So, Google is now a conglomerate. Here's everything you need to know about Google's parent company.
Google is now a part of Alphabet, a new conglomerate that Google CEO, Larry Page, announced today. It is a surprising move, albeit expected, considering the company's ambitious ventures in health, drones, robots, Internet of Things, and balloon-powered Internet.
Investors are pressuring Google to focus on its profitable search business. But its founders, Larry Page and Sergey Brin, have bigger goals. News outlets and online publications rushed to cover what could be Google's biggest announcement to date.
Wall Street applauded, causing shares to jump 6.2 percent. Google's stock closed at $633.73 Monday, according to the Wall Street Journal. So, why is this news significant and why should you care at all? Well, here's everything you need to know about Google's new parent company.
1. What is Alphabet?
In a statement to investors, Larry Page said that Alphabet will be a collection of companies, overseeing other products like Calico, Nest, Google X, and Google, which includes YouTube, Android, and Search.
This transforms Google, primarily a search engine and advertising company, into a conglomerate, much like Samsung or Warren Buffett’s Berkshire Hathaway.
Mr. Page once told the Financial Times that there is no model for the kind of company that Google wants to become. He also cited Warren Buffett as a perfect example of a leader.
2. Why is Google creating a parent company?
The obvious answer is Google is no longer the company that it was. Over the years, Google has acquired an array of companies, including Android, YouTube, Gmail, Nest, and more. The company's focus has shifted from search and advertising to bolder projects like self-driving cars, life sciences, virtual reality, and Internet balloons.
Clearly, Google has grown and so did its founders, Larry Page and Sergey Brin, who have been less involved in the day to day operations.
By creating a parent company, Google will pacify the growing pressure from Wall Street over its big investments on companies that aren't generating profit but are seen as important because they solve real-world problems. Calico (longevity research) and Life Sciences (contact lenses) are examples of such companies.
Simply put, the new structure gives investors better visibility into the company's businesses.
3. Why Alphabet?
Alphabet means a “collection of letters that represent language, one of humanity's most important innovations,” Page said. The new name is also a reference to the investment terminology “alpha,” which the measurement of performance on a risk-adjusted basis.
“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,” Page said. “We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!”
4. What is Alphabet's structure?
Technically, Alphabet is just Google, except that is has a new name and its other products and services are more organized and independent from one other. A slimmer Google will remain, overseeing Android, Chrome, YouTube, and Google Search.
As a conglomerate, Alphabet will be the parent company of products like Calico, Nest (Internet of Things), Boston Dynamics (robotics), Titan Aerospace (drones), Dropcam (home security), Google Fiber (broadband), Google Ventures (investments), and Google (Search, Android, Chrome, YouTube).
5. What will happen to Google?
Google is now a subsidiary of Alphabet. The new Google will focus on the search business, YouTube, and the Chrome and Android operating systems. This division is the milking cow of Alphabet, generating almost all of the $66 billion in revenue in 2014.
Google will be led by its new CEO, Sundar Pichai, who previously led the company's product and engineering department. Pichai joined Google in Google after a stint at Applied Materials and the consulting firm McKinsey & Company.
Pichai led the development of the Google toolbar and the Chrome browser. He also took in charge of Gmail and Android. More importantly, he understood Google's vision, which is to organize the world's information.
“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 said. “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.”
6. What about Google's other projects?
The restructuring effort transforms existing projects into separate entities. In addition to Google, Alphabet will establish projects like Calico, Google Fiber, Nest, Life Sciences, and Google Ventures as subsidiaries. The same applies to Google X, which experiments with self-driving cars, delivery drones, and glasses.
Mr. Page revealed that each business will have its own CEO. “In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed,” he said. “ We'll also make sure we have a great CEO for each business, and we’ll determine their compensation.”
7. What will Larry Page and Sergey Brin do now?
Under the new structure, Page will act as the CEO of Alphabet while Brin will be president. The two founders will oversee capital allocation and ensure that each business is performing well.
Additionally, Eric Schmidt will be the Executive Chairman of Alphabet. David Drummond will become Senior Vice President of Corporate Development as well as Chief Legal Officer and Secretary of Alphabet. Ruth Porat will serve as Senior Vice President and Chief Financial Officer of Alphabet, although she retains her role as CFO of Google.
“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,” Page said. “I am really excited to be running Alphabet as CEO with help from my capable partner, Sergey, as President.”
8. How will this affect me as a user?
Users will not be affected by the change as Google's products and services will continue to operate and improve.
9. How will this affect me as an investor?
From an investor's perspective, shares will automatically become Alphabet shares. This means that existing Google shareholders will hold stakes in Alphabet's companies. Alphabet will replace Google as the publicly-traded entity. It will continue to use GOOG and GOOGL as its stock tickers.
10. What can we expect from Google and Alphabet moving forward?
We can only expect Google and Alphabet to get better. The company will continue to innovate.
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