Google Surprises Everyone By... Breaking Itself Up (Kinda)

from the huh? dept

For years, there have been efforts by various competitors and governments to try to break up Google. But now the company appears to have done it itself. Sort of. Taking basically everyone by surprise, Google announced that it has formed a new "holding company" called Alphabet, and made Google a wholly owned subsidiary of Alphabet, while at the same time carving out other businesses from Google and making them separate from Google, but still under the purview of Alphabet. The whole thing is... weird. There's lots of speculation going on as to why, and no one seems to agree. Larry Page's letter suggests it's to allow the overall company to be more innovative -- which actually is a legitimate possibility. Just this morning we noted that Google's failure with Google+ shows how the company can sometimes lumber around things while startups are much more nimble. Splitting the company into totally separate entities (even if owned by the same holding company) at the very least has the possibility of forcing the separate units to focus on executing on their own businesses, without worrying about stepping on the toes of other businesses. But... it also loses the ability to cross-subsidize parts of the business.

Others have speculated that this was also a way to "reward" top execs like Sundar Pichai, who is now Google's CEO -- while Larry Page becomes CEO of Alphabet (and Sergey Brin is President of Google). Even if he's still reporting to Larry, having "Google CEO" on the business card has to be seen as a promotion.

The only other thing that came to my mind was that this was some sort of reaction to all those lawsuits and investigations into possible anti-trust. Not that reorganizing the company is going to "fool" any regulator, but at the very least, it perhaps sets things up in a manner that if regulators try to break up Google, there are preset "fissures" that allow Google to "direct" the cuts more strategically.

Frankly, the whole thing seems to be leaving a lot of people scratching their heads (myself included). It may turn out to be nothing beyond just a different take on a corporate restructuring -- or it may be a prelude to the company doing something much bigger that would fit much more readily into this holding company structure.

Oh, and in case you're wondering, the company (for now at least) has taken the URL abc.xyz and it includes a weird little Easter egg, giving tribute to the fictional Google-like company in HBO's Silicon Valley, Hooli.

Filed Under: holding company, larry page, restructuring, sundar pichai
Companies: alphabet, google


Reader Comments

The First Word

It's not hard to see all sorts of advantages for both Google and Alphabet. These are both financial and legal.

First and foremost, having everything under one company means that any legal risk in any part of the company is a combined and global risk. So as an example, if the sugar detecting lenses turn out to make people blind, the legal obligation would under the old structure go back to Google as a whole. Now, it would be Alphabet, and Google would be much more insulated.

The structure also makes it easier to break off pieces and handle them uniquely. That means you can lose the failing businesses, sell under performing units to others, and also take successful projects public, perhaps on a more individual case basis.

My guess at this point is that the "new" Google will be at some point chopped off of Alphabet, and listed publicly on it's own. Alphabet would still be the majority owner, but in legal terms the separation would be complete. Basically current shareholders would end up with shares of Google and shares of Alphabet, and the two listings could go from there. They could use this move to create the arms length separation between their business units, creating a very powerful defense against anti-trust.

For what it's worth, it would allow Google (the search company) to sell those top spots to whoever pays the most, and not keep the always in house. I think that Alphabet has come to realize that many of their projects are not as successful as they should be in part because they don't have to fight for eyeballs or attention. If they actually had to pay for that traffic at a level similar to what other companies might pay Google, they may not be so successful. That might lead to actual innovation and development to make the products better.

This could also lead to an improved bottom line for Google (the search and ad company), as they would be freer to develop new ad spots without having to worry about supporting their own in house products.

I think of all of this as a mature strategy for Google. It's not unreasonable to consider that at some point in the future, Google will fall like every other search engine before it has. By breaking the parts up, Alphabet can work to develop it's own future without being tied to the search mothership, and produce long term value for shareholders. At the same time, it may encourage the search team to getting back to providing the best search results, and not the best results for Google companies.
—Whatever

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  • identicon
    Glen, 10 Aug 2015 @ 3:44pm

    It is quite fun looking at all the speculation.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 10 Aug 2015 @ 3:48pm

    Google says it is creating a new company Alphabet and google will be owned by it.

    https://abc.xyz/

    Strange thing is that there's a hidden link in there that links to http://www.hooli.xyz, which is a fake company in the HBO Series "Silicon Valley". (hidden link is the period after "drone
    delivery effort") Or https://gist.github.com/jonmarkgo/37dcb5814eccba362f57 and look for hooli.xyz

    so are they trolling or just leaving a weird easter egg?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 10 Aug 2015 @ 4:16pm

    Alphabet

    So, Google is now the Alpha and the Omega?

    reply to this | link to this | view in chronology ]

  • icon
    Coyne Tibbets (profile), 10 Aug 2015 @ 4:53pm

    Suing Googles

    It used to be that you sued Google to stop Google.

    Now, just like the proliferation of DNS names, you have to sue them all if you want to stop Google. Umpty times the lawsuit fun.

    Then, think of the reverse: It used to be you got sued by Google. Now you get sued by Googles.

    Makes perfect sense. Even the fact that there is "one ring to rule them all".

    reply to this | link to this | view in chronology ]

    • icon
      JoeCool (profile), 10 Aug 2015 @ 6:26pm

      Re: Suing Googles

      Considering the illegal plot by the MPAA and that state AG to destroy google, I think this is actually the reason. If you want to destroy "google", now you have to actually target more than one company, making you look even more like a douche.

      reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 11 Aug 2015 @ 2:17am

      Re: Suing Googles

      Forgive me if I'm being dense, but what the hell does the number of URLs and/or DNS entries have to do with the number of entities with standing to sue or be sued?

      reply to this | link to this | view in chronology ]

  • identicon
    Roman, 10 Aug 2015 @ 4:57pm

    Sundar

    Sundar has taken Chrome and taken over Android and made it, arguably, the most-important and definite shining-star of the company's portfolio, so as far as I'm concerned, this restructuring positions to better recognize his importance to the company as a whole.

    reply to this | link to this | view in chronology ]

  • identicon
    Derrell Piper, 10 Aug 2015 @ 5:09pm

    This only other thing that comes to mind? How about another corporate dodge to not pay taxes? That's what came to my mind.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 10 Aug 2015 @ 6:15pm

      Re:

      Kind of unlikely. Pretty sure they were already doing all the corporate tax dodging they could do.

      This sounds more like they're trying to have better organization, and compartmentalization.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 11 Aug 2015 @ 9:38am

        Re: Re:

        ...they were already doing all the corporate tax dodging they could do...


        Keep your eyes open for the phrase "master limited partnership". A number of companies have gone this path the past few years. It's not tax dodging but tax reduction.

        reply to this | link to this | view in chronology ]

  • identicon
    Brazilian Guy, 10 Aug 2015 @ 5:40pm

    It's a plan to beat Apple at it's own game. While Apple is overprotective of the letter I, Google goes ahead and trademarks the Alphabet.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 10 Aug 2015 @ 7:50pm

    IF you want to blame google for piracy etc its a lot harder to do it when its split into many different companys .
    youtube could operate in china ,
    even if gmail is totally blocked there .
    eg set up youtube,china ,youtube, russia etc .
    Videos banned in russia will still show up on youtube usa.

    reply to this | link to this | view in chronology ]

  • icon
    Whatever (profile), 10 Aug 2015 @ 9:15pm

    It's not hard to see all sorts of advantages for both Google and Alphabet. These are both financial and legal.

    First and foremost, having everything under one company means that any legal risk in any part of the company is a combined and global risk. So as an example, if the sugar detecting lenses turn out to make people blind, the legal obligation would under the old structure go back to Google as a whole. Now, it would be Alphabet, and Google would be much more insulated.

    The structure also makes it easier to break off pieces and handle them uniquely. That means you can lose the failing businesses, sell under performing units to others, and also take successful projects public, perhaps on a more individual case basis.

    My guess at this point is that the "new" Google will be at some point chopped off of Alphabet, and listed publicly on it's own. Alphabet would still be the majority owner, but in legal terms the separation would be complete. Basically current shareholders would end up with shares of Google and shares of Alphabet, and the two listings could go from there. They could use this move to create the arms length separation between their business units, creating a very powerful defense against anti-trust.

    For what it's worth, it would allow Google (the search company) to sell those top spots to whoever pays the most, and not keep the always in house. I think that Alphabet has come to realize that many of their projects are not as successful as they should be in part because they don't have to fight for eyeballs or attention. If they actually had to pay for that traffic at a level similar to what other companies might pay Google, they may not be so successful. That might lead to actual innovation and development to make the products better.

    This could also lead to an improved bottom line for Google (the search and ad company), as they would be freer to develop new ad spots without having to worry about supporting their own in house products.

    I think of all of this as a mature strategy for Google. It's not unreasonable to consider that at some point in the future, Google will fall like every other search engine before it has. By breaking the parts up, Alphabet can work to develop it's own future without being tied to the search mothership, and produce long term value for shareholders. At the same time, it may encourage the search team to getting back to providing the best search results, and not the best results for Google companies.

    reply to this | link to this | view in chronology ]

  • icon
    Teamchaos (profile), 11 Aug 2015 @ 5:36am

    So will Masnick's foundation now be sponsored by Google or Alphabet?

    https://copia.is/about/

    reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 11 Aug 2015 @ 5:58am

      Re:

      I'm sure that whenever the contract changes or he gets further sponsorship, he'll be openly advertising the official new sponsor name if it needs to. As he has always done on that page with Google and every other sponsor since it was set up.

      reply to this | link to this | view in chronology ]

    • icon
      That One Guy (profile), 11 Aug 2015 @ 4:30pm

      Fixated much?

      I love how you think that link actually supports your position that Google is backing TD, 'forgetting' to mention the eight other companies/groups mentioned.

      But by all means, continue obsessing over Google if you really want to.

      reply to this | link to this | view in chronology ]

      • icon
        PaulT (profile), 12 Aug 2015 @ 2:14am

        Re: Fixated much?

        It's not so much "forgetting" the other sponsors, it's the idea that this proves anything anyway. Yes, Google sponsored that particular project. But, unless they can prove that funds from Copia make it over to Techdirt and/or that part of the sponsorship deal was to affect editorial content here, it's irrelevant. People who attack that link also seem to treat it as a "gotcha" as if Mike was hiding the information... but the page they point to is where he's publicly advertising Google's involvement!

        Even if Google were the only sponsor listed on there, it would prove nothing without additional evidence. The fact that it's not, and the other sponsors are being deliberately ignored in order to make a conspiracy theory only makes them looks even sillier.

        reply to this | link to this | view in chronology ]

  • identicon
    Henry, 11 Aug 2015 @ 6:15am

    It's quite clever really...

    ...this way, they get to re-organize the group into various evil and non-evil subsidiaries without breaking their rules.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 11 Aug 2015 @ 7:44am

    Looks like a very thoughtful step for things getting cooked up in the fertile minds googlers!

    Ready set go alphabet or whatever or whoever!

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 12 Aug 2015 @ 12:59am

    Great, so it will be Alphabet killbots enslaving humanity and Google can still appear as the nice guys...

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 19 Aug 2015 @ 4:21am

    It has been rumored for years that google is just a front for one of the alphabet agencies, now they are a subsidiary.

    reply to this | link to this | view in chronology ]


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