Google Creates New Holding Company, Alphabet

Google Creates New Holding Company, Alphabet

U.S.-based tech giant Google has announced plans to reorganize itself, creating a new holding company called Alphabet with Google as just one of several subsidiaries. Google co-founder Larry Page will be CEO of Alphabet and Sergey Brin will serve as president of the new company. Sundar Pichai, who was named product chief last year, will become CEO of Google. In a blog post, Page said the new structure will make the company “cleaner and more accountable.” Businesses that are “pretty far afield” of Google’s core internet business will be included in Alphabet itself, such as Life Sciences (products such as a glucose-sensing contact lens), Calico (focused on longevity research), Nest (smart home products) and Fiber (high-speed broadband services). X lab (for new development work) and the venture capital arm will also be included in Alphabet. Remaining part of Google will be the internet search business, internet advertising, Google Maps, Google’s mobile apps, YouTube and the Android mobile operating system. The non-Google businesses will each have a strong CEO with the independence and capital needed, with Brin and Page “in service to them as needed.” As part of the new plan, Google will start reporting a breakdown of its financial results for each segment, with Google financials separate from the rest of the Alphabet businesses as a whole.

Tarifica’s Take

The announcement of the reorganization and partial rebranding caused Google’s stock to jump by 6 percent in after-hours trading on Monday. That makes sense, in light of the fact that the new structure under Alphabet was created mainly to please Wall Street—or rather so that Google could show Wall Street maximum profitability by taking the more experimental “blue-sky” type ventures out of Google proper. Those ventures, conversely, will have more freedom to spend their capital on what they need to develop and eventually become profitable, without worrying that they will drag down Google’s numbers.

What does this mean for the mobile telecom industry? Google’s broadband and mobile service ventures are among those that have been separated out from the core business, this new freedom will most likely strengthen them and enable them to mount an even stronger challenge to the MNOs and broadband service providers. With its Fiber broadband project, its planned U.S. MVNO running on the networks of Sprint and T-Mobile, as well as more speculative concepts such as providing connectivity via balloons and drones—not to mention Android, which is now sufficiently ubiquitous and profitable that it will remain in the core business—Google has shown its intention to shake up traditional models and markets. Mobile operators and other incumbent providers should watch out for Google even more vigilantly now—albeit under a different name.