'

Larry and Sergey's excellent adventure: Does Alphabet (formerly Google) make sense?

Alphabet, the new holding company, that now includes Google is either great spin on a restructuring, savvy move or simply a way to allow Larry Page and Sergey Brin to have more fun.

Google has a new parent in Alphabet, a holding company that allows Larry Page and Sergey Brin to keep developing some potentially nutty ideas while keeping the core search business focused.

The big question is whether this corporate contraption will work better or is a fancy way of restructuring a company that became unwieldy.

With a letter, Page outlined how he was creating Alphabet. Page will be CEO and Brin will be President of Alphabet. Google gets a new CEO in Sundar Pichai. Google's announcement almost came off like an April Fool's joke, but there is an SEC filing.

Also: Google shuffles leadership structure with new CEO, Alphabet company

The structure codifies what insiders have known for a while: Google was a collection of silos that barely went together in many respects. Given that scenario why not create a holding company that could spin off public companies in the future.

Alphabet will be a collection of companies that'll include:

  • Google, which presumably will fund everything just like it does today. Pichai will be in charge of a slimmed down Google.
  • Potentially YouTube, which will be run by Susan Wojcicki. YouTube is part of Google, but Page hinted that it could become its own entity. "Google also has some services that are run with their own identity, like YouTube. Susan is doing a great job as CEO, running a strong brand and driving incredible growth," wrote Page.
  • Life sciences, which includes a glucose-sensing contact lens, and Calico, focused on longevity.
  • X lab, which includes Wing, a drone delivery service, and self-driving cars.
  • Alphabet Ventures, the company formerly known as Google Ventures.

These businesses will be detailed in financial results. For the foreseeable future, Alphabet is basically funded by Google's business. According to Page, the new structure will allow for long-term ambitious bets, entrepreneurs to shine, better investment and focus at Google.

"On balance the news is positive, as this provides for incremental transparency into Google's business and suggests the company is looking for ways to balance founder and employee interests with those of investors," said Pivotal Research Group analyst Brian Weiser in a research note. "It remains to be seen exactly how much transparency will be provided."

Some observations:

  1. A more focused Google under Pichai is a worthwhile goal. The company became scattered with its various side ventures. What's unclear is whether Google employees will resent funding Alphabet's side ventures. "Ever since Eric Schmidt's departure, innovation on Google's core product offerings had been stifled so the company's announced refocus is excellent news," said Tim Daly, CEO of digital marketing and advertising agency Vincodo. "We are excited about the proposed organizational changes and hopeful that 'moonshots' are moved someplace far, far away under the Alphabet umbrella so that Google can return its focus to serving advertisers."
  2. It's quite possible that Page and Brin want to have fun and get out of the day-to-day headaches of running a public company.
  3. Alphabet is a holding company that sort of rhymes with Interactive Corp. Buy, build and spin off or IPO. Rinse then repeat. Alphabet is the parent company but Google's GOOG remains the publicly traded stock symbol.
  4. Alphabet could be the biggest spin job in the history of corporate restructuring. Google needed focus and a holding company structure is a fancy way to do it.