Last week the Internet giant announced a major overhaul of it corporate structure by creating a holding company they’re calling Alphabet. This will basically consist of a collection of companies each represented by a letter of the alphabet and will be headed up by its own CEO. Of course, Google will be the largest subsidiary within this structure as they will continue to focus on their key assets of Search, Maps, Chrome, YouTube and Android.
Fundamentally, what this boils down to is a theme around independence and innovation as illustrated in the three points below.
1) Appeasing Wall Street: Historically, Wall Street has never really been a big fan of Google’s ‘moonshot’ ideas, with investors continually raising objections over how much their experiential projects are costing the company. And with the previous structure, it was difficult for analysts to properly evaluate Google’s bundle of businesses – the financial returns of the search engine and advertising business simply could not be separated from the rest of their business investments.
However, under Alphabet, each business unit will be considered individually and will basically stand or fall based on its own merit. This separation so far has Wall Street cheering, as the stock has seen a six per cent bump since the announcement.
2) Freedom to Innovate: It appears that the founders Larry Page and Sergey Brin are going back to their startup roots and this new structure will enable them that autonomy. Because of this new structure, Alphabet companies would be allowed to raise outside funding and exchange a small ownership stake for liquid cash or a strategic partnership. None of this would have been easy under the pre-Alphabet days. And as the companies develop, they could even consider their own IPO thereby rewarding Alphabet shareholders and outsider investors in turn.
This freedom is positive for employees is it encourages innovation and gives them the power to experiment and come up with new and radical ideas.
3) Executive Retention: In recent years and even months, Google has had real problems retaining top talent. Back in 2013, Hugo Barra, one of Google’s top Android executives departed for the Chinese startup Xiaomi. And in June, Brian McLendon, Google Maps head, left to join Uber.
However, now with Alphabet in place, that creates an opportunity for previous product heads to now become CEO’s with the possibility of a public offering. This will make it attract more ambitious talent who might have otherwise jumped ship to the next best thing.
I do admire Google’s strive to change and their belief that becoming comfortable and making merely incremental changes is not a good place to be in. Larry Page illustrated this in his blog post where he announced the new structure and underscored his belief that you need to be a bit uncomfortable in order to stay relevant.
Bringing it back to my core discipline, which is working with top clients on creating innovative media and advertising solutions, it is still not yet understood how this change will affect our clients business. Possibly, with the separation of Google as its own operating unit, we could see more innovation in its Search, YouTube and Mobile products. This structure may also be a retaliation tactic towards top contenders like Facebook who are more and more eating into Google’s share.