There’s a lot of punditry about Google’s big reorganization yesterday, but Bloomberg’s Matt Levine makes the most persuasive case that nothing really has changed.
The exact same people are still in charge. The shares work the same way. The company still consists of one real business that’s throwing off cash — advertising, mostly search — a few other businesses that protect that core business (Android, Chrome), and a bunch of science projects that are years away from providing real returns.
It’s weird to speculate that the org change will somehow make Google freer to pursue big acquisitions, or chase moonshots. It was already doing those things! The founders already have such massive voting control over the company that even if investors hated what they were doing, it would be almost impossible to oust them.
I don’t buy it.
Yet, Wall Street is cheering the company’s new transparency.
So what the heck is going on here? What is Google suddenly being transparent about?
- Larry Page is checked out of the day to day. As Business Insider’s Jillian D’Onfro reported yesterday, Page has been bored with the ad business for some time now. That’s why he appointed Sundar Pichai to lead Google’s core products last October. Now, he’s formalising that role, and that means he can stop pretending to care and doing things he doesn’t really want to do. As one former exec told D’Onfr yesterday, Page “doesn’t have to come into the office anymore, he doesn’t have to be the tiebreaker anymore, he doesn’t have to show up to events anymore….Those were the worst parts of the job for him, he didn’t enjoy it, and now he’s stepping back.”
- Sergey Brin is Batman. Brin has been in kind of a pseudo-leadership role for the last four years, ever since Page reclaimed the CEO-ship. He was a cofounder, and the world knew he was kind of in charge of Google X, although it was never totally transparent exactly what Google X was doing, but his title was simply “co-founder” and he was nominally in charge of “special projects.” Now, we know what Brin’s doing. He’s the President of Alphabet, which means he’s in charge of all the cool science projects Google is doing outside its core business. OK then.
- The real performance of the core business. Google will break its financial performance into two buckets: Google, and everything else. Investors who were wondering how much money Google’s spending on these science projects might be cheered to discover the answer is “not that much.” This has been a theme in recent Google earnings calls — two quarters ago, when an analyst asked about some of Google’s further-looking projects, CFO Patrick Pichette answered “This is a disciplined organisation…We look at the facts. If something isn’t working we can tell.”
- When the new businesses actually become real. One of the weirdest things about yesterday’s announcement was Larry Page’s claim that the company chose “Alphabet” for its new name partly out of regard for investors: “We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!” This seems like a bit of a troll from a company that’s never seemed to care about Wall Street all that much — witness the unusual triple-class share structure (which makes sure the founders retain voting control as they sell shares) and the then-almost-unprecedented Dutch auction IPO. But the subtext here is that Google isn’t a bunch of flakes pursuing science projects — the company truly expects things like self-driving cars and immortality research to become massive profitable businesses some day.
The change will probably turn out to be more complicated than it’s being portrayed right now. There will be more acquisitions, which Google may fold into the new business. There will probably be spinoffs. The EU’s antitrust case — something nobody seems to be mentioning this morning — could get more complicated (if the EU orders Google to split into two companies, voila, it’s already partway there).
But for now, not much has changed. Google simply formalized stuff that had been going on for a long time.