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Pichai as CEO, Alphabet as parent: Why Google turned a new page

The surprise and sudden reorganisation of Google under newly formed parent company Alphabet gives the technology giant the ability to focus on its core business.

tech Updated: Aug 12, 2015 09:35 IST
File photo of Sundar Pichai who has been named CEO of Google. (AP File Photo)
File photo of Sundar Pichai who has been named CEO of Google. (AP File Photo)

Google got a new parent company on Monday after a sudden reorganistaion, in a move that will give the technology giant the ability to focus on its core business while offering a startup-like flexibility to its other projects.

The announcement of the new corporate structure on Monday was generally welcomed in Silicon Valley and on Wall Street, where Google shares shot up some 3.6% in early trade on the news.

The plan calls for Alphabet to be the corporate parent, with an operating unit for Google and its related search operations, and a handful of other operating firms created for projects in health, Internet delivery, investment and research.

"This is a long overdue move by Google," said Larry Chiagouris, professor of marketing at Pace University.

Read:India-born Sundar Pichai appointed the new CEO of Google

"It allows them to incubate these other businesses in a way that doesn't detract from its core revenue."

While Google is known as the dominant player in internet search, it has launched a variety of projects in recent years that are marginally related at best to its core operation.

The projects include self-driving cars, Google Glass, internet balloons, drones, health care, Google TV, mobile payments, home automation and its Google+ social network, among others.

Many of these "moonshots" are likely to fail, according to Chiagouris, but any failure would not end up hurting the Google brand.

"They don't want to see the Google brand associated with failure," Chiagouris told AFP.

'Science projects'

Roger Kay, analyst at Endpoint Technologies Associates, said the restructuring gives Wall Street the transparency it wants on the core Google operations.

"It's important from a Wall Street perspective not to have the performance of the main company obscured by these other entities," Kay said.

"Google really only has one business, which is search and advertising. The rest is what I call science projects."

The new structure means that "if they are not making money in drones, they can merge that with something else or spin it off," Kay said.

Chief executive Larry Page unveiled the plan to create Alphabet in a blog post, saying he would hold the same position at the new parent group, with executive chairman Eric Schmidt doing the same.

"Our company is operating well today, but we think we can make it cleaner and more accountable," said a statement from Page, who co-founded the tech giant with Sergey Brin 17 years ago.

"So we are creating a new company, called Alphabet. I am really excited to be running Alphabet as CEO with help from my capable partner, Sergey, as president."

Under the new structure, "this newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead."

The Google unit, to be headed by current company vice-president Sundar Pichai, will include search, ads, maps, YouTube, Android and related technology infrastructure.

The new units will include Google X (for self-driving cars and other new technologies), Calico (for research on aging), Nest (for home automation), Fiber (for high-speed Internet) and others.

The new operating structure "will be introduced in phases over the coming months," according to Google's regulatory filing, and will mean separate financial statements from the Google unit and its parent.

Jan Dawson at Jackdaw Research said that with the transformation, "it will finally become clear quite how large and unprofitable all the non-core initiatives at Google are, which might well increase pressure from shareholders to exit some of those businesses."

Dawson said the move is also "personal" for Page and his Google co-founder Sergey Brin, who becomes president of Alphabet.

"Larry and Sergey have quite clearly been increasingly uninspired by merely running a search engine and advertising business, and this finally aligns their job titles with what they actually want to spend their time doing," Dawson said in a blog post.

Ben Thompson, a technology analyst and consultant, said on his Stratechery blog that Page "is not a strategy and business nerd" but "for lack of a better description, a change-the-world nerd, and it seems clear that he found the day-to-day business of managing a very profitable utility to be not only uninteresting but a distraction from what he truly wanted to do."

The reorganisation came amid concerns that Google's dominance of the tech sector may have peaked as the landscape evolves.

Kay said the reorganisation suggests that Google is ready for change.

"This is a healthy sign that Google is being dynamic about managing its business," he said.

Pichai appointed

India-born Sundar Pichai will oversee the biggest company under that umbrella, which will still be called Google and will continue to include some of its household products, including its search engine, ads, maps, apps, YouTube and the Android system.

Before joining Google, Pichai worked as an engineer at manufacturer Applied Materials, followed by a stint in management consulting at McKinsey & Company.

Originally from Chennai in Tamil Nadu, Pichai received a Bachelor of Technology from the Indian Institute of Technology in Kharagpur.

He also has an MSc from Stanford University and a MBA from the Wharton School of the University of Pennsylvania.

Page said Pichai is the man to steer the Google ship in the coming years, as it continues to innovate and expand its product base.

"Google itself is also making all sorts of new products, and I know Sundar will always be focused on innovation-continuing to stretch boundaries," he said.

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