laying out the constituent parts and performance of Google and company for investors to see, the Alphabet restructuring potentially helps protect the valuable core of Google from the failure of any of its parts.

Google’s move to deliberately draw attention to the diversity of its holding will be a refreshing change for investors (who like more information about a publicly-traded company, not less), coming as it does after period of years when Google was increasingly inclined to pretend that it was one big monolithic blob of “Googliness“.

Where oh where have all the subsidiaries gone?

Google’s 2009 annual report listed over 100 subsidiaries, according to the Wall Street Journal. But two years later, in its 2011 10-K annual report, filed with the United States Securities and Exchange Commision (SEC), Google identified only 87 distinct subsidiaries, and by 2013, say the WSJ, Google was down to declaring just two, both in Ireland.

Though, by February of this year, Google added a third subsidiary in Delaware.

Google hadn’t sold hundreds of its subsidiaries, or any thing like that. What the company had done, explained the WSJ, was decide that the majority just weren’t important enough to mention.

The SEC has always allowed U.S. companies the latitude to omit certain subsidiaries based on their lack of significance, but, the WSJ said, Google was one of several U.S. multinationals, including Microsoft, FedEx, Raytheon and Oracle, that had, for whatever reason, suddenly decided  that few if any of their non-U.S. subsidiaries were worth mentioning.

The Wall Street Journal didn’t hazard a guess as to why some U.S. multinational companies had taken to omitting mention of foreign subsidiaries. Perhaps out of modesty or perhaps in some way it’s very taxing to put together the list every year.

 A is for acquisition

Thanks to its hundreds of mergers and acquisitions, Google is a big cloud of corporate entities.

Some of these entities are distinct social media platforms targeted at end computer users, such as Search and Blogger and YouTube and others are branded enterprise services such as DoubleClick. Still others are acquired companies left to run largely independently, such as Nest Labs, which makes connected devices for the home and Boston Dynamics, a maker of cutting-edge robotics.

It’s not clear how the all of Google’s holdings will be covered by the umbrella of Alphabet Inc. but I was curious to see how much of the alphabet the holdings themselves covered (pretty much all of it, several times over, it turns out).

A is for Android Inc. (2005)
B is for Boston Dynamics (2013)
C is for Calico (2013)
D is for DoubleClick (2007)
E is for Endoxon (2006)
F is for FeedBurner (2007)
G is for Google (1998) and Global IP Solutions
H is for Holomni (2013)
I is for Invite Media (2010) and ITA Software (2010)
J is for Jetpac (2014)
K was for Katango (2011)
L is for Launchpad Toys (2015)
M was for Motorola Mobility, (2011) until it was sold to Lenovo (2014)
N is for Nest Labs (2014)
O is for On2 Technologies (2009)
P is for and Panoramio (2007) and PyraLab (2003)
Q is for Quest Visual (2014)
R is for RightsFlow (2011)
S is for SageTV (2011)
T is for Talaria Technologies (2013)
U was for Upstartle (2006
V is for VirusTotal.com (2012)
W is for Waze.com (2013)
Y is for YouTube (2006)
Z is for Zagat (2011) and Zynamics (2011)

From → Android, Google

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