The company is taking a page out of the playbook of Warren Buffett — a longtime hero of co-founders Larry Page and Sergey Brin — as it prepares for its next stage of growth.
When Google went public in 2004, co-founders Larry Page and Sergey Brin titled their letter to potential shareholders “An Owner’s Manual” — an homage to the booklet Warren Buffett, the iconic leader of the conglomerate Berkshire Hathaway, gave to shareholders of his company.
Now, more than 10 years later, Google is taking another page from Buffett’s book: A massive restructuring that turns the company into a Berkshire-like empire. Page announced Monday that the leaders of Google will instead become the brain trust of a new parent company, called Alphabet. The new entity will oversee a collection of companies, including Google, as well as more nascent businesses including Nest, its smart-home device company, and Calico, a research company focused on human aging. Berkshire Hathaway runs much the same way: It owns companies like Geico and Dairy Queen and has minority stakes in Coca-Cola and American Express.
Scott Devitt, an analyst from the investment bank Stifel, was more explicit when he wrote a note to investors: “The Berkshire Hathaway of the Internet emerges.”
For Page, the move helps Alphabet make better bets and do so without stretching Google’s management team too far from the popular projects like search, mapping and the Gmail email service.
“Some of the most fundamental questions which people are not thinking about — there’s the question of how do we organize people, how do we motivate people,” Page told the Financial Times in October. In that interview, he was talking about Google’s role in reshaping society and public policy. But he might as well have been looking at Google’s org chart when he said that, too. (Page also said there’s no model for the kind of company Google wants to become, but if there’s one person who represents the qualities Google needs as it grows, it’s Buffett.)
Conglomerates are nothing new and are in fact common in media. Viacom, for example, owns MTV, Nickelodeon and Paramount Pictures. But in technology, they’re novel.
Alphabet gives Page and Brin the room they need to operate while they come up with more out-there projects like driverless cars or Wi-Fi-beaming balloons. It appeases investors who chide Google’s big spending and lack of focus, by providing them more clarity on the company’s financials.
“The plan is that this new structure will allow for more focus and better incentives to drive the various core and noncore businesses,” Ben Schachter, an analyst with Macquarie Securities, wrote in a note to clients.
Page even called out the new company’s responsibility to investors in a blog post announcing the new name: “We also like that it means alpha‑bet (Alpha is investment return above benchmark),” he wrote. “Which we strive for!”
A is for ambition
Google’s mission may be to organize the world’s information and make it universally accessible, but Page has far grander ambitions: He wants to be able to take on just about any industry and fulfill his utopian desire to improve humanity’s lot. By comparison, merely fine-tuning Google’s successful search business seems like child’s play.
By splitting noncore Google projects away from Google, those projects grow from peripheral efforts to standalone entities. They’re freed to some extent from the management structure needed to run a 55,000-employee company, gaining a nimbleness that allows for faster innovation. And by putting all of Google’s central businesses under Sundar Pichai, one of Page’s most trusted lieutenants, the other ventures get his fuller attention.
Along with more independence, though, comes more scrutiny, more accountability and more pressure to perform well on their own. Alphabet won’t be able to as easily hide poor financial results under the vast umbrella of search-ad revenue. And Google’s strong brand — No. 2 worldwide after Apple — won’t necessarily benefit Alphabet’s non-Google operations.
Still, this seemed to be the way the company was headed. Google already had established Google X to house the company’s wilder ideas. And Page in 2014 had promoted Pichai to oversee more of Google’s core products so he could devote more attention to other work.
There’s no doubt Page is seeking to create a bigger legacy for himself than just good search results, or profitable success such as Apple’s. In 2014, he said of his conversations with former Apple Chief Executive Steve Jobs, “He would always tell me, ‘You’re doing too much stuff.’ I’d be, like, ‘You’re not doing enough stuff…If we just do the same things we did before and don’t do something new, it seems like a crime to me.'”
In 2013, he was more blunt: “If you’re not doing some things that are crazy, then you’re doing the wrong things.”