For those of you who have not heard yet, the corporation run by founders Larry Page and Sergei Brin known as Google Inc. is going under some restructuring. This new entity is known as Alphabet where G is for Google and supposedly each new corporation will be a different letter all coming together to form the conglomerate of Alphabet. So when fully developed there will 26 “Googles” with 26 separate CEOs all using 26 separate sets of resources and all taking orders from Larry the CEO of Alphabet. While most media and posts have been focusing on how cool and monumental this change has been I have been focusing on what the hell just happened.
Let’s first start off by thinking about why they made this change. What is so drastically wrong with Google Inc. that necessitated a change in corporate structure? Larry and Sergei claim this change was to avoid Google from becoming stagnant and allowing free innovation. What I am wondering is why this could not be done within Google Inc.? After all the giant company has unveiled projects such as driverless cars, Google Maps, Android, YouTube, etc. all from within the confines of Google’s “open innovation” headquarters. I don’t buy their reasons. Google supposedly was innovating just fine and realistically a new name and taller corporate structure is not going to make Google (or Alphabet) any more cutting-edge.
Since they were obviously covering something up I began to think about what their motivations might be. I read an article in the New York Times comparing Alphabet to Berkshire-Hathaway, Warren Buffett’s company. If you ask someone what Berkshire-Hathaway does you will be hard pressed to get the same answer consistently and that’s because BH is an investment conglomerate that pretty much buys any company or real estate that it believes it can make money from. So this led me to the first possible conclusion for Alphabet’s origins: larger profits from dipping in more markets. I find this unlikely however as both of Google’s founders are known for not caring a lot for business or wealth and more so on doing cool stuff. Which made this next possibility more likely. One of the benefits of running BH as a collection of separate companies rather than as a single entity with a variety of departments, is that if one becomes unprofitable you can tell faster and get rid of it easier. If you think of it as a flock of sheep, if all the sheep are tied together and a wolf comes you’re going to lose a lot of sheep, but with individuals anyone who cannot keep up can be left behind. Larry and Sergei are trying to make an environment where they can buy and invest in more companies without making Google look bad.
This could potentially be conceived as a better alternative to the status quo since Alphabet will be more willing to tryout concepts and ideas. This is wrong. Google originally was a company, which believed in “open innovation” (a term I threw out earlier), which means the team thinks up a huge problem (such as car accidents) and fixes it (driverless cars). They think of the impossible and then they do it. Alphabet is not open innovation. Alphabet is a hedging tactic so the executives can bet on a lot of raising startups or ideas and maybe something will pan out, but just in case they fail it will not damage the company image. Think back to the Google smart phone. You might not even remember that being a thing and that’s because it crashed very quickly. Tying Google’s name to these failures could damage the company’s image as well as hurt its stock price. So while Alphabet is a sound business decision, its underlying premise is that Google will be failing more and doing more acquiring instead of internal development.
Acquisition plays, especially with conglomerates, are not well respected in my book, because too often larger companies bog down the innovation. Google offered to purchase Snapchat for a few billion dollars a few years ago. Chances are Google’s influence would have driven Snapchat down a much different path than it is on today. Snapchat has still been focusing on user experience rather than revenue, which has allowed a fine-tuning of the product and company, whereas a corporate buyout would have risked pressure to monetize quick and stunt growth. Additionally, major companies and investment firms alike tend to purchase more than they actually want. Due to the huge attrition rate of companies it makes more sense to bet on a lot of players (especially since for every company you buy it is one less your competitors can buy). What this entails is a sort of messed up competition among siblings for the family inheritance, where 10 biotech companies trying to solve the same problem have to fight for survival. This means 1) companies make choices not in the best favor of the long-term vision 2) anyone who seems to not show profitability is cut from the herd and never sees the light of day. Overall, the entrepreneur loses at the cost of large companies having safer investments. Google is now on the opposite side of entrepreneurs because it will be betting to fill letter slots in its Alphabet rather than supporting “open innovation”.
Finally, on a less business jargon-filled point, I just find this whole concept rather silly, limiting, and cocky at the same time. So Larry and Sergei and sitting around and think “Hmmm you know what Google has been cool but let’s create a bunch of other companies and ideas under different names and have them all be different letters.” What on Earth led them to decide the fate of their company on the basic children’s book concept A is for ___________? Reiterating this point, you are using a silly mechanism to limit the options of the company. What happens if Alphabet has the opportunity to buy SoundCloud and Snapchat, because last time I checked there is only one S in the “Alphabet”? Lastly, if you really get down to it Larry and Sergei are saying, “We made one Google now let’s make 25 more.” I guess H isn’t for Humility.
I am eager to see how this pans out because if I were a betting man I would guess it either does not last or the productivity of Alphabet tanks. If you think back to when Netflix was really making the transition from mail order to streaming they received so much bad press for splitting the services and doubling prices that they split into Netflix (mail order) and Quickster (online). Since most of you probably raised an eyebrow at that, you can likely guess Netflix soon reversed that decision. It appears Alphabet is largely getting positive press so I believe the decision could only be reversed from a lack of financial proof/backing for the new company. Meaning only time will tell if Larry and Sergei will actually find 25 other Googles, but for the time being G is for Google and S is for Skeptical.