Google By the Letters
The search giant is now a conglomerate called Alphabet. The big question: Will its parts be as great as the whole?
Yes, we get it. Google is not a conventional company. Larry Page said so in the first letter to shareholders when the company went public in 2004. And in case we missed this, Page repeated the quote today when announcing that Google, as it existed before August 10, 2015, would thereafter be known as Alphabet. Most of the stuff we interact with from Google — search, ads, YouTube, Gmail, and Android — will be part of just one of several companies under the Alphabet umbrella. At least that company will retain the familiar name.
The other companies — including Google X, Fiber, Calico, Nest, Sidewalk, Life Sciences, and Google Ventures — will be fully owned, but separate, each with its own CEO and finances. In that sense, Alphabet will be like Warren Buffett’s universally admired Berkshire Hathaway, a conglomeration of firms bound only by its ownership.
No one expects Alphabet to operate in the hands-off manner with which Buffett oversees his empire. Page, as CEO of the whole enchilada, will make sure that no executive in his domain will be chief enough to buck his philosophy of thinking big, exploiting technology at scale, and snubbing convention.
The question is, how separate will those companies be? The sense I get at Google is that this new structure is but an evolution of a process begun when Page stepped back from everyday operations last October and turned over much of Google’s product functions to his key lieutenant Sundar Pichai (who now becomes the CEO of Google lite). But Google…er, Alphabet, has seemingly crossed a line by structuring its divisions as separate companies in the Berkshire Hathaway model. At this point, neither Page or anyone else has indicated how thick that line is.
And that’s important. For many years, observers have expressed puzzlement at Google’s adventuresome propensity to generate divisions seemingly built on non sequiturs. What did self-driving cars have to do with search? Can you sell ads with smart thermostats? But when you scratched the surface, you could always figure how such ventures actually did promote Google’s core business. For instance, self-driving cars are huge consumers of Google Maps, and if people are liberated from driving they can do more web searching.
You could regard those crazy moonshots as wild blood injected into the core business, a perpetual antidote to corporate anemia. Because these divisions were part of Google itself, they could easily share their innovations with the part of the company that consumers used daily. When a team inside Google X invented a learning system informally called the Google Brain, it was soon moved to Google’s Knowledge division to enhance the search engine. Will that process be so easily repeated when Google X is run as a separate company? Or will the research division’s CEO be able to decide that his own firm would be better off selling the team to Microsoft or Yahoo? (I put the question to the company formerly known as Google, and didn’t get an answer. I’m not even sure that the answer to that has been determined.)
Or consider the role of Tony Fadell, the once and future CEO of Nest, the company Google bought for $3.2 billion in January 2014. Nest now becomes one of the separate Google companies, which may not make much difference because Google was letting Fadell run it as a quasi-independent duchy. But because Nest was part of the larger enterprise, Fadell had been tapped for broader responsibilities at Google, including the reinvention of Google Glass. Will he now relinquish that role to once again run Nest as a single entity? (Nest told me it wasn’t revealing any details in addition to Page’s statement.)
And what about Fiber, the division of Google devoted to installing and operating high-speed Internet? As I understand it, the mission of Fiber was not necessarily to make money from subscribers but to hasten a higher-speed infrastructure that would make Google’s core products more attractive and profitable. Will its new CEO now have to change direction in order to burnish his own bottom line? (Actually, that could be really interesting — if Fiber bulked up to be a major Internet provider rather than a burgeoning experiment, it might really jolt the incumbents.)
Obviously, Alphabet is not going full Berkshire Hathaway here. In Buffett’s world, an innovation made at Fruit of the Loom does not quickly get shared at Dairy Queen or Geico. But with Alphabet, Page is granting his divisions at least a measure of more autonomy — and an incentive to optimize for the one and not for the all. As Page writes, “Alphabet is about businesses prospering through strong leaders and independence.” It will be fascinating to see how this plays out.