On Monday, Google, at sixteen years old, announced, like many a restless teen-ager before it, that it was changing its name. Late in the afternoon, a new Web page materialized at the memorable, if unsightly, U.R.L. abc.xyz. In red lettering in the top left-hand and bottom right-hand corners was the word “Alphabet.” Images of children’s letter blocks decorated the page. In the center was a message from Larry Page, Google’s C.E.O. and co-founder, announcing the creation of a new corporation, which was called Alphabet. Page and Sergey Brin, the co-founder of Google, are the C.E.O. and President, respectively, of Alphabet; Sundar Pichai, the highly respected former product chief of Google, becomes the C.E.O. of the Google business. And from now on, Google’s financial results will be broken out separately from Alphabet and its component companies.
Google, Page wrote, has done “a lot of things that seemed crazy at the time.” The assertion might have been a preëmptive response to those who might ridicule the name change. (Sure enough, critics soon began spouting off on social media). It was certainly an attempt to remind readers that Google, a standard-bearer of the Silicon Valley establishment, has attempted, since its earliest moments, to pursue unconventional projects far afield from its search-engine roots. Under the direction of Page and Brin, the corporation once known as Google now employs people who work on self-driving cars, drones, Internet-connected glasses, glucose-sensing contact lenses, and, that most ambitious of Silicon Valley projects, the extension of human life itself.
“We’ve long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes,” Page wrote. “But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant.” The point is true and well established in tech circles: it doesn’t take long for an Internet platform or consumer device to seem dated. Facebook wasn’t even a decade old when Mark Zuckerberg, its founder, got anxious about competition from scrappier upstarts and created Facebook Creative Labs, a startup incubator within Facebook’s headquarters; by then, Google had already established a similar group, Google X. People like Zuckerberg, Page, and Brin haven’t only been worried about losing customers, they’re also anxious about retaining talent. Silicon Valley programmers have been leaving established companies to join smaller, newer, faster-growing firms, while some prospective employees have been rejecting the big corporations’ job offers entirely.
Groups like Google X and Facebook Creative Labs have served partly as an attempt to address this problem, but so far, they haven’t looked as attractive to engineers or investors as their creators might have hoped. One of the flagship projects to come out of Google X—the Google Glass headset—has also been one of the company's highest-profile failures. Notably, of the four products that Page includes in a list of Google’s successful experiments—Google Maps, YouTube, Chrome, and Android—three are the result of acquisitions; only Chrome was developed in-house from the start. (At Facebook, too, the most successful products other than Facebook itself are Instagram and Whatsapp, both of which were acquired. And the first creation from Facebook Creative Labs, the news app Paper, hasn’t gotten much traction.)
Google’s substantial R.&D. investments are, theoretically, a good way to find new business lines, but the fact that they haven’t thus far worked out as hoped means that the company still relies heavily on its main business—helping people find things online—to make money. Advertising revenue from Google Web sites makes up almost seventy per cent of the company's total revenue; ads placed on outside sites make up just over twenty per cent. “Other” revenue—a category that includes pretty much everything else—accounts for only ten per cent. Google has leaned on its advertising business for as long as it has made money, but lately, that approach has become more problematic. While Google’s ad business is still growing at a healthy rate, it is also facing strong competition from Facebook and others, and it is maturing in ways that almost guarantee slower growth in the future.
Despite their mixed record with new investments, Page and Brin have been openly, even embarrassingly, enthusiastic about their interest in the company's more outlandish projects. Brin insisted on wearing Google Glass in public long after its uncoolness had been definitively established; Page has been so openly fascinated by artificial intelligence that the Tesla founder Elon Musk—hardly a technophobe himself—told the journalist Ashlee Vance that his biggest fear was that Page, well-intentioned as he might be, could accidentally build “a fleet of artificial-intelligence-enhanced robots capable of destroying mankind.” For Silicon Valley luminaries to be interested in cutting-edge technologies isn’t unusual, but it has given Page and Brin a reputation, including among investors, as being somewhat flighty and distracted.
So now, we have Alphabet, which it seems will mark a different approach. “What is Alphabet?” Page writes. The answer is laudably, if also a bit laughably, straightforward: “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.” He goes on: “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.” He refers to the “strong leaders” who will direct the company’s individual projects, and who will have the freedom to operate independently, but with the tremendous resources of a huge corporation.
The restructuring was perhaps encouraged by Ruth Porat, the company’s new chief financial officer, who was previously the C.F.O. of Morgan Stanley and was hired in part to mollify Google’s institutional investors. They certainly seemed encouraged. Following the announcement, the share price of Alphabet, formerly Google, rose almost six per cent in after-hours trading. It’s possible that investors are as enthused as Page and Brin about the prospects for Alphabet’s non-Google sideline enterprises; it’s also likely that at least some of them are relieved to see Page and Brin’s pet projects separated from Google, so as to avoid letting any future misadventures tarnish people’s perception of the company’s main business.
In one sense, Page and Brin are just formalizing an arrangement that has evidently existed at Google for the past several years—the two of them at the helm of a company largely occupied with seeking out new and strange areas of innovation. The bet, it seems, is that this arrangement will improve the chances that Page and Brin’s unconventional investments will pan out—and that, if they don’t, the rest of the company will be better insulated from its founders’ mistakes. Until then, Sundar Pichai can focus on the boring, plodding business of actually making money.
