The Structure of Alphabet and Google

Currently, as I stated in my presentation, Google is attempting to apply machine learning to everything that it does. The most interesting and innovative example I found of this was Google Duplex. Google Duplex allows Google Home to make appointments over the phone. I have attached a video demonstration below, make sure to check it out as it really seems to come out of another world. This demonstration really made me curious both about how the structure of Alphabet (Google’s parent company) affects Google and also how this structure fosters innovation and entrepreneurship within Google. Maintaining an innovative atmosphere is a goal for most large tech companies as disruption is always a threat. Other firms have initiatives like “always day One” at Amazon to try and keep employees on their toes and geared towards innovation. The corporate structure of Alphabet is supposed to have a similar effect.

In 2015, Google announced that it was rebranding. Google would be under the umbrella holding company of Alphabet Inc. According to Larry Page one of the main goals of this move was to both improve transparency into the R&D occurring at Google, and also allowed Google itself to be slimmed down and somewhat separated from “far afield” projects. When talking about far afield projects, Larry Page is referring to things like the Life Sciences division and moonshot projects. This separation allows Google to function with maximum efficiency and also shields innovative ideas from the rest of Google’s operations. When the rebranding happened, Larry Page became CEO of Alphabet Inc. and he then appointed individual CEO’s to each company within Alphabet. For example, Sundar Pichai became the CEO of Google. This structuring allowed Alphabet to have two distinct divisions, Google and Other Bets. Housed under Google is YouTube, Android, Search, Maps, Google Cloud, and Hardware. This is essentially Alphabet’s core business. When one thinks of Google, typically what they are thinking of falls under the Google division of Alphabet. The Other Bets division is much more diverse, housing Verily(which focuses on disease prevention research), Waymo(Alphabet’s self-driving car unit), and X(this a secretive R&D division that focuses on moonshot projects). There are many more projects housed under this division, many of which are pictured below. Essentially in rebranding itself as Alphabet, the core division of Google is able to remain intact while also allowing for a diverse set of companies to be a part of Alphabet.

Alphabet’s Corporate Structure

As I mentioned earlier, one of Larry Page’s main motivations for rebranding Google as Alphabet was to increase transparency to investors. This is apparent when comparing revenues between Google and Other Bets. Other bets only represent about 1% of Google’s overall revenues, and consistently perform at an operating loss, lowering Google’s overall net income. Prior to the reorganization, many of the expenses contributed to Other Bets would have just fallen under R&D expense.  This caused investors to be unsure of how Google was performing. This is no longer the case, as both are clearly displayed on Alphabet’s financial statements. The added transparency to investors was very well received as Google’s stock rose 6% on the announcement. Not only is this transparency an added benefit to investors, but also to Alphabet as a whole. The new structure allows Larry Page to focus less on the day to day operations and more on helping the company innovate. It also allows Google to invest heavily in moonshot projects and innovation without scaring off investors, a benefit to everyone.

Alphabet’s revenue broken down by Google and Other Bets

While Alphabet’s restructure was a benefit to investors and the company as a whole through increased transparency, another large benefit comes in the form of innovation. In organizational behavior, they teach that in order to foster innovation and entrepreneurship at a large company it may be necessary to have a separate division from the rest. This is exactly what Alphabet has done. By separating Other Bets from Google, the companies housed in Other Bets are incubated from expectations and potential conflicts with daily operations at Google. This move has also allowed Alphabet to expand its research and offerings significantly. Within Other Bets, Alphabet houses two venture firms GV, which focuses on early-stage investment and CapitalG, which focuses on later stage investment. These two divisions have investments in companies from Airbnb to Uber to Slack. Other Bets also houses wild companies like Project Loon. Project Loon initially started as an X moonshot project but was spun off into its own company. Project Loon’s goal is to bring web access to 2/3 of the world using internet-beaming hot air balloons. Another example of the “far afield” companies under Alphabet’s Other Bets is Calico. Calico has the ambitious goal to “cure death”, and has invested millions to develop drugs, and research cures for diseases like cancer and Alzheimer’s. Clearly, Alphabet’s organizational structure has helped provide the resources necessary for some truly innovative and potentially disruptive companies.

One of Project Loon’s balloon tests

Certainly, the innovation taking place at Alphabet is astounding, but the question remains, how does this affect Google? One great example is Nest. Nest was acquired by Alphabet in 2014 for $3.2 billion. As I’m sure most have heard, Nest uses AI to more effectively regulate home temperatures. When Google restructured in 2015, Nest was placed under the Other Bets category. In February 2018, however, Nest was moved from Other Bets into Google’s division. This leads to the conclusion, companies and projects can move between the two divisions. Nest was moved to Google to help recognize synergies between engineering teams working on Google hardware and Nest engineers. While Google and Other Bets remain two separate divisions, they still benefit each other. Nest isn’t the only example of work being done in the Other Bets category transferring to Google. DeepMind, an AI startup housed under the Other Bets category of Alphabet has also contributed research and projects to Google. DeepMind has developed AI algorithms to improve the efficiency of Google’s data centers and has helped Google Play develop algorithms to make better app recommendations. DeepMind even worked with the Google Assistant team to develop an entirely new speech algorithm that sounds much more like a human voice. I imagine this is what Google Duplex uses. It is apparent that Alphabet’s corporate structure helps foster innovation in Other Bets. This structure allows these companies access to Google’s immense resources while still maintaining autonomy. Alphabet’s structure also benefits Google by helping Google obtain and create the innovative technology seen in things like Google Duplex.

10 thoughts on “The Structure of Alphabet and Google

  1. Very clear and well written description into the benefits of structuring Google under Alphabet and generally separate from other bets. I didn’t expect to learn that the companies in the other bet’s still worked so closely with some of Google’s operations and development. I also was somewhat surprised to see that DeepMind is considered in Other Bets even though I’ve always heard of it as being named Google’s DeepMind. I suppose that was just for the benefit of the brand association. Also, I remember when the duplex thing was first shown and everyone thought that it was borderline terrifying because it was just way too real.

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  2. Cool post. I wonder Alphabet is the 21st century technological equivalent of a holding company. GE embodied this in the 20th century, with assets in industries ranging from health care to finance to manufacturing, but recently GE has had to readjust. The analogy probably isn’t perfect, and maybe Alphabet is in a stronger position since the fixed costs of technology are much lower than industrial assets and Alphabet wants to utilize AI, broadly construed. However, there are risks of straying beyond core areas of expertise, even for one of the world’s most valuable firms.

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  3. It’s crazy to think that Google was founded just over 20 years ago, and already it has grown to be such a massive institution spanning so many industries. I’m reminded, funnily enough, of the monopolies I learnt about in U.S. history. In many ways, our modern tech companies mirror the behemoths of the Gilded Age– AT&T, Standard Oil, Carnegie Steel– and I would not be suprised if Jeff Bezos, Steve Jobs, and Mark Zuckerberg are the Rockefellers and Carnegies, Morgans and Vanderbilts of our era.

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  4. This was the first time I have seen the video of Google Duplex, which was mind blowing. What would be really interesting to see is if in the future, Google Duplex was used on both ends of a phone call, so the need for even one human wouldn’t be necessary. Great content also on the Alphabet’s structure. There is so much to look forward to in terms of tech advancements.

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    • As I was watching that video, I was thinking the same thing. Although this is a very cool application of AI, it seems like it will be pointless once it is applied to both ends of the phone call. As the speaker said in the video, 60% of US businesses don’t have an online booking system. I think it would be a good investment for Google to develop a Google based booking system. Then, when you ask Google to book you a hair appointment, the computer can automatically access the online booking and seamlessly book through that system. This strategy would deliver value to both the consumer and the business.

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  5. Great post Matt! This was so clearly and explicitly laid out that I feel much more informed about Alphabet in general and how the two divisions cooperate with one another. This article made me take a higher look on Alphabet because it gave me the sense that they dedicate so much money to R&D for projects that can really better the world. While other startups would struggle to afford this, Alphabet is able to provide itself with the finances from the Google side to support these other, meaningful projects.

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  6. This is so helpful! I was very confused by the move in 2015 but now it makes perfect sense for such a large company; Google can focus on what makes it great and other projects can operate with greater autonomy. I wonder if there are any other companies that could benefit from this strategy once they grow large enough to diversify?

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  7. Nice Post! When I was watching the video, I wondered how will the AI answer if the people on the other side of the phone ask a question it doesn’t know? Will it be able to predict or calculate the answer based on the data it collects? Really look forward to seeing Google Duplex being used in real life.

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  8. Great post Matt! I was not very familiar with the rebranding that had occurred with Google. However, this move certainly seems to support their innovative culture. I had not considered all of the benefits with keeping the Other Bets separate such as avoiding potential conflicts with daily operations at Google. I wonder how many other large companies have done something similar without publicizing it. Thanks for sharing!

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