BY Richard Summerfield
Over the course of the last decade or so, Google has played a pivotal role in the lives of billions of people. Though the company began as a mere search engine, today Google has become a global conglomerate offering everything from video hosting to high speed fibre broadband, restaurant reviews to ‘smart’ home heating systems, and self driving cars to venture capital investments.
However, going forward this is all going to change, as Google will soon become a wholly owned subsidiary of a new holding company, Alphabet. “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,” said Google chief executive Larry Page in a blog post on the company’s website.
In creating Alphabet, the company caught many analysts and investors off guard. But it is important to note that there will be no material change for consumers or investors going forward. Google’s fundamental businesses – and its experimental ‘Google X’ division – will remain the same under the Alphabet banner.
Indeed, Google's core units – search, YouTube, Android and maps – which account for almost all of the company’s annual revenue of around $66bn and its $460bn stock market capitalisation – will remain within the Google subsidiary. However, Google itself will have a new chief executive, Sundar Pichai, who had been senior vice president in charge of products. Mr Page and Google co-founder Sergey Brin will run Alphabet, Google’s new parent company. Other subsidiary companies including Nest and Calico will sit alongside Google.
Though the move was unexpected, it has been heralded as a positive step. The reorganisation of the sprawling and diffuse Google business marks the first time that any of the major Silicon Valley powerhouses has attempted to streamline their units. Companies such as Amazon and Facebook, which themselves have acquired a litany of tech start ups in recent years, will surely watch Google's reorganisation with interest.
Investors have almost universally supported the realignment of Google's business. Shares of Google Class C stock rose more than 4 percent on Tuesday morning, the day after the announcement was made. The move is expected to bring greater balance-sheet accountability and reduce Google's spending on speculative endeavours. As Mr Page noted, “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.”
How the reorganisation will affect Google’s antitrust battles in Europe remains to be seen, however.