Recently Google announced a major restructuring. A new holding company called Alphabet Inc. will include not only its major advertising businesses (Google Search, YouTube, Android and Chrome) to be called Google but also each of the individual development projects such as robots, self-driving cars, internet connectivity via balloons, and a variety of others.
What will be called Google is generating $66 billion of annual revenue and represents 89% of Google’s total revenue. The remaining 11% represents sales of apps, music, and movies through the Play Store on Android phones. Each of the Alphabet subsidiaries would have their own CEO and that individual would be responsible for the overall success of what they are managing.
There are two significant implications for Google here:
1.) Google = Advertising – This move makes it clear to investors that Google is an advertising business. While many people characterize Google as a high-tech company, it will now be very clear that the core business here is advertising. No doubt some very sophisticated technology is the under-pinning of the search algorithms but that exists in order to generate advertising.
2.) The Science Fair is Over – In the past many members of the press have characterized Google’s work in robots, Google glass, etc. as simply science projects that were a fascination of their leaders. Now the pressure will be on to make those efforts into viable businesses which, given the new Alphabet structure, could easily be spun off into stand-alone businesses.
I applaud Google for these changes. It demonstrates the company is maturing and I think there are two very important age-old principles that they are saluting here:
1.) Focus – Forming Alphabet and making the individual businesses that report to it very independent makes it clear what bets Google is making. That’s a smart thing not only for employees who are working in these units but also for investors so they know where the company may be heading.
2.) Accountability – There is simply no substitute for naming a leader of a business unit and holding that individual responsible for its success.
Hats off to Google for taking these positive steps; and for reminding all of us of these two very important principles.