Chip Shots by Chip Griffin

The meaning of Google’s Alphabet play

With news late yesterday that Google would create a parent company for itself, financial and tech pundits started churning their gears to figure out what it all means.

Was the establishment of Alphabet merely a way to retain the services of rising star Sundar Pichai who snagged the title of CEO for the new Google subsidiary? Or was it really an attempt to provide greater “transparency” to the public markets on Google/Alphabet’s inner workings in an attempt to glean a higher stock price?

Those seem to be the most discussed motives, but could there be something else? Perhaps Google has plans for a major acquisition and wants to establish more of a holding company structure. With some of their current projects far afield of the original search and advertising concept, Alphabet might be looking to be more like Berkshire Hathaway, with greater flexibility to take on diverse lines of business.

Or is Google/Alphabet looking to spin off a business into a standalone unit. Some of their newer projects might attract greater investment if they were standing alone than as part of the broader business.

But perhaps it’s none of these things. It’s possible that Google is merely following in the footsteps of old school companies like General Electric that have a wide array of businesses under a single large umbrella. Maybe it’s just a function of their size.

Could it be that the Internet sector is now maturing enough that its largest players are now destined to transform into conglomerates instead of narrowly-focused enterprises? It could be that this is a turning point for the sector.

Will others now look to adopt a similar model? Yahoo has largely survived in recent years because of its investment in China’s Alibaba, but what if they chose to take on a more Berkshire-like structure. Would that give them greater success than simply trying to reengineer their content to attract more advertising?

Facebook, too, has begun to venture further afield. They may well look at this reorganization and decide to emulate it for themselves.

Certainly, Microsoft should probably have been considering such a structure for years now, with their highly diverse business lines developed both internally and via acquisition.

None of us knows the answer now as to why precisely Google did what it did — or what it really means for them or the tech sector — but it will be interesting to watch.

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