Google’s startling announcement Monday that it will change its name to Alphabet initially seemed more plot turn from the HBO comedy series “Silicon Valley” than real life. Having finally convinced us that a company with a silly name can be worth more than $400-billion, Hooli up and decides it wants an equally meaningless moniker.
Google’s co-founders are dead serious, of course. With a wave of their collective hand, and a securities filing for proof, Larry Page and Sergey Brin converted their lucrative grad-school invention into a holding company. Google lives as the company’s legacy business, which includes search, advertising, YouTube, and Android. Its boss will be the earnest Sundar Pichai, whom I interviewed in late May as he showed a knack for balancing Google’s ability to aim high without quickly asking for the sale. Alphabet will house the company’s goofier experiments, including its self-driving car, Google X, and health-related investigations as well as more offbeat creations like Nest and two investment arms. Alphabet, which includes Google itself in its stable of businesses, will be run by the co-founders plus executive chairman and former CEO Eric Schmidt.
The most obvious reason for the shift is clarity. When Google later this year starts reporting two financial segments—core and non-core—investors will have a better sense of the amazing strength of the former and the profligate spending of the latter. (Fortune’s Erin Griffith astutely pointed out Monday that for all its “moonshots,” Google fundamentally remains an advertising company.) Should the future Alphabet decide it wants to ditch, separate, or create new capital structures for any of its non-core businesses, the new division will facilitate matters.
Three other factors likely are at play.
First, Larry Page gets to return to the role he enjoyed while Schmidt helmed Google, that of controlling genius watching over his (extremely well compensated) adult supervisor. Who can blame Page for wanting to throttle back on responsibility and devote himself to dreaming, something at which he appears to excel? This time, though, there’s a difference. Page now is the adult overseeing his fellow adults, including Pichai. In an essay explaining the move, Page adroitly has cast himself in the role of asset allocator. Many tip their hat to Warren Buffett as the model here, but allocating assets is the job of every CEO. (Brin never stepped up to a demanding executive role at Google; his status is effectively unchanged.)
Second, Page sets in motion a positive domino effect of talent moves by promoting Pichai, a capable and potentially woo-able executive. Early business-minded employee Omid Kordestani, who had retired rich years ago, ends his short-lived return by becoming an Alphabet and Google advisor. Page also has sent a powerful internal message that only technical executives need ever dream of running Google. But with the elevation of the top product executive and the removal of the top business executive all sorts of strivers now have an opportunity to ascend, strivers not being in short supply at Google.
Perhaps the biggest winner here is one of Google newest executives, Ruth Porat, who remains chief financial officer at Google and takes on the same role at Alphabet. (Page, Brin, Schmidt, and corporate development chief David Drummond will toil only for Alphabet.) Newly arrived from Wall Street, Porat would have been in the best position to explain to Google’s long-serving executive team how badly investors want transparency from its sometimes frustrating golden child. Porat may well need to play “bad cop” in the future regarding Alphabet’s investments, yet already she has played “good cop” to the financial industry, where she spent the bulk of her career.
Here’s hoping you do something nearly as remarkable today as Google did yesterday.
• China devalues yuan
China’s central bank devalued its currency, causing its biggest one-day loss in two decades, a move that is a signal the government is worrying about slow growth. A weaker currency could help flagging exports at a time when many other efforts to boost the economy haven’t worked. WSJ reports the devaluation was the most significant adjustment to the yuan since 1994. WSJ (subscription required)
• Twitter insiders show faith
CEO Jack Dorsey and other insiders are buying more shares in the social media company to show confidence in the stock, which traded at a record low last week. A recent quarterly report showed user growth increased at the slowest pace since the company went public in 2013, the latest indication that Twitter is having trouble attracting people to the company’s platform. “Investing in @twitter’s future” Dorsey tweeted, after disclosing he bought $875,000 in shares. Reuters
• Kraft, Heinz sales fall before merger
In the last quarter before Kraft Foods merged with Heinz, sales declined at both companies, the latest sign that “Big Food” firms are struggling to connect with shoppers that want foods they deem healthier or smaller brands with “clean” ingredients. A strong dollar hurt sales at Heinz, while weak demand for beverages and fewer promotions dented Kraft’s sales. The Kraft-Heinz merger was completed in early July, creating the third-largest North American food company. Reuters
• Shake Shack shares sizzle
The fast-casual burger chain reported a 75% jump in quarterly sales that exceeded Wall Street’s expectations, as results were boosted by strong sales at existing Shack locations, new restaurant openings, and higher volume on average. Impressively, domestic company-operated Shacks were generating average weekly sales of $102,000, up from $95,000 for the same quarter last year. Higher prices and new menu items helped bolster those sales. Fortune
• Greece reaches bailout deal
Around the Water Cooler
• The problem with ‘Uber for X’
Fortune’s Erin Griffith deftly writes the following line in her story about the lack of profitability at Uber: “It’s easy to forget, as private company valuations shoot to dizzying heights, that venture capital is designed for high risks and high rewards.” In the story, Griffith notes recent media reports that highlight leaked documents that show Uber remains deeply unprofitable. Uber calls this “old news,” but it is still important to consider. Especially because Uber is often compared to Facebook’s run as a private company – and back then, Facebook was already generating healthy profits. Fortune
• Why Adobe didn’t match Netflix
Adobe Systems generated headlines by becoming the latest tech giant to sweeten its parental leave policy. But the company’s new policy didn’t match Netflix’s new offer to give new moms and dads unlimited time off in the year following the birth or adoption of a child. Adobe said that was a purposeful decision, saying when companies don’t provide a framework for leave, employees tend to look toward the average to determine how much time to take. Fortune
• Viacom loses billions on buybacks
Viacom has spent $15.2 billion buying back shares over the past five years, at an average price of $60.02 each, Bloomberg reports. The stock closed at around $47 on Monday – meaning the company has lost $3.4 billion investing in itself. Bloomberg argues those funds would have been spent better elsewhere, on new programing or technologies perhaps, to help the media company compete at a time when there is a lot of change in the market as more consumers cut their cable packages. The buyback dud is the latest woe for CEO Philippe Dauman. Bloomberg
• NFL teams train in virtual reality
A handful of NFL teams are using 360-degree virtual reality from a startup to help players and coaches analyze plays on the field. The startup, StriVR, uses high definition video to capture each position on the football field and every play on both offense and defense for each team it works with. Players on both the college and NFL levels are touting the benefits of VR, which some believe can help improve mental timing and performance without risking injury. Fortune