Google shocked the tech market on Monday when it announced the creation of a new company called Alphabet that will become the parent to Google and all its various ventures and activities.
V3 has put together a round-up of the announcement and what it means for the company to help make sense of the news.
What is Alphabet?
Alphabet is essentially a holding company that will 'own' several businesses, chief of which is Google. It will also oversee new standalone units that are not core to Google or its financial performance, but that founders Larry Page and Sergey Brin believe have potential for the future.
What's the split?
Google will retain the core parts of the everyday Google experience: search, advertising, maps, YouTube and Android and other aspects of the 'Google business' such as Gmail, Drive and Docs, as stated in an SEC filing on the plans.
The new standalone units will be Calico, an anti-ageing biotech company, Sidewalk, a smart cities firm, Nest, which focuses on Internet of Things (IoT) devices, and Fibre, Google's internet infrastructure effort.
The remaining areas are Google Ventures and Google Capital, and the Google X division that focuses on areas like self-driving cars and internet balloons.
Google is planning for the future. At the moment the core ‘Google' services listed above make up the bulk of the company's revenues, chiefly search and advertising.
However, looking to the future, areas like the IoT, self-driving cars, biotechnology and so on, could well become vital parts of Google/Alphabet's growth, and become major standalone businesses in their own right.
Instead of parking the future in a lab off in a building somewhere, Google split the whole company structure in two: current and future— Benedict Evans (@BenedictEvans) August 11, 2015
One upshot of this is that it will give Google the chance to break out the financials of the various units, giving investors a clearer insight into how much money it is spending, especially on some of its less "financially beneficial" divisions.
"With this new structure we plan to implement segment reporting for our Q4 results, where Google financials will be provided separately to those for the rest of Alphabet businesses as a whole," said Page.
The market reacted favourably, and Google's shares rose some five percent in after-hours trading. Prior to this there had been worries that Google might be spending too much on areas that don't deliver financial benefits to shareholders, something new CFO Ruth Porat had said she would curb.
With this setup Alphabet can not only justify the spend on more ‘left-field' projects, but show how much investment it continues to put into the core Google services that generate its income at present.
There could still be risks, however. George Colony, an analyst at Forrester, noted on Twitter that the move could cause "conflict, customer confusion [and] ecosystem degradation", although he did not elaborate on how or why this would happen.
#Alphabet. Google chose the investment banker solution to maintain momentum. The risks? Conflict, customer confusion, ecosystem degradation.— George Colony (@gcolony) August 10, 2015
Who's doing what?
The creation of Alphabet has led to some notable management changes. Page will become CEO of Alphabet, recreating his role of CEO of Google.
His move means that Sundar Pichai becomes CEO of the new Google, with the heads of divisions like YouTube reporting to him directly. He in turn reports to Page.
The New York Times reported that Page's co-founder Sergey Brin will now become CEO of Google X.
So is this the end of Google as we know it?
Not quite. Page said in his blog post that are no plans to turn Alphabet into a forward-facing brand.
"We are not intending for this to be a big consumer brand with related products
- the whole point is that Alphabet companies should have independence and develop their own brands," he explained.
This should mean that nothing will appear any different for the average Google user accessing Gmail, YouTube, Drive, Android, Maps etc, and services should remain unaffected.
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