Alphabet Inc.: Reorganizing Google

Co-founded by Larry Page and Sergey Brin in 1998, Googles original mission was to organize the worlds information and make it universally accessible and useful. Over the years, Google has come to dominate that space, but the company has also diversified in numerous ways. Some projects and acquisitions were directly relevant to the companys original mission, while other ambitious moonshot projects and acquisitions (for example, in health care, self-driving cars, and smart-home appliances) seemed to fall far from Googles core competencies. Many analysts and investors questioned the heavy investments in R&D for these projects, especially since the lack of clarity in Googles financial reporting on individual projects made it difficult to discern whether these investments were generating or would eventually yield any dividends for investors.

In response to increasing pressure from investors and in the face of stagnant share prices, Google announced an unusual restructuring plan in October 2015. It created a new firm, Alphabet, Inc. to act as a holding company for Google and quite a few other independent subsidiaries under the Alphabet umbrella. The businesses within Alphabet were organized into two reporting segments Google (and related core businesses) and Other Bets and each subsidiary was set up to run independently under the leadership of individual CEOs. Executive-level leadership and the board of directors remained largely unchanged, and investors shares of the former Google simply became shares in Alphabet, Inc.

Under the new structure, subsidiaries have been pushed toward greater accountability. The intended benefits of the new structure were to: enable each subsidiary to focus on its own mission, limit each subsidiarys liability for the others debts, enhance greater transparency regarding cash flows and investments across the board, avert anti-trust regulation, attract and retain more entrepreneurial-minded talent, and pave the way for more strategic acquisitions. Investors faith in these outcomes coupled with increased revenues have led to an uptick in stock prices since the restructuring. However, several CEOs and other employees in the riskier Other Bets projects have since left the company, stating that the pressure to perform financially has eroded the spirit of innovation within their subsidiaries.

Analysts feel that the new Alphabet is still a work-in-progress, and criticism of the restructured company abounds, but there are already signs of a sharpening focus on growth from core competencies while simultaneously leaving room for more ambitious or riskier projects that require a longer timeframe to yield results.

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