Google – the most popular search engine in the world, has recently celebrated its 21st birthday.
It’s the most popular search engine in the world. According to the latest Netmarketshare report, 73% of Internet searches were powered by Google in 2018. It also dominates the mobile and tablet search engine market, with an 81% share.
But have you heard of Alphabet, Google’s holding company?
Although it’s been four years since Google restructured and created Alphabet, many still find the company’s structure rather confusing. And what’s more, even now when we say “Alphabet”, commercially speaking we still really mean…well, Google.
So what do we need to know? Let’s start from the beginning…
Google began as an online search firm back in 1998, and as Larry Page, one of the company’s co-creators remembers: “When we began the searches, they all told us: boys, it’s going to fail, there are already 5 search engines. We replied: we’re a search engine company, but we’re doing something different”.
Step by step, the two founders of Google – Larry Page and Sergey Brin – made the “seemingly” impossible happen, developing the business and continuously securing significant investments so that, keeping pace with the growth of the Internet itself, the company grew at a rapid rate, leaving many of its competitors in its wake. Fast-forward to 2019 and Google is considered one of the “Big Four” global companies alongside Amazon, Apple and Facebook, with a total revenue in 2018 exceeding $136 billion.
Although it started as an online search firm, today Google offers more than 50 Internet services and products, including e-mail, online document creation, software for mobile phones and tablet computers, and many more.
Early on in the company’s development, investors noted that Larry Page and Sergey Brin needed an experienced manager to run the organisation, which led to the appointment of Eric Schmidt as CEO in 2001. He replaced Larry Page who had held the position until this time.
It was during this period and under Schmidt’s leadership that Google underwent its first period of major growth and expansion. Page and Brin remained highly involved however, and in 2011 Larry Page once again took the helm as CEO of Google, whilst Schmidt stepped down and became Executive Chairman.
Page continued to successfully drive growth and expansion in his resumed position as CEO, until in 2015, something unexpected happened: Google announced plans to create a new public holding company, named Alphabet Inc. Larry Page would be taking the role of CEO of Alphabet, with Sundar Pichai stepping into the role of CEO for the newly restructured subsidiary – Google.
Page made the announcement in a blog post on the company’s official blog, causing surprise around the world: there was no warning about this upcoming move, nor had there been any rumours circulating. As a result, many began to question if perhaps something was wrong with Google, but Larry Page immediately put paid to these doubts by explaining the move: “Our company is operating well today, but we think we can make it cleaner and more accountable. So we are creating a new company, called Alphabet.”
The new CEO of Alphabet Inc. also noted that the new entity would help them take a long-term view and improve the transparency and oversight of their actions: “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. Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.”
Page also explained the meaning behind the new name. He explained that it represents “A collection of letters that represent language, one of humanity’s most important innovations, and is the core of how we index with Google search.”
All executives retained their positions in the company, simply replacing the name Google with Alphabet: Larry Page became CEO of Alphabet, Sergey Brin its president, and Eric Schmidt its Executive Chairman.
Alphabet’s owners – Larry Page and Sergey Brin – are also the company’s largest shareholders. They both own 20 million shares of Class B stock, as well as 20 million shares of Class C stock. What’s more, their net worth is estimated at more than $50 billion apiece.
Eric Schmidt, from his tenures as CEO and Executive Chairman from 2001 to 2017, holds 8 million shares of the stock. There are also a few institutional investors, such as Vanguard, Fidelity Management, and the BlackRock Fund.
Interestingly, just six months after the announcement, Alphabet’s market cap has recorded an impressive rise by $200 billion, almost doubling its total revenue. Keeping in mind that at that time Alphabet’s products had remained the same as they had always been, it came as quite a surprise. Alphabet is divided into two main parts: Google and “Other Bets”.
To put it simply, Google still represents the vast majority of Alphabet’s revenues, and is responsible for search, advertising, maps, apps, YouTube and Android, while the “Other Bets” are effectively smaller, individual companies, each with their own CEO and leadership.
These companies include Calico (life-extension biotech research), Nest (maker of various smart home products), Google Fiber (a high-speed Internet service), Google X (responsible for self-driving cars, delivery drones and other similar projects), GV (a venture capital firm that invests in startups), CapitalG (investor in startups that are slightly further along – you’ve probably heard of Snapchat, Airbnb and Glassdoor), Verily Life Sciences (a medical research brand) and Boston Dynamics (a robotics company).
Basically, this means that all of Alphabet’s traditional products – think Chrome, the Pixel phone, Google Home and Google Play – are still housed under Google, which is run in its own right by CEO Sundar Pichai. However Google is also the one who pays the bills at Alphabet.
Larry Page noted that “We are not intending for this to be a big consumer brand with related products.The whole point is that Alphabet companies would have independence and develop their brands.”
In other words, Alphabet can be seen as an umbrella company for all of Google’s subsidiaries, and its main goal is to oversee the individual companies and manage the distribution of funds, making things easier.Alphabet’s code of conduct is somewhat similar to Google’s good-old “don’t be evil” motto, but this one asks its staff to “do the right thing – follow the law, act honourably, and treat each other with respect.”
Creating Alphabet was the biggest change in Google’s history, and although everyone is intrigued as to how well it will work, and what will happen next, it was undoubtedly a great strategic move – allowing the company to try new, innovative projects and bring them to life, whilst reassuring Google’s investors that they aren’t risking significant proportions of Google’s own profits.
Today, Alphabet is the world’s fifth-largest technology company by revenue and one of the world’s most valuable companies. It is also the leading company listed on the US market equity index – the S&P 500.