Google to Alphabet: Industry reaction

Google’s value is in not in a search engine but in data, and the underlying audience modelling algorithm; seeing consumers online and being able to anticipate and deliver on their needs.

Having shown the way in collecting data and monetising it through search ads, Google is now fighting alongside Facebook to be the premier partner for any brand that wants to understand its customers best and meet their needs: machine learning that goes way past simply serving a programmatic ad to a specific demographic.

Like Google, VisualDNA profiles people and helps brands reach them, but even I couldn’t tell you where our data stops and our audience modelling algorithm starts. So I expect the data sharing relationship between Alphabet and Google will tell us whether it’s a genuine overhaul of approach and structure or simply window dressing its brands.

Additionally, the Alphabet conglomerate is also much less likely to face scrutiny from the U.S. Securities and Exchange Commission (as Google has done up to this point); Alphabet has the freedom to continue its work on driverless cars, or expand into bioengineering and even the military – all while maintaining Google as the ‘technology products’ brand of the group.

As companies go, Google is young. The latest announcement (the establishing of a holding company and rationalisation of the portfolio of companies) could be taken as elegant restructuring or more simply in terms of corporate finance. Cynics might even suggest it’s all about tax but I’d argue this is about Google growing up.

More than any other business I know, Google aggressively reinvests the millions generated by the cash cow of Search. It seems to do this remarkably well, all the while being true to its mantra of not ” be(ing) evil”. It’s a business that seems to have no end of capacity to create incredible utility, but its success is now the precursor for a change in structure.

It’s all well and good being an alternative company if you only do one or two things, but Google’s output is so vast that it can’t avoid the need for the sort of structure it resisted for so long. Creating independent CEOs for each business, slimming down the Google proposition etc. is a brave acknowledgement by the leadership team that good ideas need focus and rigour.

Google doesn’t have many failures but Google+ stands out as one. The establishment of Alphabet is really about ensuring that great ideas are better tested and better scrutinised and not lost amongst the sea of innovation.

Creating Alphabet is purportedly about creating transparency for investors around Google’s more speculative projects whilst developing a more forward thinking corporate structure. It is also more bluntly about highlighting the fact that at its core Google is still a very financially successfully business that continues to grow at a considerable rate.

The creation of Alphabet enables them to pursue “moonshot” projects without this negatively impacting the share price of the core Google offering.

It is also very much about retaining and to some extent attracting talent. Placing the moonshot projects under the Alphabet banner enables them to offer equity in these new projects to prospective talent. Moreover, it enables them to retain Sundar Pichai, offering him the role of CEO at Google.

Sundar has been instrumental in moving the business towards being a mobile-first company over recent years. He led both the Android and Chrome divisions of the business, personally persuading the founders to launch Chrome, which is now by far and away the most used browser on the planet.

Sundar could easily run any Silicon Valley business and now they are able to create a role that will keep him in the company going forward.

The creation of the Alphabet holding group will fundamentally allow Google to focus on developing its core advertising business, which includes search and YouTube, as well monetising its Android OS and Chrome offerings – which is fairly significant as these parts of the business generated $66bn in revenue for the company last year.

From a data perspective Google is a powerhouse so it also makes sense to consolidate its talent and resources to make this element as profitable and efficient as possible.

Separating out its more innovative, start-up style businesses – such as self-driving cars and Project Loon – has also been welcomed by shareholders. Despite their popularity and press appeal, these are the less profitable elements of Google’s business, so restructuring to separate them from the ad business will enable it to be more transparent to analysts about how much money it makes.

The newly formed Alphabet will also allow Larry and Sergey the flexibility and focus to continue to innovate within a business which is all about developing new ideas, but not necessarily in the core areas of the current Google business. It will also afford Google a new structure that will enable it to add in new business lines when appropriate.

The single biggest impact Alphabet will have is giving Google and its other subsidiaries the freedom to continue the innovation it is so well known for.

All the world’s biggest tech companies were once agile start-ups ripping up the rule book and reinventing every industry you can think of – but inevitably, as these companies grow, they become that little bit slower to react to changing consumer demands; that little bit more concerned with internal politics than what their customers need.

Excitingly, the incredible minds at Google X will now be able to focus solely on their mission to change the world through technology, rather than feeling held back by increasingly corporate structure. As a result, I imagine big ideas like driverless cars will come to fruition far sooner.

By splitting the Google business into several parts, Google is effectively re-instilling that start-up mentality across its business. Some of the most innovative ideas are often also the most risky, so Google is protecting its brand by separating the ‘Google’ name from the likes of Nest and Calico.

If those companies make a poor decision and lose investor confidence, that affects the parent company – which is now Alphabet, not Google.