Umbrella Google: The birth of a technology empire that will last for generations

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Recently, Google announced that it will adjust its corporate structure by establishing an "umbrella company" called Alphabet to separate its search, YouTube, other network subsidiaries and R&D investment departments.

Alphabet will include Google and a series of subsidiaries. It is a combination of a bunch of companies. Alphabet Inc. will replace Google as a publicly listed company, and all Google shares will be converted into Alphabet shares. The new Google will become a wholly owned subsidiary of Alphabet, and the stock codes will be GOOGL and GOOG respectively.

Although Page had handed over Google's core business to Pichai as early as last year and took charge of the new product department himself, the sudden announcement of the reorganization still surprised the industry. What is Google's plan for the reorganization?

1. Reorganized structure

Google said in a public statement that the new Google will be significantly slimmer than the current Google. In addition to Google, Alphabet also includes other subsidiaries such as Google Ventures, Google Capital, Google Labs Google X and Nest.

That is to say, companies with businesses that are far from the main Internet products will be included in Alphabet, including Calico, a subsidiary that studies how to extend human life, Life Science, a smart health company, Nest, a smart home company, X Lab, Google's core R&D department, and Ventures and Capital, Google's venture capital business...

In fact, before the capital restructuring, Google was already a hodgepodge of companies that were not doing their job properly. After the restructuring, Alphabet became an "umbrella company", similar to Berkshire Hathaway under Warren Buffett.

The so-called "umbrella company" refers to "a group of companies that are established with an investment and investee relationship, have independent legal status, and are interrelated." It is like an open umbrella, with many participating companies underneath.

Before the reorganization, Google was a company with various departments under it. After the reorganization, these various companies have become independent companies, and their relationship with Alphabet is only capital holding, which gives them enough independence. In the future, whether it is split, sold or listed independently, it will be more convenient, management will be more flexible, and there will be more autonomy.

2. Why reorganization?

According to Page himself, he hopes that the reorganization can allow Alphabet (or Google) to regain the "startup-like vitality." He said, "We have always believed that over time, companies will become more conventional, content with the status quo, and only make some additions and adjustments. But in the technology industry, revolutionary and disruptive innovations continue to push the next huge growth area, and you need to make yourself a little restless to continue to stay connected with the industry."

Let's take a look at the reorganized Alphabet. Pichai is responsible for Google's original core, profitable, mature, and public-facing business units, which will form the new Google.

Those non-core business units that are in the early stages of their industry and have new prospects will each become wholly-owned subsidiaries of the Alphabet Group.

In other words, Google separated the profitable and mature part and continued to make money and operate as a normal company. Because this part brings in profits and cash flow, its development potential is not great and only requires standardized management and operation.

As for departments that do not yet have stable profits but are continuously investing, have great potential, and have huge room for future growth, Google turns them into wholly-owned subsidiaries. These subsidiaries have greater freedom and are also more convenient for external financing and internal entrepreneurship.

Simply put, Google wants to separate departments with great potential. Google is already a listed company, and as part of Google, these independent departments are constrained by the company's system on the one hand, and no longer have the opportunity to start a business and go public on the other hand.

After becoming independent, these potential departments have actually become startups with great potential, which is beneficial from the perspective of attracting external capital, retaining core employees, and preventing senior employees from leaving to start their own businesses.

In addition, judging from financial indicators, after the separation, these startups with larger investments will no longer drag down Google's performance when they become independent.

Some time ago, Baidu was also doing something similar, called the Aircraft Carrier Plan, to split off some non-core businesses and raise funds for independent listing, especially some O2O projects that burn a lot of money. Companies that originally had the potential for external financing do not need to be put together to affect the main company's performance and then affect the stock price. This is not Google's main purpose, but a side benefit.

Who will be affected by Google’s reorganization?

Google's reorganization should be viewed from two parts. For the core, profitable, mature, and mass-market business departments, there will be basically no major changes after they are separated. Without the drag of the money-losing departments, the financial report figures will look better.

The independent startups that spun off from Google are a huge threat to similar companies on the market.

Google itself has always had a forward-looking vision. If the departments it has acquired or established with huge investments were to be separated for financing and development independently, it would be difficult for similar companies on the market to compete with them.

With Google's endorsement and technical support, investors will feel more assured. The financing space of other startups in the same field will be squeezed. No matter which field becomes a new blue ocean in the future, Alphabet will be the leader behind it. Maybe one day the search engine will decline and be replaced, and Google will become a traditional company without growth. However, when we see the rise of an emerging company, we find that it is backed by Alphabet, and Page is still the controller of the empire. This is the ultimate purpose of Google's reorganization.

Google is the king of the Internet, and Page hopes to build a technological empire that will be passed down from generation to generation, and he himself will be the eternal king of this empire.