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Google Radically Restructures, But Why?


Sundar Pichai, senior vice president of Android, Chrome and Apps, waves after speaking during the Google I/O 2015 keynote presentation in San Francisco, May 28, 2015.

Sundar Pichai, senior vice president of Android, Chrome and Apps, waves after speaking during the Google I/O 2015 keynote presentation in San Francisco, May 28, 2015.

The question on the Wall Street is why? What was the real reason behind the shake-up at Google.

Google, Inc., announced a radical restructuring of the company in which it will become a subsidiary of a new entity called Alphabet. At the same time a new CEO, Sundar Pichai, will be in charge of the traditional Google entities.

The theory making the rounds among insiders is as follows: Twitter is looking for a new CEO. Speculation is that Twitter made an offer to Pichai, who has headed up Google’s core businesses since last October. Insiders are saying that in order to keep Pichai, Google decided to go ahead with a major organizational change that it has been considering for some time, giving Pichai the CEO title. The word is that in order to keep Pichai, Google countered with the title and a huge package.

Rhonda Schaffler, Editor at Large and Anchor at thestreet.com told VOA that the speculation about the Pichai offer could very well be true. She added, that the promotion is clearly an effort by Google to keep good executives. And, according to Schaffler, "if you are in the very competitive tech world today, you need all the best executives around you.”

The new umbrella holding company, Alphabet, will be run by Google’s current leaders, including CEO Larry Page and his team of co-founder Sergey Brin and CFO Ruth Porat. Alphabet will now consist of two parts, the Google core business , which includes Search, Ads, You Tube, Android and Chrome. All fall under Pichai.

The other part of Alphabet will be the potentially big new business industries far from Google’s search engine roots. That includes Google X (self-driving cars, delivery drones, internet balloons), Nest (smart thermostats), Google Fiber (a broadband service), Calico (longevity research), Life Sciences (contact lenses) and Google Ventures, or new startup investments.

Schaffler said there are two obvious reasons why the change was made, other than keeping top executives. “First of all,” she said, “Google is an innovative company and wants to stay innovative. By creating Alphabet this gives Google leverage to keep a lot of its creative components going and to nurture those, almost like a start-up.” The Street.Com editor added, “It also satisfies some concerns on Wall Street about ‘hey, what is Google spending to create self-driving cars and going into all these things that are a bit off the normal trend for Google.” She says in a way, both problems were fixed.

The move confirms that Page, Sergey Brin and CFO Porat, believed the company had become more complex to manage as its growth was absorbing new businesses in industries from Google’s search-engine roots.

Insiders, like Schaffler, believe that Page want to structure the company similar to Warren Buffett’s Berkshire Hathaway, with each Alphabet subsidiary having its own CEO, reporting to him. She added, “some analysts have said it now will look a little like Berkshire Hathaway which has got about a hundred companies, a huge conglomerate in all sorts of businesses.”

Schaffler says it’s a little bit different for Alphabet. “These innovative businesses,” she added, “by and large are still technology focused although there is now a healthcare component to Alphabet. But a lot of the Wall Street analysts have made that comparison that it’s like a Berkshire Hathaway conglomerate.” Her feeling is that Berkshire Hathaway has really been an exception to the general rule. “Over the years,” Schaffler said, “we’ve seen conglomerates struggle, sometimes break apart and revenue and earnings growth can slow. So being a conglomerate doesn’t always necessarily translate into higher earnings.

Google declined to discuss the restructuring. Employees are reported uncertain as to which entity they will work for. And the stock rose slightly in trading on Tuesday.

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