Google shocked the tech and business world with an announcement late Monday afternoon that it was reorganizing itself. The new parent holding company will be known as Alphabet and have current chief executive Larry Page at its head.
The existing “Google” and much of its core business will become a subsidiary of Alphabet. Sundar Pichai, who had been senior vice-president in charge of products, will be CEO of Google, which will encompass related Internet products such as search, maps, YouTube and Gmail.
In a blog post, Page explained that the reorganization will allow the larger Alphabet company to be more transparent about its other side projects. Google efforts such as the Calico life-extension effort, self-driving cars and Google Fiber broadband, among others, will each be their own separate operations under one big umbrella:
“Alphabet is about businesses prospering through strong leaders and independence. In general, our model is to have a strong CEO who runs each business, with [co-founder] Sergey [Brin] and me in service to them as needed. We will rigorously handle capital allocation and work to make sure each business is executing well.”
It was a surprise move that had many commenters guessing on Monday. Reactions ranged from quasi-hostile—Re/Code’s Kara Swisher suggested it was perhaps another childish move from a company that refuses to play by the rules—to supportive. Investors seemed to like the idea of a more transparent Google… er, Alphabet, spiking the stock in after-hours trading.
Perhaps the best explanation for the reorganization to emerge so far comes from Business Insider, which cites sources who say that Page simply wanted to free himself of what he considers the boring day-to-day business of Google—that is, chasing more ad revenue.
“He doesn’t have to come into the office anymore, he doesn’t have to be the tie-breaker anymore, he doesn’t have to show up to events anymore,” an unnamed source said. “Those were the worst parts of the job for him, he didn’t enjoy it, and now he’s stepping back.”
Both Page and Brin are known for their desires to take on bigger “moonshot” projects, such as delivering internet access via balloons or creating synthetic hamburgers. Organizing the company into segments where individual CEOs can run things separately with a higher degree of autonomy is a good way to accomplishing that, Page believes, according to the sources.
Other observers believe the reorganization will give investors better insight into how the company is spending its money, since side-project expenditures aren’t as likely to be obscured by the main business anymore. Putting different efforts into silos could also calm regulators down. Both are good reasons for why investors might like the move.
What is certain is that Google is quickly becoming a conglomerate. More than a few observers compared the company on Monday to Berkshire Hathaway, the conglomerate run by legendary investor Warren Buffett. The Nebraska-based company has incredibly diverse interests, ranging from diamonds to insurance to Fruit of the Loom underwear.
Google has a similar quiver of interests, many of which happen to be related to the internet, but others that aren’t at all. Creating more specialized, independent units within the larger whole may be the best way to avoid failures, which have been piling up at Google.
The company recently announced it was effectively ending its Google+ platform, the latest in a long line of social networking flops that include Buzz and Wave. Then there was Google Glass, the Nexus Q and Google TV, among others.
On the other hand, for every well-run, Berkshire-like conglomerate there is a Sony, which has been posting steep losses as a whole for a while and is only now starting to turn things around. As the old saying goes, it’s often easy for a jack of all trades to be a master of none.
Google is still a relatively young company, at least compared to existing conglomerates, so it’ll be some time before anyone knows which route it will follow—that of Berkshire Hathaway, or Sony.
But speaking of Internet companies with many diverse interests: how long until Amazon follows suit?
Like Google, Amazon is known mainly for one thing—online retail—but it too has an array of efforts, some of which relate to the core business and others that don’t. Amazon is involved in drone development, video streaming, web and cloud hosting, hardware production and publishing, among others. Chief executive Jeff Bezos even bought the Washington Post on a lark.
Investors have long lamented Amazon’s profit-denying ways, so carving the money-making parts off from the losing bits could make them happy too. But then again, as with Google’s move to silo parts of itself, it could also expose just how foolish some of those experiments turn out to be.