Google Morphs Into Alphabet, Sets Up New Management Structure
Google co-founder Brin will become president of Alphabet, and Eric Schmidt will be chairman of Google.
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Google Inc announced a surprise overhaul of its operating structure on Monday, creating a holding company called Alphabet to pool its many subsidiaries and separate the core web advertising business from newer ventures like driverless cars.
The move appeared to be an attempt by the search engine giant to focus on its more creative and ambitious projects, while investors cheered the potential for more financial disclosures of its disparate business segments.
“It suggests that in all likelihood, Google is not going to slow the pace of their experimental processes like self-driving cars,” said Michael Yoshikami, head of Destination Wealth Management, which has $1.5 billion under management.
The surprise news sent shares of Google up as much as 7 percent to $708 in after hours trading.
The new structure could also give Wall Street better insight into Google’s investment in moonshot projects like Google X, a secretive lab that produced the unpopular Google Glass wearable device.
The company co-founded by Larry Page and Sergey Brin in 1998 has grown from an Internet search engine to a far-reaching conglomerate that employs more than 40,000 people worldwide.
Under the new corporate structure, the Google unit will encompass the core search engine as well as Google Maps and YouTube.
In addition to Google X, the company’s new ventures such as Calico, which focuses on longevity, and connected home products maker Nest will be managed separately.
New Structure
Alphabet Inc will replace Google as the publicly traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all the same rights.
“This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google,” Page, the current CEO of Google, said in a blogpost. Page will become CEO of Alphabet.
Analysts said the new structure could herald a new era of fiscal discipline and transparency in some of Google’s more experimental and opaque business units.
Some other analysts were cautious, saying the new holding company would need to provide more details on cash flow of the experimental business segments.
“Breaking up into two different segments – well, it’s not a terrible thing. It’s better than not doing it but on the other hand, you’re going to have a ton of businesses buried inside of a legacy Google,” said Brian Wieser, an analyst for Pivotal Research Group.
The shuffle also looked to have the markings of Ruth Porat, who joined Google as its chief financial officer in March from Morgan Stanley. In Google’s recent quarterly conference call, Porat, will serve as CFO of both Alphabet and Google, repeatedly emphasised keeping expenses under control.
With Page heading up Alphabet, Sundar Pichai, a long-time Google executive who most recently served as the company’s senior vice president of products, will head Google.
Pichai, a well-liked executive who oversaw Google’s Android and Chrome units, is respected in Silicon Valley for attracting top engineers.
Google co-founder Brin will become president of Alphabet, and Eric Schmidt, chairman of Google, will be executive chairman. The company’s current directors will become directors of Alphabet.
Analysts said the move could be followed by more structural changes in the future.
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