SAN FRANCISCO -- Larry Page is leaving his position as Google CEO to head "Alphabet," an umbrella company that will house the search giant and its various unrelated businesses, each with its own chief executive. The major company restructuring is designed to allow each business to become more focused and run more efficiently. The announcement has shot shares of Google up more than 5 percent in after-hours trading.
Under the reshuffling, Google will become a subsidiary of Alphabet and house the company's advertising businesses, such as search, YouTube and Android. The company will be led by Sundar Pichai as CEO. Pichai has been groomed for the job, first by running the company's Chrome division before being appointed as head of Android in early 2013 and eventually becoming product chief last October.
Google co-founders Page and Sergey Brin will head Alphabet as CEO and president, respectively. Alphabet essentially will serve as an umbrella conglomerate for Google's many efforts. The new company will house Google's X Lab of moon shot projects, such as the Wing drone delivery effort, as well as the Google Ventures and Google Capital investment divisions. Additionally, Alphabet will oversee Nest, which sells smart home products; Fiber, which provides broadband and TV service to numerous cities around the U.S.; and Calico, a wing of Google that is focused on extending people's lives.
Page said the goal is for each of Google's separate companies to have "a strong CEO who runs each business, with Sergey and me in service to them as needed." The Wall Street Journal reported Page is known to compare the way he runs Google to Berkshire Hathaway, the conglomerate run by famed investor Warren Buffett. With the announcement Monday, it's clear Page means that comparison quite literally.
"Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related," Page said in a note Monday. "Alphabet is about businesses prospering through strong leaders and independence."
Some analysts, however, question whether a conglomorate-type structuring will actually help Google. "For one thing, Berkshire Hathaway's businesses are essentially all profitable today, whereas the whole point of Google's restructuring is that the core Google business is, but the rest really isn't," said Jan Dawson, chief analyst at Jackdaw Research who has previously analyzed the Google-Berkshire Hathaway comparison. "That's a very different model, and means that although Alphabet might give the CEOs of the various subsidiaries lots of operating independence, they can't be anywhere near financially independent."
By restructuring, Google is giving investors a better way to track how its various businesses are doing, rather than try to analyze them all as one company, said Johnny Won, founder of Hyperstop, a consultancy firm. “The ambition of Google amongst self-driving cars, exploring space, autonomous drones, amongst other things made for an awkward collection of business lines and now Alphabet makes things easier to understand,” Won said.
Google will begin reporting its financials as Alphabet starting in the fourth quarter of the 2015 fiscal year. Google's figures will be provided separately from the rest of Alphabet, the company said. Google investors will see all of their shares convert to an equal number of shares for Alphabet. The company's two classes of shares, however, will continue to trade on Nasdaq as GOOG and GOOGL.