From Google to Alphabet – “Refactoring” the company

Google has been around since 1998. We are all familiar with its presence. Many people have this muscle reflex to type in Google.com when they want to look up something. The search results are well optimized that only in rare instances you need to click into the second page. It is so successfully marketed that it even reserved itself a permanent entry in Oxford Dictionary. Google is also a very successful company in numbers. It dominates the global online search industry and its market share outruns the second place by more than 50%. It employs more than 50,000 employees worldwide and it has become an Internet conglomerate.

Normally, when a tech company reaches this stage, we would expect the management style to be more conservative and risk-averse. Intuitively, managing a company of 50,000 employees is, by a number of magnitudes, harder than a company of 5,000 employees. In a large company, a small mistake could have cascading effects and become disastrous.

Google seems to be an exception. On Aug. 10th this year, Larry Page announced his plan to found a parent company named Alphabet, and he seats the CEO position. It oversees all traditional Google products like Gmail and Android; Google X, which hosts several moonshot experiments; Calico, the life sciences branch on longevity; Nest; and Google Venture and Capital. Sundar Pichai, SVP of Google, has now officially become the CEO.

This is a bold decision with a possibly very bright future, but it could also be atrocious over the years and destroy the culture that Google has built over the past 18 years. Larry Page explained in his public letter, “in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant”. Alphabet is now comprised of several parts of the old Google. All the experimental branches like Google X or Calico can operate with more independence and momentum. Ever since Google X was incubated, it suffers from limitations brought by traditional parts of Google, because it operates on a much higher velocity. Investors and general public have expressed concerns on unfruitful experiments, and it reached a peak when Google announced to shut down the consumer branch of Google Glass. All these concerns have become irrelevant now. Each individual company has its own goal, and it is free of the limitations set forth by the traditional Google. Furthermore, the management benefits are phenomenal: Larry Page and Sergey Brin are more excited in experimental products, and Sunday Pichai is a proven successful manager who can focus on the continued growth of the traditional Google.

Nevertheless, the downside of this decision is also nontrivial. Apart from its obvious risk level, it separated the revenue generator, Google Ads, from the moonshot projects. It is not likely that Google Ads will stop funding the moonshot companies in the immediate future, but it is possible that all these experimental projects will seek for venture capitalists or private equity investments. Over the years, the corporate culture will likely be very different across all individual companies. This makes talented Google employees harder to join moonshots, and detriments the overall talent acquisition process. Another downside is that the traditional part of Google might lose its innovation velocity. As all the moonshots depart from the traditional company, Google might give more focus on stability. It hurts the search engine in the long run because the market share might drop as innovation becomes stagnant.

In conclusion, Larry Page and Sergey Brin’s rebranding decision is very ambitious. If it works, Alphabet will be even more successful financially, and it will have more impact on people’s daily life. It gives more freedom to experimental projects like longevity research, drone delivery and Internet penetration into rural areas. However if it fails, it will become a management disaster where companies compete with each other for resources and eventually it hurts the traditional Google brand. It is essentially a refactoring in the computer science vernacular. The refactoring will likely take very long time to implement, and only time will tell whether it is effective or not. However, when it does prove to be successful and implemented correctly, the benefit is very substantial.

Your Reference Page, L. (2015). Google Announces Plans for New Operating Structure . Available: https://investor.google.com/releases/2015/0810.html. Last accessed 2nd Oct 2015.