On Monday 10th August 2015, Google made the surprising announcement that it was to restructure itself. The move is designed to simplify the structure of the company, making it more transparent to the wider business world and accountable to shareholders.
To achieve this goal they have created a new parent company, Alphabet Inc. The rebranding will see Google retain control over its core businesses, including Search, Android and YouTube, whilst other entities will be run by the parent company. Acquisitions, research, and development entities will all fall under this banner.
Before the restructuring Google had grown to encompass a very diverse group of businesses. Although it was operating well and share prices were growing, there was a clear need for clarity and better transparency, particularly in terms of where money was being spent. This information was particularly important to shareholders who had a vested interest in the long term performance of the company and how much was being spent on various ventures.
The new restructuring has been praised by shareholders and the business world alike. The response has been incredible and caused share prices to rise by over 6% in afterhours trading on Monday. Some investment firms, Stifel included, even upgraded the status of the shares to encourage people to buy now as they expect prices to continue to rise.
The new structure will also bring better management for different aspects of the business. The plan is to give each entity its own CEO to oversee the project and drive performance whilst also being supported by members of the board. The founder of Google, Larry Page, will become Alphabet’s Chief Executive with co-founder Sergey Brin appointed President. Current chairman Eric Schmidt will take up a position as Executive Chairman. Sundar Pichai will be promoted to CEO of Google.
The name Alphabet may seem a little unusual, particularly because people expect something a little less ordinary when they think about Google. The funny thing is that by being so mundane they have actually made people react with the same questioning they did when they were first established.
The idea behind Alphabet is that it is the foundation of language, one of the most important cornerstones of civilisation. The alphabet is also crucial to indexing in Google Search. In investment terms alpha is a measure of the active return or performance of investments showing that they perform above a target benchmark. When you consider these things the name is fitting.