Google has quietly deprecated its famous “don’t be evil” motto in recent years, but I can think of another one that might fit better these days: “Don’t be boring.”
Seemingly out of the blue on Monday, Google announced that it is forming a new company, called Alphabet. Alphabet won’t be part of Google. Rather, Google will become part of Alphabet. Are you confused yet?
Google CEO and co-founder Larry Page will step down (or up?) from the top post at Google proper and become CEO of Alphabet. Fellow Google co-founder Sergey Brin will become Alphabet’s president. Longtime Google executive Sundar Pichai is now Google’s CEO.
So what is Alphabet? Page is glad you asked. Here’s how he explained it in a blog post Monday:
What is Alphabet? Alphabet is mostly a collection of companies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.
Alphabet Inc. will replace Google Inc. as the publicly traded company, Page added, and all shares of Google are now shares of Alphabet instead. Google becomes a wholly owned subsidiary of Alphabet.
Google will retain its core search and advertising businesses, as well as its maps division, YouTube, and Android, according to its SEC filing. Most of its other ventures will now be run separately under the Alphabet umbrella. Those include:
- Calico, a project devoted to extending the human lifespan
- Nest, the company’s smart-home division
- Fiber, its ultra-high-speed Internet infrastructure project
- Google X, the lab that incubates “moonshots” like solar-powered Internet balloons and self-driving cars
- Google Ventures, Google Capital, and related investment arms
My initial thought as to the impetus for the move: Page and Brin, who are big-thinking inventors and entrepreneurs by nature and choice, have grown tired of having to justify their moonshots to Google investors who think the company should stay focused on profitable fields like search and video. They’ll still have to do that now that the company is named Alphabet, of course. But changing the company’s name and structure may be their way of signaling that it is fundamentally a moonshot factory, and always will be.
Here’s what Page had to say about the new name:
For Sergey and me this is a very exciting new chapter in the life of Google—the birth of Alphabet. 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! We also like that it means alpha-bet (Alpha is investment return above benchmark), which we strive for! I should add that we are not intending for this to be a big consumer brand with related products—the whole point is that Alphabet companies should have independence and develop their own brands.
As surprising as this might seem, Google has dropped some clues in recent months that it was rethinking the structure of its business. In an extensive October 2014 interview with the Financial Times, Page said that he had delegated much of the responsibility for Google’s existing businesses to “a lieutenant,” freeing him to focus on ambitious new projects. He added that he was experimenting with setting up some of those projects, including Calico and Nest, as “freestanding business units with semi-independent leaders.” And here’s the paragraph that’s most telling in retrospect:
There is no model for the kind of company Google wants to become, says Page. But if there’s a single person who represents many of the qualities he thinks will be needed for the task ahead, then it’s famed investor Warren Buffett.
Alphabet could be seen as Page’s answer to Buffett’s Berkshire Hathaway: a high-tech holding company for the 21st century.
There are differences, however. Tech industry analyst Jan Dawson, who has been skeptical of the Berkshire Hathaway analogy from the start, notes that Page does not appear to share Buffett’s acumen as an investor. He picks his projects with an eye toward their potential long-term impact on humanity, which is quite different from Buffett’s bargain hunting. Many of Alphabet’s ventures seem unlikely to be profitable anytime soon, which will make it difficult to run them like standalone businesses. For that matter, many will likely fail.
But there’s also the chance that some will succeed beyond anyone’s expectations. Self-driving cars, for instance, have the potential to revolutionize the auto industry, although that outcome remains far from assured. In that sense, Alphabet’s value proposition for investors might be more akin to that of the world’s largest venture capital firm. The “bet” in Alphabet is that the payoff from those successes will more than cover the losses.
It appears to be a bet that Wall Street is willing to take, at least for now. The company’s shares jumped 6 percent after hours, adding tens of billions of dollars to its value.
Also in Slate: