Alphabet Gives Google's Tech Ventures Best Venue to Succeed or Fail

 
 
By Wayne Rash  |  Posted 2015-08-11 Print this article Print
 
 
 
 
 
 
 
Google Alphabet

NEWS ANALYSIS: The creation of the holding company Alphabet was intended in the short term to make Google's business more attractive to investors, but there's more to it than that.

As you can tell from my colleague Chris Preimesberger's analysis article, Google's rationale for creating the Alphabet holding company included providing greater transparency for investors.

Google, after all, has been taking an eclectic approach to technology research and development, from creating the world's top search engine to testing driverless cars. It's pretty clear that investors like Google's decision to create Alphabet because Google's stock jumped nearly $40 a share after Wall Street heard about the move.

And as important as it is to keep investors in mind when you're a public company, the fact is that the move by Google to create a holding company has significant implications further down the road.

In fact, by making this change, Alphabet can go a long way toward driving technology development in a variety of areas, and the company that used to be Google can be a leader in a whole new range of technologies.

When you take a look at how Google has been organized (or perhaps a better word is disorganized), you'll see a bunch of business ventures lumped together. Google was composed of a mega-search-engine company that has been busy accumulating all of the information that exists. But there's so much more.

Google has also meant Android smartphones, self-driving cars, YouTube, home automation and local fiber networks. The most you can say about this collection of diverse business lines is that they all involve technology. But when you look at, for example, Google Ads and Google Fiber, there's not much commonality.

What Google clearly needed to do was find a way to add focus, which is exactly the point made by Larry Page in his blog entry explaining the reasons for creating Alphabet.

From an investor's point of view, creating space between the separate parts of Google by making each one a company within Alphabet makes a lot of sense. It makes it easier to spot how each part of Google is performing, which parts are making money and which parts are making groundbreaking discoveries.

But there's another point of view that in the long run may matter more. In addition to making each of the parts of Google more visible, creating the divisions also makes each part easier to manage on its own.

This is why many of history's great corporations, ranging from General Electric to Hewlett-Packard, have been organized so that major divisions have their own leadership, their own management teams, their own profit-and-loss responsibilities and their own reporting structure.

While these great corporations still required their divisions to adhere to some overall practices, they were allowed the freedom to create value within a larger corporate structure.



 
 
 
 
 
 
 
 
 
 
 
 
 

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