The inside story of why Google is becoming Alphabet now

The announcement of Google’s new holding company, Alphabet, initially led to near-universal bafflement among the tech cognoscenti: why would Google, an industry leader, create such upheaval?

The most immediate benefit may simply be that CEO Larry Page, who is stepping away from day-to-day management, can spend more time playing with Legos.

Even in the early days of Google, cofounders Page and Sergey Brin would let their minds wander to other seemingly impossible projects beyond the already ambitious task of building a search engine to change how millions use the Internet.

“Larry and Sergey were using Legos to try to figure out how to automate the turning of book pages in the first months of Google. For the life of me, I couldn’t imagine why,” Heather Cairns, one of Google’s first 10 employees who led human resources in the beginning, recalled in an interview this week with Mashable. It turned out their goal was to scan the world’s books. “Building a space tether to propel people into space inexpensively was also an ambition.”

“They are inventors first and entrepreneurs by default,” Cairns adds.

Nearly 17 years after founding Google, Page and Brin remain as ambitious as ever, if not more so. Yet, the day-to-day management demands of running Google, essentially an elaborate $400 billion advertising business, increasingly weighed on Page in particular.

To fix that problem, Page announced on Monday the creation of Alphabet, with Google as one of its subsidiaries, along with Nest for smart home products, Calico for life extension research, Google X for the company’s mysterious moonshot ideas and two venture capital arms. Buried in that announcement: Page has abdicated the role of Google CEO to deputy Sundar Pichai and will instead serve in the more amorphous role of Alphabet CEO.

The high-profile structural change may offer many benefits to Google: more C-suite opportunities and autonomy to prevent promising executives from leaving; an improved organization for acquiring multi-billion dollar businesses; more transparency for Wall Street about Google’s many varied investments.

And for Larry, a chance to turn the page.

 

Screen Shot 2015-08-11 at 4.41.34 PM

 

Larry Page, Google cofounder and new CEO of Alphabet

 

Larry Page’s shift away from being ‘Google CEO’

Ever since Page returned to the CEO role at Google in 2011, he has been debating possible changes to the organizational structure that would allow him to maintain broad control of the business he created while nonetheless giving him more freedom to pursue new ventures.

“He talked about a million things he wanted to do, but he spent 100% of his time managing and trying to get his executives to work together,” says one former Google executive, who like many former employees we interviewed spoke on condition of anonymity. What Page wanted, this executive says, was a structure that would better allow Google to “scale” its various investments and free Page up from management duties, never his strong suit.

Reps for Google did not immediately respond to our request for comment.

SEE ALSO: Google buried an awesome Easter egg deep in its Alphabet announcement

During these past four years, Page gradually inched Google in that direction. Google created or acquired more distinct divisions based on objectives like Calico, Nest and Google Capital. In 2013, Page began speaking more publiclyabout Google’s future beyond search while at the same time stepping back from earnings calls with analysts.

Last year, Page really began extricating himself from the CEO role by handing more product and management responsibilities to Pichai, who one former colleague describes as “the better day-to-day CEO.”

“Larry was always more excited about big vision projects than the day-to-day grind of running the company,” says Bruno Bowden, who helped build Google Earth. “This structure makes those projects and his role far more visible. Wall Street will only care about Google proper and how Sundar is doing. For Larry, this gives him the chance to focus on a broader mandate as he always wanted.”

‘Y’ is for why now?

The decision to move ahead with a broad corporate restructuring comes at a time when Google’s portfolio of properties is broad and getting broader.

In recent weeks, rumors have come out that Google is interested in buying everything from vegan burger company Impossible Foods (for hundreds of millions of dollars) to Twitter (likely for tens of billions of dollars). It is investing in drone deliveries and an express shopping service, experimenting yet again with Google Glass and, oh yeah, it owns a company that makes tiny satellites.

Not only does the structure of Alphabet offer more appealing slots for these big new ventures to grow and potentially be spun off one day, the name change might also help protect Google proper, which is by far Alphabet’s biggest money maker. As one former exec put it to us, “How can you take big swings when everything may hurt the Google brand?”

Google, like many established technology companies, is also competing against the growing number of billion-dollar startups, or Unicorns, to hire and hold on to its top talent. The option to have more C-suite jobs across the company may help.

“A lot of people that had been there a long time, like Sundar [Pichai], have aspirations of running a business at some point so they might have jump ship to do that elsewhere,” says Sean Dempsey, who handled acquisitions and investments at Google until late 2007. Google is known for its lavish perks, but as Dempsey says, “I think they know they had to do something a little more dramatic.”

On top of all that, Google has a not-so-secret weapon: Ruth Porat.

Porat, Google’s new chief financial officer, has helped the company finally make amends with Wall Street after a long, rocky relationship over its lack of spending discipline. It’s telling that, unlike Page, Porat will hold onto her executive title at both Google and Alphabet.

“You have a new CFO who investors want to see as being shareholder friendly,” says Brian Wieser, an analyst with Pivotal Research. “There is willful optimism in this regard, independent of what evidence may or may not exist to support that.”

Sure enough, the stock for Google (er, Alphabet) jumped by more than 4% on Tuesday following the restructuring news. Not that Page or Brin are likely paying too much attention to the stock. They have bigger things on their minds.

Meet Me At Andreas by Jermaine Dupri

 

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