Alphabet – The new Google


It was a big announcement. Larry Page and Sergey Bryn have decided to create a holding company called Alphabet, which will house a slimmed down Google and other companies.  Larry and Sergey will run the new company and hand over the CEO title of Google to Sundar Pichai.  Should we be shocked by this announcement? Maybe.  To be honest it is the kind of big thinking we have grown used to with  Sergey and Larry.  Google has always been about pushing boundaries.   They created the search engine business model that would rule all others.  Beyond search they bet early on video and bought Youtube.  They developed Android and Chrome. They thought mapping would be interesting and have grown the business to where it is on almost every smart phone on the planet.  They have used Project Moonshot to explore new businesses like driver less vehicles.  They have smart glasses and watches, though not huge success they continue to drive interest.  Now they are thinking, “we are a $50 billion business how do we invest and invent the next great business, but not get bogged down by our own size”?  There is debate on is this a bold move or not.  I would not categorize this as bold, but I think it is smart The first question is what does this mean to Google’s business?

One thing Wall Street has been clambering for is better transparency into Google’s different business units, in particular those “project moonshot” spin offs. A team like Google Fiber will now report earnings and what and why it did things the way they did. NEST will be broken out as separate entity, Life Sciences,  Calico, Investment arm of Google and Project X.   It’s smart as it gives investors visibility into different groups.  The core components of Search, Android, Chrome, YouTube etc..will remain as part of Google.  By creating these financial boundaries Google can create smaller nimbler divisions that can focus on big ideas, big visions, big opportunities.  It is important that they retain the entrepreneurial flare that has guided them to great success thus far and can keep them relevant for the future.  In the end it is one of those games companies hate to play, but have to play once they are a publicly traded company.  they have to make investors happy.

There are numerous examples of companies in tech that lost their way.  When I started in the industry IBM was at the forefront of companies that had been a leader only to lose their way in an ever changing tech landscape and at that time it was the idea of a personal computer.  They spent years trying to be better than Microsoft, before realizing under Lou Gerstner that they were IBM.  IBM had become an old stale company, grappling with its size and reach.  It was a legend in corporate America.  However Larry and Sergey were not afraid of be becoming IBM.  If you ask me who I think Larry and Sergey are afraid of becoming, it is my old company: Microsoft.  A company that defined the industry in the early days, but went from cool to being the new IBM. I remember quite well as the dotcom era created a booming economy that a challenge that was surfacing at Microsoft was growth.  When Steve Ballmer took over one of his priorities was to successfully manage that growth   He turned to the dean of the business world to find his answers and create his plan, Jack Welch.  The result was less than stellar as Microsoft became slow and monolithic.  The ability to lead seemed to disappear which led to failed projects like MySpace (A Facebook attempt), Soapbox ( a YouTube attempt), Zune (a iPod attempt) and a host of others. I don’t blame Ballmer too much for this because at the time Microsoft was the first of these young and new tech companies to experience this challenge of “hyper” growth.  Steve looked to existing business leaders of big legendary American companies. The big problem from my standpoint was those “other’ companies operated in a different landscape than Microsoft, with roots set before Microsoft even existed.  Though there was some good learning a lot did not transfer so well to a technology company.  Microsoft’s failure would be learning for those to come.

Many have said this move by Google is bold, amazing, giant, etc..I really do not fall in to that camp.  In many ways I think Google is tackling the biggest challenge with growth, which is, “How do you stay relevant?”.  It is ironic that the best quote, to paraphrase, comes from Microsoft CEO Satya Nadella, “This industry does not respect history, it only respect innovation”.  It is a true statement and the answer to the question of relevance. In 2013, Larry Page said”If you’re not doing some things that are crazy, then you’re doing the wrong things.”  Though many of Google’s ideas are out there in the wilderness, it will just take one or two to take off to drive the next $20 billion industry.  Some of Google’s ideas are obvious – driver less cars will happen.  The fact that Google was in early will help it immensely moving forward.  Life Sciences, the only thing I know is health care is at the dawn of a new revolution.  Fiber?  All tech companies hate the fact that they have to work with monolithic telecom carriers.  The challenge will be what kind if investment is involved to replace them?  In telecommunications the one guaranteed thing is every year will require billions of investment in the network.

In my final view I believe Google is doing the right thing.  Trying to create a smaller nimbler environment so that they can continue to innovate and take big risks.  The GE idea has proven to not work at a high level, operationally it has possibilities, but in tech you have to be bold as you move towards the future.  Google I think will try to balance the middle and appease the Wall Street dweebs, while continually investing in crazy ideas that could yield the next big industry shift.  In technology if  you view your business by where it is today it will not be long before you belong to yesterday. Googles move to Alphabet is an opportunity to invest in the businesses of tomorrow, it could fail miserably, however if they stay where they are today their failure will be all but guaranteed.  In technology nothing lives forever as the landscape is ever evolving.  You have to make bets on what you see the future to be like in five or ten years, it is the only way to ensure survival.

 

Good Night and Good Luck

Hans Henrik Hoffmann August 14, 2015

Advertisements
Categories Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s