Yesterday Google lived up to its reputation and surprised the world with the announcement that Google will no longer be Google. Well, kind of…CEO Larry Page rocked the tech market by reducing the size of Google and creating a new company, with Google under its umbrella. This new company, Alphabet, may very well be the next organizational model for tech companies nationwide.
Alphabet is a holding company, created by Larry Page and Sergey Brin, that breaks Google down into many different companies. Google is still Google, but now all of its side projects are wholly their own entity, more culpable for their own actions, but less bogged down by corporate red tape..
Google has long been one of the world’s leading tech innovators, investing in ideas and startups that were so-called “moonshots.” Moonshots are ventures that have enormous potential payoff, but little chance of actually occurring. With this reorganization, Alphabet separates Google from these moonshot ventures increasing transparency and removing a bit of the financial safety net.
So, why the heck would Page do such a thing? In a world where brand recognition is everything, why move away from one of the globe’s most known names? At first glance, it seems counter-intuitive at best. However……
In reality, Page and Brin are doing what they have always done: disrupt. If you are located in Silicon Valley like SDI, then this a word with which you are excruciatingly familiar – to the point where hearing it makes you cringe. Despite the overuse of this word, it is exceptionally applicable to Google.
Google is doing what it has always done: innovate. Page and Brin were facing a common problem among large-scale businesses: corporate sprawl. Google has become so big that it is losing the flexibility that contributed to its early greatness.
It has been a phenomenon known for sometime – when companies experience massive growth over a short period, there is no time to create solid infrastructure. The company becomes so big that and disorganized that production grinds to a halt, or products plummet in quality.
The Internet boom has resulted in many examples of this in the tech market. Pick virtually any new tech giant (facebook, Amazon and so on), and you’ll see the same increasing rigidity that Google is trying to shake off. Our market experts believe that what Google has done is a brilliant fix to this very big problem.
Technology is about innovation and disruption. It takes everyday routines and changes how we perform these routines, or creates new routines fundamentally change the way the world works. Google has taken this innovative spirit and applied it to their business model. By turning their consolidated empire into a loose federation of affiliated entities, Alphabet provides the flexibility that is so crucial to innovation. It simultaneously provides the support and investment funding necessary to startups and those moonshot programs.
Page, in a memo published online, states that they love the name Alphabet for several reasons. One, the alphabet is the basis of all language. Page and Brin belief passionately in communication and the free exchange of ideas, both of which are utterly reliant upon language. Page also states that they loved that name can be broken down to “Alpha-Bet.”
Alpha refers to an ROI beyond the expected standard, especially when referring to high-risk investments. By pointing this out in their memo, Page and Brin are sending a clear message to existing and potential stockholders: they want Alphabet to be a safe and lucrative investment. They are not only adapting to the present, but readying the company for the future.
As the director of the prosperous Silicon Valley tech company SDI, Raj Srivastav is infinitely familiar with the intricate play between funding and flexibility. What Google has done, he argues, is to solve both of these issues.
Raj argues that one of the biggest issues for hugely disruptive,game-changing ideas is that they generally require a large investment. Through his contacts with venture capitalist firms throughout the Bay Area, Raj has seen what a big risk investors make when funding moonshot ideas. They rarely payoff, mostly do to poor leadership; of course, when they do pay off, the ROI is amazing.If you have a business idea, and would like to validate it, get a free consultation from CEO, Raj Srivastav before taking the plunge. We will help you plan your web strategy and brand from day one.
Alphabet is gaming the system by breaking itself up. They can still make those risky investments they so love (and that Wall Street so hates) while growing their main money making business. By reorganizing into a holding company – inspired by the great Warren Buffett, by the way – Google increases the transparency of their holding companies. This increase means that Wall Street will be better able to understand just how well an Alphabet affiliate is actually doing.
Page is hoping that this will drive up Google/Alphabet’s stock up in two ways:
- 1. Stockholders will be more likely to buy up shares because they can better understand the financial solvency of the many Alphabet projects.
- 2. It will soothe the concerns of investors (and potential investors) that Google is making huge risks. With a holding company, Alphabet can protect their money maker (Google) while still investing in their risky projects.
Likely, he will be right. As Page himself points out, there is no true historical model for what he wants Google to become. Only time will speak to the success or failure of this particular disruption. Either way, Google Search alone influences the internet in a way that no other company does. We won’t see it going away anytime soon.
SDI is a software development, website design , app development and strategist company based in California. As long time Silicon Valley insiders, our team is chalked full of market strategists. We know the ins and outs of the tech market and due to our perfect location we are at the cutting edge of technology.Not only can we develop your idea into the perfect product but we can market and monetize it. This is what we do. We are Silicon Valley’s tech experts and we are here to make sure you succeed! Get in touch now for a free market consultation and quote.