Larry Page, who founded Google along with Sergey Brin, will take the reins from Eric Schmidt, who has been holding that position since 2001.
Now, Schmidt will be the Executive Chairman entrusted with several responsibilities, including improving government relations.
On the other hand, Sergey Brin will focus on strategic projects, mainly working on new products.
But, the market has been overwhelmed by the move as Schmidt was performing extremely well in his current job. During his tenure, Google's annual revenue jumped from $86.43 million in 2001 to $29.32 billion in 2010.
We were surprised by this move. Current CEO Eric Schmidt will become Executive Chairman. This creates some uncertainty that likely lingers for a few quarters. We view this as a minor overhang. Hopefully, new CEO Page will reconsider the company's cash strategy, analyst Clayton Moran of Benchmark Capital wrote in a note to clients.
As this is a new role for Mr. Page, it does represent some risks although there is significant continuity given the ten years he was part of a triumvirate operating Google for the past decade, analyst Marianne Wolk at Susquehanna Financial said
As the market will be concerned in the near-term with the management shuffle, an analyst at Jefferies even hinted at a possibility that Eric Schmidt could become the Chief Executive of Apple Inc. (Nasdaq: AAPL), whose CEO Steve Jobs has gone on an indefinite medical leave and Chief Operating Officer Tim Cook has been taking care of day to day operations.
At first thought, Schmidt moving to Apple would rather seem unlikely, but not impossible either.
While not necessarily likely, we think this scenario is at least a possibility, Jefferies analyst Peter Misek wrote in his note to clients.
Since Larry Page had the most sway in the Google triumvirate and with Apple's market cap among the top three in the world, the CEO position would be likely to appeal to Schmidt. Just having left a shared leadership role, a role as co-CEO with Cook might be less appealing, Misek wrote.
There is already an ongoing battle between Apple and Google in the areas including operating systems, devices and ad platforms.
As Apple and Google are increasingly competitive in the mobile space, it is possible Apple may choose to end its reliance on Google as its default search engine.
Moreover, Apple has already entered Google's forte by launching a competitive mobile ad targeting in-app ads to Apple's users, in a move to leverage on its acquisition of Quattro Wireless.
Though, Apple has about 150 million active iTunes accounts for advertising, it lacks a scalable ad serving platform, and sophisticated ad targeting solution, and lack of a sizable direct ad sales force to reach out to agencies.
Analyst Misek said Apple's future is likely to increasingly overlap with Google in the areas of cloud computing, advertising, and content. Schmidt could help position Apple for that shift.
Moreover, Apple is not new to Schmidt. He has already served as a board member at Apple for three years.
In August 2006, Eric Schmidt was elected to Apple's board and three years later, he resigned from his position as board member of Apple due to conflict of interests and the growing competition between Google and Apple.
But for Google, the move of Schmidt is entirely official.
On the management change, Schmidt said: We've been talking about how best to simplify our management structure and speed up decision-making for a long time. By clarifying our individual roles we'll create clearer responsibility and accountability at the top of the company. In my clear opinion, Larry is ready to lead and I'm excited about working with both him and Sergey for a long time to come.
The management change comes as Google is in the midst of several regulatory investigations including a review of the company's proposed purchase of ITA, an anti-trust inquiry by the European Union regarding allegations that Google is unfairly ranking results from its search engines.
Also, the U.S. Justice Department is reviewing Google Books' settlement with the Authors Guild and the Association of American Publishers.
With Eric Schmidt moving from CEO to a role of Executive Chairman of the Board in April, a key part of his external facing focus will be working with regulators to better understand Google and improve government relations.
But, Susquehanna analyst Marianne Wolk said It is unclear how long Mr. Schmidt will be committed to the Board level seat he is taking.
Meanwhile, several analysts view the management change is not materially affect Google. ..while there may be some investor concern with Co-Founder Larry Page assuming the CEO role, we believe Google has sufficient bench strength that should ease concerns, analyst Aaron Kessler of ThinkEquity said.
RBC analyst Ross Sandler said: We don't think these new roles materially change the day-to-day operations for Google (the company has a deep management bench at the SVP level), perhaps shifting the focus for Schmidt and Page, but should have minimal impact on Google's ability to execute.
Shares of Google were up 2 percent at $641.15 in Friday pre-market trade on Nasdaq.