Google Inc. and Alphabet Inc. background

 

Google Inc. has emerged to become one of the beneficiaries of technological advancement. The American company was founded by Sergey Brin and Larry Page as the president and CEO, respectively, in 1994. Recently,  Google Inc. controls a diverse line of businesses, including Dialogflow, AdMob, Youtube, Android, Google environment, Google Japan, among others. The company has concurred the marketing world as it has 86.2% online search for marketers. In 2015, Google Inc. decided against undergoing a restructuring process to become Alphabet. Inc. In as much as Google managed to gain popularity and was able to concur the search engine market, it had to created Alphabet Inc. as a way of separate business to have more independence as well as freedom for their growth, the opportunity of creating good understanding among its investors, strategy of Google to appease its investors, and for better acquisition.

Alphabet Inc. is considered to be a multinational conglomerate, and Google considers it to be its parent company, along with other firms it owns. Alphabet is also owned by Sergey Brin and Larry Page and has more companies that operate under its names such as Google X, Verily, GV, and Google (Eccles & Krzus, 2018). There are several reasons why Google Inc. decided on forming Alphabet Inc. Firstly, the structuring of Alphabet is to provide every separate business to have more independence as well as freedom for their growth. In the investor’s memo, Page stated that he had the notion of making the firm more accountable and cleaner. Since smart firms such as age-fighting Calico, experimental Google X, and Nest do not have a crucial role to play in the research business of Google, eradicating them seems ideal.

Secondly, Google managed to hire Wall Streetfinancial officer, Ruth Porat, that said she had the ambition of ensuring the Google business remains transparent in its transactions(Eccles & Krzus, 2018. The new initiative will provide the company with the opportunity of creating a good understanding among its investors of ways in which side projects of Google, including Alphabet, are performing; thus, making them invest more in the company.

Thirdly, the initiative of developing Alphabet was the strategy of Google to appease its investors. In recent years, the number of shareholders had been increasingly anxious regarding “moonshot” investments of Google never seemed to pay off(Eccles & Krzus, 2018. The initiative enables delineation between the core Google profit engine and the smaller side projects. The Alphabet can communicate their investments in these separately, reassuring investors that the profits are not being frittered away on moonshots, while still retaining all the upside. From the 90% sales of Google that came from advertisement, the CEO has faced criticism for failing to devote more time on searches. Google now operates as a separate entity; thus, the “side projects” became worrying. This created the need for developing Alphabet as a way of reducing the criticism and appeasing investors. Also, by separating significant internet operations from Google, Larry Page can demonstrate to the investors of the company that bread-and-butter businesses is still highly profitable despite some of the ventures stopping and failing to make a profit for a lot of time.

The fourth reason why Alphabet was created was for better acquisition. Now, if Alphabet decides to acquire another company, it will be another subsidiary of Alphabet and not part of Google(Eccles & Krzus, 2018. Then, their management doesn’t have to change. It will be a lot like what Berkshire Hathaway does when it acquires companies.

There are other reasons why Alphabet was created, including; to better manage the company and to retain Sundar Pichai. As stated above, everything used to be under Google. Now Larry Page and Sergey Brin can better manage each section of the company(Eccles &Krzus, 2018. Additionally, Sundar could likely have left Google if he did not become CEO, and now he has a lot more power over the money maker in the business. To retain Sundar, giving him a more substantial role at Google may have been essential, and this reorg enables precisely that, as well as the flexibility of creating additional CEO positions as needed.

In conclusion, Google, as we know, is not just the search engine. Google search is what it all started with, but as now Google has many divisions and several companies running under its umbrella for companies such as Calico (Google life science division) and project X(driver-less cars) and to put this all (including Google itself) under a common umbrella the new company Alphabet will be formed. Google and its other companies will now be owned subsidiary of Alphabet, making the management crisp and clear. Google created the alphabet for many reasons but the primary one being they wanted to separate the money-making cash cow that is search, and innovations and moonshots like Google X. Alphabet will help Google to invest more in future technology without impacting the money-making services like Gmail, Chrome, Android among others. Google will continue to focus on its core business. Maybe, now, Google can be pronounced as the services section of the Alphabet.

 

 

 

 

 

 

 

 

Reference

Eccles, R. G., & Krzus, M. P. (2018). Constructing Alphabet Inc.’s 2017 Mock Integrated Report. Available at SSRN 3206290.

 

 

 


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