Eric Schmidt, executive chairman of Google’s parent company, says that he can’t imagine any reason why Alphabet would ever choose to spin out any of the subsidiaries it created when it blew up its corporate structure last fall.
Alphabet businesses include Google proper, its internet access business (such as Fibre), longevity research division Calico, smart home product maker Nest, its urban innovation division Footpath Labs.
At Bloomberg’s Breakaway Summit on Wednesday, an attendee asked Schmidt when Alphabet would consider breaking off companies, whether to consolidate its own overall mission or because a subsidiary would be better off alone.
Schmidt responded definitively: Not happening.
“The answer is ‘never’ — or, as close to never as you can make never without being occasionally wrong,” he said. “Our architecture allows for expansion — remember, there are 26 letters and then we can move to complex numbers, or Cyrillic letters, things like that. The model is incredibly expandable and the CEOs are highly independent and heavily incentivized to deliver real value and shareholder value and I don’t see any reason to break it up. You never say never, but I think it’s about as unlikely as anything I could imagine.”
Although Alphabet would never see a macro reason to spin out its companies, it’s technically already done it. An augmented reality startup called Niantic Labs become an independent (though partially Google-funded) company last year.
Schmidt’s answer also didn’t explicitely address how Alphabet will treat an independent company that fails. What will the first Alphabet death look like? If not broken off, will a company get swallowed?
Each subsidiary CEO — Schimdt said that they’re each called “characters” — has formal budgets and revenue goals that they have to hit.
“If they don’t do well, they will suffer the consequences….” he said, without outlining what exactly those consequences were.
Schmidt also rejected the notion that siloing its different focus areas would lead to less innovation, arguing that founders Larry Page and Sergey Brin would make sure that Alphabet is still working on the next “moonshots.”
“The company has always been and is still run by our two founders and they are very demanding, so if anything the demands get stronger,” he said. “The scale is bigger.”