Tech ·Google

Google will become part of a collection of companies called Alphabet

BYStacey Higginbotham
August 10, 2015, 9:14 PM UTC

Larry Page just dropped a bomb on the tech community, saying that Google will now be part of a collection of companies called Alphabet, which Page and Sergey Brin will run. (Fortune did once call him the most ambitious CEO in the universe)

Meanwhile, Sundar Pichai, the former Google senior vice president of product, will step up to become the CEO of Google, which will be the largest company in Alphabet. Google will retain search, ads, Google Maps, apps, YouTube, Android and cloud infrastructure, according to the SEC filing. The rest of Alphabet will be made up of other Google units not related to its massive search business. Those include Calico, Google’s health and longevity effort; Nest its connected home business; Fiber, its gigabit internet arm; and its investment divisions such as Google Ventures and Google Capital, and incubator projects, such as Google X. These will be managed separately in Alphabet. From the blog post reporting the structural shift:

“What is Alphabet? Alphabet is mostly a collection of companies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related. Alphabet is about businesses prospering through strong leaders and independence. In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed. We will rigorously handle capital allocation and work to make sure each business is executing well. We’ll also make sure we have a great CEO for each business, and we’ll determine their compensation. In addition, with this new structure we plan to implement segment reporting for our Q4 results, where Google financials will be provided separately than those for the rest of Alphabet businesses as a whole.”

In many ways this insulates Google from the risks and craziness of the moonshots that Google take on a regular basis, while also putting someone (Pichai) accepted by the tech community and Wall Street in charge of the main line of Google’s business. However it’s unclear exactly how all of this works out in practice, since Google’s phenomenally successful ad revenue pays for its R&D into things like its efforts to build self-driving cars or gigabit fiber internet access for the U.S.

Alphabet Inc. will replace Google Inc. as the publicly-traded entity, and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. Google will become a wholly-owned subsidiary of Alphabet, though the two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG.

Want more coverage? See some of Fortune’s other Alphabet stories:

• Bad news for Google parent Alphabet: The “G” will still foot the bill
• Here’s what Twitter thinks about Google becoming Alphabet
• Google shares jump 5% on bombshell CEO and restructuring news
• Google is now Alphabet, but it doesn’t own the dotcom URL

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