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Is Alphabet the best bet?

Alphabet_ChartThis week the internet has exploded following the news that Google has reorganised itself under a new parent company called Alphabet.

Google will now become a subsidiary of Alphabet and will have a new CEO.

So why did Google founder, Larry Page, decide to set up the new parent company?

There are some obvious benefits.

Google can be even more focused

For years Google has been investing in and acquiring businesses. Some of these have been closely related to its core search and data activities but many have not.

Inevitably some of these have worked but a few have not. This latest move allows Google’s core businesses to focus on what they do well.

The businesses that will stay a part of Google are Search, Advertising, Maps, YouTube, Android, and Apps.

Allow the other businesses to run in the way that suits them best

There are several businesses that will no longer be part of Google but become separate subsidiaries of Alphabet. This will give them the flexibility to create their own culture and be run in the way that suits them best.

Those business are Calico, research into extending human life expectancy; Fiber, internet service provider; Nest, home automation products; Ventures and Capital, investing in startups and growth companies; X lab, research incubator, includes projects such as self-driving cars.

A better vehicle for acquisitions

Alphabet is going to become a much better vehicle for acquiring major companies. Many possible acquisition targets have become nervous about dealing with Google.

The company has a well documented history of killing off products that it deems ‘non-core’. Alphabet now has the ability to promise nervous CEOs of a potential acquisition that he or she can remain at the helm of the company, making it more likely that the acquisition will succeed.

This is also a great way of retaining top talent who are motivated by the status that comes from being a tech company CEO.

Creating flexibility

Google has about $8 billion in debt and a low gearing level. It’s likely that it will be issuing more debt at some time in the future. By splitting the company it can quarantine and separate the risks, contingent liabilities and losses that are part of the big experiments like self-driving cars.

This will result in Google getting better terms from its lenders. The new Google will now be able to borrow more effectively than the old Google could have.

Having fun

Larry and Sergei have more money than God. They don’t really need to focus on the corporate machine that Google has become. What they want to do is focus on the new, entrepreneurial stuff. You know, the sexy stuff.

What does this all mean for the Google brand?

The Google brand will evolve. It will still be a mega company but expect it to develop a more mature and corporate image. All the headline grabbing moves are going to come out of Alphabet now.

The bigger plan will start to become clear over the following year or two. But already we can say that the Google of old has changed and the founders of the company have created a fun new sandpit to play in.

Mark Cameron is CEO at Working Three.

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