From Google to Alphabet, what does the change mean?

Tech giant Google is restructuring. A newly created holding company called Alphabet will now be the umbrella for its core business of Internet searching -- still called Google -- as well as other divisions like home automation and X Labs. Gwen Ifill discusses the changes with David Yoffie of Harvard Business School.

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    Now big changes at a global tech business icon. Google announced late yesterday it is restructuring.

    The core Internet search business, with which it is most closely identified, now becomes the largest subsidiary of a newly created holding company named Alphabet. Other enterprises under the Google umbrella, like the home automation division Nest, become part of Alphabet.

    Google co-founders Larry Page and Sergey Brin will oversee the new conglomerate, and current vice president Sundar Pichai will become Google's new CEO.

    But what difference will that make for consumers?

    By way of background and explanation, we turn to David Yoffie, a professor of business administration at the Harvard Business School who writes about the technology industry.

    So, Professor Yoffie, why the reorganization? What's the purpose of this?

  • DAVID YOFFIE, Harvard Business School:

    I think that Larry had a couple ideas in mind.

    Probably, first and foremost, he wanted to streamline the company, potentially make it much more entrepreneurial, and give people in the very small businesses an opportunity to be their own CEOs, so that they could run the company in a more entrepreneurial way.

    They also wanted to make the business respond faster to the market, streamline the bureaucracy at the top of the organization. And I think he also was hoping that it would be a great way to retain some of the really good people who otherwise might be looking for other opportunities in Silicon Valley.


    What are these other non-search businesses? I think you call them moon shot enterprises.



    Yes. Well, I don't call them that. That's what Larry calls them.

    And they are things like Google X, which is robots and self-driving cars, Calico, which is looking at how do you expand life expectancy, Nest, which you already mentioned, as well as Dropcam, which is an Internet-based video that you can put in your home or in a business.

    There are also businesses like Google Capital and Google Ventures, which are traditional venture capital-like firms or late-stage venture firms that are looking at long-term investments in technology trends.


    Tell us about Sundar Pichai. What does he have to do about this, and what difference does it make that he's taking over? Any?


    I think, in that case, Sundar is known to be a great manager, a great personality, extremely well-liked inside the company.

    And he's largely going to continue doing exactly what he was doing before, except he goes from being a senior vice president to a CEO, at least in the context of the Google umbrella, which is now going to be called the Alphabet umbrella.


    How does Google, or Alphabet, but in general the company, make its money? It makes a lot of money, but is it really from all of these other enterprises, or is it from what we know, what we recognize?


    Well, there are two answers to the question. One is, we don't actually know. Google doesn't tell us. They keep all of the information about their segment reporting, what each individual business makes, a secret.

    But we know that they make about 90 percent of their profits from advertising, which is the business where Sundar is going to be the CEO.


    OK. So when you get your Google screen up for your search with your Google doodle or whatever else you find there, what difference will it make for the average consumer that the company is structuring itself differently now?


    For the average consumer, they're going to see any difference whatsoever. The Google Web site will be the Google Web site. The Chrome browser will be the Chrome browser, and Android on your smartphone will be exactly the same, run by the same people in the same organization.

    So, for a consumer, it shouldn't be meaningful. The real question is, will it be different for investors. Will they get more information? And will it be different for these other businesses, where they will potentially be unlocked and able to move more quickly?


    Well, also, will it be different for this public perception of Google, which has a reputation of being kind of different, a little quirky? And now it seems like it's headed more in the direction of Berkshire Hathaway or a GE.


    And that's the open question. Is Alphabet really trying to become a conglomerate like a Berkshire Hathaway, or is it just a reorganization?

    That part, the verdict is still out. It's very hard to be a conglomerate in the tech world. It's a lot easier at Berkshire Hathaway, where you're dealing with companies like Fruit of the Loom and NetJets or insurance.

    But in a company such as Alphabet or Google, you're dealing with very high-tech, very capital-intensive, in some cases, certainly R&D-intensive businesses, where innovation is the key, and not simply running the business for cash flow.


    And, finally, does this protect Google in any way from the challenges to its primacy, especially in Europe? Regulatory challenges, by reorganizing itself, does it become less vulnerable?


    No, I don't think so.

    Google's core business, what's going to still be called Google, Inc., is the primary business where they're being challenged by antitrust authorities in Europe. And that will be equally vulnerable under this structure as well as the old structure. So Google still has to deal with potential antitrust issues, whether they're trying to put other competitors in their business out of business, and this structure really doesn't help them at all.


    Professor David Yoffie of the Harvard Business School, thanks for helping us out.


    Thank you.

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