Merchant Innovation

Google’s Alpha-Bets

The well-known adage is “you can’t teach an old dog new tricks.” And, at 17 years of age, Google is an old dog (if you’re measuring in Internet years, that is). It seems, however, that Google’s executive team didn’t get the memo Re: old dogs, new tricks.

In a move that managed to take most of the tech world by surprise earlier this week, Google decided that it’s not going to be Google anymore — or at least that it’s not going to be just known as Google anymore.  

“Our company is operating well today, but we think we can make it cleaner and more accountable. So we are creating a new company, called Alphabet (http://abc.xyz). I am really excited to be running Alphabet as CEO with help from my capable partner, Sergey [Brin], as President,” wrote Google’s current CEO Larry Page in a blog post Monday.  

The tech world responded with a resounding “huh?” Or, did we just fast forward to April Fools’ Day? If you google “Google Alphabet” and check the tags on the stories released this week, you will find the word “huh?” appears multiple times.

Some had questions about the moniker itself since, as The New York Times points out, the domain name “alphabet.com” and the trademark Alphabet are both owned by BMW. The Munich-based automaker named their subsidiary that provides services to corporations with vehicle fleets Alphabet. And, they aren’t selling that name — many others have offered lots of money, but BMW likes it a whole lot, though perhaps somewhat less after the announcement on Monday caused them to shut their site down.  

Others are less concerned about the trademark issues Google could be facing, but have merely complained the new domain (http://abc.xyz) is just too silly looking to take seriously.  

Page said that the name’s origin is quite logical, a bit of a twist on “alpha-bet,” suggesting that many of the entities that Google has separated and made more accountable, like say for instance, Google Fiber, are brand new concepts that they are making a “bet” on.

But most observers were more curious and somewhat confused, questioning what would it all mean, and why is Google doing it?

As of yet there are more question marks than answers, as the details direct from Mountain View on the new parent company began and ended with Page’s comments Monday. But PYMNTS has taken a quick run through of what’s been confirmed, what people think is coming next and what’s next as the the company synonymous worldwide with Internet search is now that Google is only one company housed under Alphabet’s umbrella.

So Is Google Still Google?

Alphabet is a collection of companies, the largest of which, of course, is Google, Inc.

Google, Inc. will still be Google in the sense that all of the Internet centric (and today the gigundo revenue generating parts of the business) will remain snuggly and warm under the Google brand. So Search, YouTube, Chrome, Maps and Android will all remain exactly where consumers have always found them, as part of the Google machine.  

The “alpha-bets” — the robot army, Internet balloons, cars that drive themselves, smart contact lenses or the firm’s plans to colonize Mars (OK, that last one is made up, but I bet we had you for a second) — are moving out of Google, Inc as separate companies under the Alphabet umbrella.

“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” Page noted.

Not to mention accountability, and the opportunity to more easily take in investments, spin off, and/or otherwise capitalize these businesses to scale them.

And, though there has been no official confirmation of this, most analysts are predicting no big changes to the Google product line-up, at least not in the foreseeable future.

“I don’t think there will be changes to product,” said Brad Shimmin, an analyst with Current Analysis told ComputerWorld. “All the road maps they have in place will continue. At least for the foreseeable future, which is about 18 months in this industry, all the plans Google has had in play will remain.”

“Companies periodically have to go through restructuring to position themselves for the future,” noted Scott Strawn, an analyst with IDC. “This isn’t about product. This is just the way the business world works…. I don’t see any real product changes right now.”

When it comes time to reporting earnings, however, things will be a little different. Google, Inc.’s earnings will be split off from the rest of the Alphabet companies. Alphabet will also eventually replace Google as the publicly traded company, on the NASDAQ, and all Google shares will convert to Alphabet shares. Company shares will continue to trade on the NASDAQ under the same GOOGL and GOOG ticker symbols.

Who’s On First?

With Larry Page and Sergey Brin moving past the day-to-day at Google to run more “moon shot” oriented efforts of the entire Alphabet project, Google, Inc is getting a new CEO.

Long-time Page/Brin lieutenant and the executive in charge of Android, Chrome and Google apps Sundar Pichai will be the new CEO at Google.  

The reviews of that choice have been highly positive.

“This is the man,” Shimmin said. “This is the guy who brought us Android and the guy who has already basically been running their biggest cash cow. He’s very charismatic and he’s definitely [at the] CEO level of competence and swagger that you would expect to see from a company like Google. I think he’s the perfect choice.”

Others have noted that, now freed from Google wealth of “other” projects, Pichai might have the freedom to take back ground that up until now Google has had a hard time competing in (particularly in the social media arena).  

With Pichai at the helm, I am hoping to see a Google more focused on all things Google as we’ve known it,” Patrick Moorhead, an analyst with Moor Insights & Strategy told ComputerWorld. “Pichai will need to make yet another run at being successful in social media, which has eluded Google so far.”

What Businesses Will Hold The Alpha-Bets

Though Google has been fairly mum on the specific details of what the business structure of Alphabet will be, there are at least some hints regarding the coming-soon spin-off businesses, according to Time.

• X Lab: Google’s top secret research department, the X-Lab, or Google X, is where the company comes up with the more “science fiction” initiatives like the one mentioned earlier. Google Glass is an alum of the X Lab and the company’s drone delivery initiative, Wing, is housed here.

• Google Ventures: The best way to get innovation is to fund it, and Google Ventures does just that. Impressively, the business venture arm already operates with a Chinese wall between its moves and the firm’s total endeavors – and as such regularly invests in competitors to Google products, including in payments. That separation is likely to soon become more concrete as it moves to its own separate business.

• Google Capital: This new business is also aimed at investing, but unlike Ventures is focused on funding late-stage growth companies. Currently it operates independently of Google’s consumer-product businesses and is expected to do so with an even wider range of motion post Alphabet transition.

• Calico: When launched in 2013, the life science firm seemed a truly unusual fit for Google. The general purpose of Calico is to develop research over the very long-term, measured in decades not years. Google launched this life sciences company in 2013 with the aim of extending human life. The company is devoted to long-term research that may not come to fruition for decades.

• Nest: Along with much of the rest of the market, Google is getting into the IoT. This smart thermostat company was a $3.2 billion acquisition by Google in 2014  and is central to the company’s smart home project.

The Solution To The “Innovator’s Dilemma”

In 1997, a Harvard Business School Professor by the name of Clay Christensen changed the way many people in tech talk and think about innovation with his book, “The Innovator’s Dilemma.” The bible of the disruptive innovators, the basic premise is pretty simple. Big established firms get enmeshed in their highly successful ways of doing since they are conflicted by doing whatever they have to do to preserve shareholder value, maintain market share and run their business in an organized fashion.

That, Christensen, says, may also be setting themselves up to be supplanted by new innovators waiting in the wings to disrupt them right out of the market with a new idea.  

Some say that Google is now the giant facing the innovator’s dilemma — and that Alphabet is its founder’s attempt at squaring Clay Christensen’s circle.  

Google, Inc. will keep being Google, and doing the “right things” that have brought it to the unfathomably large $460 billion market cap it enjoys today.  

But with the expansion into Alphabet, Google may be signaling that it is still the place to go for those wild disruptors and their “far afield” ideas. By formalizing a structure that gives those zany passion projects and moon shots a home, Page is blowing his innovator’s dog whistle so that the coolest and most creative engineers will want to come work for him.

Will it work?

Well, that remains to be seen, and the outcome will largely depend on the details of how this conglomerate will function. There is also the reality that unless one of these moonshots really takes off, Google is the company’s cash cow and the fate of all those little side enterprises will depend greatly on the day in, day out focus on getting it right on the Web.

Still, if the choice as written now is disrupt or die, then perhaps Page and Brin have already come up with their next great innovation: disruption without death.

 

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