Google restructures, creates new parent company Alphabet

In a move as idiosyncratic as the company itself, Google (NASDAQ:GOOG) announced a restructuring this week, creating a new parent company, called Alphabet. The two business entities established include the now slimmer Google subsidiary, which will continue to focus on the firm's search and advertising business, and the Alphabet holding company, now home to Google and ventures farther afield from the core endeavor.

Among these "moonshot" efforts are robots and self-driving cars; Life Sciences which is working on a glucose-sensing contact lens; Calico which is focused on longevity; developing nanoparticles; and extending internet connectivity via balloons, the Wall Street Journal reported.

Among other companies in the new holding company, according to The New York Times:

Sidewalk, a company focused on smart cities.

Nest, which makes internet-connected household devices.

Fiber, a high-speed internet service now in a number of U.S. cities.

"Our company is operating well today, but we think we can make it cleaner and more accountable," Google CEO Larry Page said in a letter that was part of a regulatory filing.

Page, Google President Sergey Brin and CFO Ruth Porat will lead Alphabet. The Google subsidiary will include search, YouTube, Maps, Gmail, and the Android and Chrome operating systems. Google will be led by Sundar Pinchai, who is now senior VP of product and engineering for the internet businesses. He has been prepared to become Google's CEO. The core business was responsible for almost all of the company's $66 billion in 2014 revenue.

"Fundamentally, we believe this allows us more management scale, as we can run things independently that aren't very related. Alphabet is about businesses prospering through strong leaders and independence. Our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed," Page said.

This is a structure similar to Warren Buffett's Berkshire Hathaway, which Page has said is a model for running a large, complex company.

"Sergey and I are seriously in the business of starting new things. Alphabet will also include our X lab, which incubates new efforts like Wing, our drone delivery effort. We are also stoked about growing our investment arms, Ventures and Capital, as part of this new structure," Page said.

Alphabet Inc. will replace Google Inc. as the publicly-traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights, according to Page's statement. Google will become a wholly-owned subsidiary of Alphabet. The two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG.

Unlike Google, Alphabet will have a low public profile so its companies can operate independently and develop their own brands. "We liked the name Alphabet because it means a collection of letters that represent language, one of humanity's most important innovations, and is the core of how we index with Google search. We also like that it means "alpha bet"—Alpha is investment return above benchmark, which we strive for," Page said.

"Google is not a conventional company. We do not intend to become one," he said, quoting himself and Brin in the founders letter 11 years ago. "As part of that, we also said that you could expect us to make 'smaller bets in areas that might seem very speculative or even strange when compared to our current businesses.' From the start, we've always strived to do more, and to do important and meaningful things with the resources we have.

"We did a lot of things that seemed crazy at the time. Many of those crazy things now have over a billion users, like Google Maps, YouTube, Chrome and Android. And we haven't stopped there. We are still trying to do things other people think are crazy, but we are super excited about," Page said.

For more:
-See this Google statement
-See this Wall Street Journal article
-See this article in The New York Times

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