Google has a knack of surprising its users, fans, investors, and critics . It has, in the past, launched many products and services that have completely caught tech-analysts off guard. However, its recent announcement to form a new company, Alphabet, while making itself a subsidiary has caused brouhaha in the Silicon Valley.
Sundar Pichai will Become Google’s Third CEO
Alphabet will be the new parent company that will include all of Google’s current businesses, such as Google Inc., Nest, Fiber, Calico, Life Sciences, Google X, Google Ventures, and Google Capital. Larry Page and co-founder Sergey Brin will become the CEO and President of Alphabet respectively, while Eric Schmidt will be the executive chairman. India born Sundar Pichai, who is serving as senior vice president, will become Google’s third CEO.
Why Google had to Restructure?
Although Larry Page, in a blog post published on Monday, eloquently expressed the transition from Google to Alphabet, analysts are of the opinion that the antitrust vote in Europe and investor concerns over the “moonshot” projects might have played a key role in the formation of Alphabet.
Google earns the bulk of its revenues through its search advertising model, however, in the recent years, Page and Sergey have been working on ambitious plans, such as driverless cars and drone delivery. Investors haven’t been too impressed with Google’s foray into these projects, prompting the co-founders to look for alternatives to maintain the balance between revenue generation and innovation.
Alphabet will give both Page and Sergey the opportunity to work on their ambitious projects, while Sundar Pichai and Susan Wojcicki look after the ‘lucrative’ arms of the business. The move will also give investors more clarity on the financial state of the company. It is anticipated that from Q4 2015, Alphabet will start providing financial results for not only Google Inc., but also for the overall company.
According to FMI analysts, another key reason that has prompted the restructuring of Google is the antitrust case in Europe. Nineteen companies, including Microsoft, Expedia, and TripAdvisor, had officially complained to European Union on search engine results page (SERP) malpractices by Google. Although the company relied on former European Commissioner for Competition head Joaquín Almunia for a settlement, he couldn’t muster the support during his tenure. Margrethe Vestager, who replaced Almunia in 2014 has taken a tougher stand on the antitrust charge, and it is highly likely that Google might not get a reprieve from the EU commission.
These factors are being looked as the key reason why the honchos at Mountain View have decided to start a conglomerate, with Google Inc. as one of the entities.
Is Berkshire Hathaway the Way Ahead for Google?
Analysts are of the opinion that Google is going the ‘Berkshire Hathaway’ way, something Page had mentioned in a 2014 interview with the Financial Times. He had said,
“There is no model for the kind of company Google wants to become, but if there’s a single person who represents many of the qualities he thinks will be needed for the task ahead, then it’s famed investor Warren Buffett.”
Whether Larry Page and Sergey Brin are able to emulate the success of Warren Buffett needs to be seen, but going by the history and recent turn of events, making more money doesn’t seem to the first thing on the minds of the Google co-founders.