Why did Google become Alphabet?

by Jeff Wiener on August 14, 2015

If you haven’t heard of Alphabet yet, consider this your introduction to the new parent company of Google and all its associated subsidiaries. Earlier this week the brain trust behind Google announced they were initiating a corporate restructuring process, one that would see Google, that is the search engine and its associated online services, become one of the many arms (or letters) of Alphabet, instead of so many disparate companies and projects trying to find a place within the Google Corporation itself.

While the shuffle will likely not impact Google’s user experience and likely will have little direct impact on your or I, it does leave me wondering why Google would initiate such a convoluted restructuring process, when on the surface it seems that a simply name change would have sufficed.

Now granted company co-founder Larry Page has already laid out the reasons for the creation of Alphabet, citing the need to streamline in order for Google to do what it does best and to help the company stay ahead of the curve when it comes to change, lest it find itself a relic of a bygone era (much like IBM). But again, the absurdly complicated manner in which this restructuring is being carried out suggests something more, leaving many to search for the unseen benefits of the creation of Alphabet.

With all the talk of the creation of Alphabet, let me say at the outset that it will literally have almost nothing to do with the daily operation of Google or any of the other newly created subsidiaries. On the surface this corporate reshuffling is all about independence, allowing the company’s vastly disparate portfolio to exist and operate out from under the Google moniker, giving those subsidiaries room to grow and prosper (or crash and burn) without impacting the rest of Alphabet’s corporate family.

To that end, it’s unlikely you’ll actually see the name “Alphabet” anywhere, particularly because the company doesn’t own the rights to the any intellectual property or copyrights to the name “Alphabet,” meaning it won’t become a household name anytime soon.  “We are not intending for this to be a big consumer brand with related products,” Page wrote in a blog post announcing the move. “The whole point is that Alphabet companies should have independence and develop their own brands.”

Streamlining aside, there does seem to be a strong financial motivation to separate the companies in this manner, as Google has clearly become an alphabet soup of financial viable investor-friendly companies and many interesting, yet for investors, heart attack inducing, moon shot projects that sound cool, but from a financial perspective are nothing short of a money pit.

“They [Google leadership] are aware that they’ve got this hodgepodge of companies,” said Roger Kay, an analyst at Endpoint Technologies Associates. “Maybe it’s better to sort them out a bit and make it clearer which ones are bringing in the bacon and which ones are science projects and which ones are long-term bets.”

But again, all that seems achievable with a simple name change, why the musical chairs that will see Google create Alphabet, and then Alphabet create a subsidiary that subsequently consumes Google? For one, this sort of corporate restructuring could be a way of alleviating some of the regulatory pressure Google has been feeling in the EU, or if not alleviating, at least now redirecting it away from Alphabet’s other projects like Calico, Nest, and Fiber. If these companies are to grow into something productive, avoiding the regulatory hang-ups Google Inc. is currently embroiled in might be all the motivation needed to create Alphabet. Not only that, but if these companies do fizzle out, divestiture becomes significantly easier when they’re not all part of the Google brand.

In the end, while all of these things likely are contributing factors to this convoluted reshuffle, I wouldn’t be surprised if there was more going on than meets the eye here, particularly given that everything from the banality of the name “Alphabet” itself to the nonchalant explanation of this significant restructuring seems to be pushing the counter-intuitive notion that nothing is really going on at all.

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