The Renaming — and Reinvention? — of Google

SMITH BRAIN TRUST -- Google set the business world abuzz Monday by announcing a reorganization: Google's founders, Larry Page and Sergey Brin, will now head a new entity called Alphabet, a holding company whose holdings include — Google. Google will have a new CEO, promoted from within, and it will contain much of what we think of as Google, including search, maps, online ads, Android, apps and YouTube. Alphabet, meanwhile, will directly oversee the company's more far-flung endeavors, including Google X, whose mandate is "moonshot" innovation; Calico, focused on longevity; and Nest Labs, the smart-thermostat maker.

Does this "relegate" Internet search to "subsidiary status" at the company, as one report put it? Not really, except in the most literal and technical sense. "What they did is absolutely and totally logical," says Anil K. Gupta, the Michael D. Dingman Chair in Strategy and Entrepreneurship at the University of Maryland's Robert H. Smith School of Business. Search is hardly being demoted at Google — er, at Alphabet.

Of the reorganization, Gupta says: "Other companies have been doing this sort of thing routinely. The only thing unique in Google's case is that it is giving a different name to the parent company."

Microsoft, for example, is a diversified company in the way Google is diversified: It sells an operating system, applications, a gaming console, and computer hardware, among other things. In 2005, Microsoft consolidated seven divisions into three: Product Platforms and Services, the Business Division and an Entertainment and Devices Division. Three years later, it re-organized the platforms division further, separating Windows from Online Services. "Microsoft constantly faces the question: How can you regroup to operate most efficiently?" Gupta says, precisely the question Google is addressing.

Non-tech companies like Proctor & Gamble also routinely group and re-group their product lines, to align them with strategic visions. "If Google had not changed the parent company's name — and just called it, say, 'Google Group,' — the amount of media noise would have been less than 10 percent of what it is," Gupta says.

That's hardly to say the move isn't important. The re-organization should help solve three challenges, Gupta suggests. First, gifted as Page is, it's unreasonable to expect him to be making the final call on products across a portfolio as wide-ranging as Google's had become. Formerly Google's CEO, Page will become CEO of Alphabet. "You can't have two dozen or more business units reporting to one person," Gupta says. "It's not manageable."

Overseeing so much, "the CEO gets caught up too much on the here and now rather than focusing on the big picture," Gupta says. The big picture is what Page and Brin will now attend to. Formerly special-projects chief at Google, Brin will become president of Alphabet.

Second, restructuring allows Sundar Pichai, the new Google CEO, to single-mindedly manage the most intertwined parts of the larger company's business. "You cannot have a separate strategy for search, and a separate strategy for apps, and a separate strategy for YouTube — or, for that matter, for maps and ads," Gupta says. The reorganization therefore passes the test of meshing with a strategic vision.

Finally, it may be liberating for the teams that work on Calico and Google X projects not to have to contend with the bureaucracy surrounding Google's Internet-related businesses.  

Of course, there's no reason that products that emerge from Alphabet can't cross subsidiary lines. For instance, Alphabet appears to be responsible for the next version of Google Glass. When and if that's seen as a viable consumer product, "I would not be surprised if that got rolled into Google," Gupta says.

In sum, the move is a big deal, just maybe not as earth-shattering as you've read.

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