Google's New Parent Company and What It Means for Calico, and Healthcare

This article was originally published here
August 11, 2015
By Mark Terry, Breaking News Staff

In a blog announcement yesterday titled “G is for Google,” Larry Page, chief executive officer of Google let the world know that Google is restructuring, creating a holding company called Alphabet, which Page will run as chief executive officer and Sergey Brin will act as president.

Page wrote, “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.”

Interestingly, many of those “far afield” companies are in the life sciences, including Calico, Life Sciences, Google Ventures, and Google X. Life Sciences is working on a sort of “smart contact lens.” Calico is focused on increasing human longevity. Google X laboratory is working on driverless cars, Google Glass and drone delivery systems.

Nest, one of the Google companies that makes Internet-connected devices, will be separated under Alphabet. In addition, so will Fiber, a high-speed Internet company, in addition to Google Ventures and Google Capital and Google X.

Writing for Forbes, Dan Diamond notes that although Google has plenty of ambition in the life sciences and health care arenas, so far “None of those inventions are ready for prime time. They’re probably not even ready for naptime, if Google executives are being honest.”

But it’s possible that by shifting these companies under a holding company, it might help to push for faster product development, as well as to apply pressure to the companies to mind their bottom lines.

Sunder Pichae, Google’s former senior vice president of products, will step up as chief executive officer of Google. Google will be under the Alphabet umbrella, but will continue to hold its Search, Maps, Android, YouTube and ad businesses.

“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” wrote Page. “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.”

They will be responsible for anointing chief executives, determining compensation and set in place a different reporting system so Google financials can be split off from the rest of the Alphabet businesses.

Alphabet Inc. will replace Google on the stock market, although Page indicated that “all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights.” It will continue to trade on the Nasdaq as GOOGL and GOOG.

Part of the rationale behind the change is that although Google will still be funneling money to the other companies, being stand-alone companies will allow them to take more risks without worrying investors that Google is wasting time and energy.

As Conor Dougherty writes in The New York Times, “Over the last few years, investors have expressed concern that Google has become distracted from its core web search, instead pursuing projects fancied by its owners, like self-driving cars or a pill to detect cancer.”

It also will provide much-needed transparency to investors and analysts, such as details about YouTube advertising and viewing data. Colin Gillis, an analyst at BGC Financial, said to The New York Times, “How much money are they wasting or investing outside their core? We’ll get to see how much of that is overhead.”

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