On August 10, 2015, Google CEO Larry Page shocked the business world by announcing he was restructuring the company he cofounded into a holding company called Alphabet. Page would head the new entity, and Google itself would be one of a number of companies under Alphabet’s control—like Google X, Google Fiber, Google Ventures, and Nest—each with a separate CEO reporting to him. The idea was to make The Company Formerly Known As Google “more clean and accountable.”
Now Page and Brin are gone, kind of. In a letter they released on Tuesday, they explained that while they will continue to advise and stay on the board, they are removing themselves from “day to day responsibilities.” That’s an interesting claim, because the Alphabet structure had freed them of a lot of those responsibilities already, allowing them to pursue the bigger, moonshot-y ideas they preferred to corporate wranglings. Brin embedded himself in X, Alphabet’s long-range research division. Page also pursued his passions, while doing a disappearing act that didn’t live up to the “more accountable” part of the bargain. He gave no press interviews, stopped participating in earnings calls, and didn’t even go to the last shareholders meeting.
Now Sundar Pichai, while still running Google, will add CEO of Alphabet to his chores, with oversight from the board. He’s inheriting a sprawling entity that’s more determined by the ambitions and fever dreams of the cofounders than what necessarily makes sense for the world’s most important search, video, and artificial intelligence company. So maybe it’s time to assess how well the Alphabet move worked out.
The Alphabet structure seemed motivated by two factors. The first was to allow Page to remove himself from the rigmarole of running the Google business. I used to half-joke that he did it so he’d never have to talk to a reporter again. Now I’m down to 30 percent joke. (Oddly, in interviews—my last with him was in 2013—Page can be fascinating, candid enough to provide an illuminating view of his innovation-obsessed mindset.)
The second was to become more friendly to Wall Street, a factor usually attributed to Alphabet’s canny CFO Ruth Porat. Breaking out Google from the as-yet-unprofitable “Other Bets,” like the capital intensive health-care division Verily or new spin-offs like Loon, makes the company’s financial reporting more palatable to bankers and analysts. Also, by making the individual CEOs responsible for the performance of their domains, they might find themselves more compelled to make their divisions profitable.
In one sense this seems to have worked brilliantly. Alphabet’s share price has skyrocketed, roughly doubling since the announcement. Could a non-alphabetized Google have performed better? That depends on whether you think the move made the pieces more valuable, or whether it created a mélange of companies worth less than the sum of its parts. In the original Google structure, the point of those other ventures was to bolster the mothership itself. In an Alphabetized world, the focus is on incubating companies that will one day become big businesses themselves. It’s the Berkshire Hathaway model, a corporate Gladstone bag where Geico and NetJets and See’s Candies are happily stuffed inside. But Warren Buffet doesn’t have a flagship to nurture.
Consider the VC firm Google Ventures. It originally made its investments with a strong eye towards companies that might enhance Google’s business. But by running Ventures as an independent entity, the incentive shifts naturally to wagers that pay off, as opposed to financially less promising bets that would nonetheless make Google more valuable to users. Some might counter that Ventures has reaped hundreds of millions with big wins like Uber; but that haul is relatively insignificant compared with the billions Google brings in every quarter. Starting a great VC firm is nice, but an investment arm that could accelerate the mature search business might be even better.
social experiment by Livio Acerbo #greengroundit #wired https://www.wired.com/story/larry-sergey-and-the-mixed-legacy-of-google-turned-alphabet