What’s next for Google … uh … Alphabet?

Mitchell Hartman Aug 11, 2015
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What’s next for Google … uh … Alphabet?

Mitchell Hartman Aug 11, 2015
HTML EMBED:
COPY

The reorganization of Google as a holding company called Alphabet is continuing to ripple through the technology world. The new structure announced by Google founders Sergey Brin and Larry Page will group the company’s primary revenue-generating businesses under Google, including search, Chrome, advertising, Android, YouTube, maps, mail and apps. Google veteran Sundar Pichai will head that business.

Under Alphabet will reside wholly owned subsidiaries for many of the company’s more speculative ventures and acquisitions, and it will be the corporate home for exploring new technologies, solutions and markets. Alphabet includes such far-flung research and business development efforts as self-driving cars, delivery drones, Calico (bioscience research into life extension), Google X Labs, Nest (smart-home energy technology), Fiber, as well as Google Capital and Google Ventures.

The new Alphabet might look like a typical corporate conglomerate with many separate businesses — possibly unrelated — that operate on their own.

But Danny Sullivan at Search Engine Land says that is not precisely the intent of Google’s founders, although it may be what market critics are expecting based on what they have calling on the company to do. “I think the founders see the mission of Alphabet not as ‘We’ll be a conglomerate that has a lot of businesses that make money,’ but ‘We’re going to be a conglomerate that has businesses that we think will change the world,’” Sullivan says.

Sullivan thinks the new structure will help some of Alphabet’s new technologies and enterprises take off, by freeing Google’s founders and managers to focus attention on them more individually, and to measure performance and set benchmarks more transparently. He also predicts Alphabet will be a magnet for tech types with seemingly crazy ideas that might fly with the benefit of some investment and time in the lab.

Equity analyst Scott Kessler at S&P Capital IQ believes promising startups and seasoned entrepreneurs will also be more open to being acquired by, or partnering with, the new Alphabet.

“If people want to work for an exciting, emerging business, they can do that under the auspice of Alphabet, and not be mentally hamstrung by the notion of working for a company that was founded in the 1990s,” Kessler says.

Kessler points out that investors and analysts will get a better understanding of capital flows, investment plays, wins and losses across the company’s disparate technology businesses. He says that will allow the company to explain and attempt to justify to investors Alphabet’s “future plays” — the visionary, risky ventures with potential to change the world, or change entire industries, or gloriously flame out. These include driverless cars, wearable technology, bioscience and green energy.

Analyst Rick Summer at Morningstar says this increased outside scrutiny may have implications for how freely Brin and Page can continue backing ventures they believe in or are devoted to in the face of financial losses or market skepticism.

“Investors can now see how those businesses are performing over a longer period of time, and the company will be forced, I believe, to react and not continue to throw good money after bad,” Summer says.

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