Google in the Alphabet soup

At the beginning of August, Google announced that it planned to create a new public holding company: Alphabet Inc. to reflect its new operating structure. In an official Google blog, its CEO Larry Page said the business is proposing a structure in which the business funnels some profits into its more speculative ventures, like driverless cars (Google X) or Calico, which aims to extend the human lifespan. The Google name will not die. Divisions under the “Google business” will included search, ads, maps, apps, YouTube and Android, currently Google’s best known businesses.

Google’s core internet business will be separated from its own divisions:

Page explained: “Alphabet is mostly a collection of companies, the largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main internet products contained in Alphabet instead.”

Page wrote that in the technology industry, where revolutionary ideas drive the next big growth areas, a firm needs to be a bit uncomfortable to stay relevant. He believes the new structure will allow Google to manage businesses that are not very related, with a strong CEO running each business. Google already has some services that are run with their own identity, like YouTube. All shares of Google will automatically convert into the same number of shares of Alphabet, with Google will become a wholly-owned subsidiary of Alphabet, the holding company.

The Google brand has not always served the company well as some of its ‘crazier’ activities seemed to have undermined the brand value of its more conservative internet operations.

The rebranding and restructuring exercise is seen by some analysts as a way of appeasing Google’s investors, by saying that if they want to invest in just the core Google activities, they can purchase these stocks separately under the Google brand. If new ventures, such as Calico, were to fail, this would not impact on Google’s stock value. Under the new structure, funding for newer independent ventures will not necessarily come from Google, but from external financial sources. Successful ventures may be spun off as totally independent companies through an initial public offering (IPO) or stock market launch.

A brand is an intangible asset, in that it is not a physical item that can be seen or touched. However, it can add significant value to a product or service.  Changing or adapting established brand names is always a risky venture, as a firm’s brand is often the most valuable asset it holds. According to Interbrand, the Google brand name was worth $107 billion in 2014 and was the world’s second most valuable brand after Apple.

Following Google’s decision to place many divisions under an the new umbrella of Alphabet, Google  unveiled a new logo for its core search services. The change smoothes out some of the features in the letters that make up the well-known colourful logo spelling out its name. Google said that the change was needed because people were now reaching Google on a range of mobile devices, rather than just desktop computers.

Most market commentators agree that creating Alphabet is a logical strategic decision. However, many feel that in terms of brand identity itself, Alphabet does not live up to the originality and quirkiness of the Google brand, and is slightly ‘disappointing’. Jim Prior CEO at The Partners and Lambie-Nairn wrote in Marketing Magazine:

 

When you create a new brand for an organisation the task is to codify its messages into its name and identity. Brands don’t deliver themselves in the market with thousand-word essays attached, they rely on their primary identity assets to transcend detailed analysis and convey meaning that lodges in the mind. This rule applies equally for a corporate holding company brand as for a consumer brand.

As a Brand Consultant I do understand how that familiarisation process works – I just think it could have, should have, been something better and cooler than the overly simplisticAlphabet. What this name fails to convey to me is any sense of the specialness of the corporation, nor its ambition, long-term view, empowerment, scale, transparency, focus or humanity – which are the things Larry writes in his memo that they are excited about.

IB style questions

1. Define the following terms:

  • Intangible asset
  • Initial public offering (IPO)
  • Holding company

2. Explain the role and importance of branding.

3. Examine the advantages and disadvantages of creating a new public holding company: Alphabet Inc. to reflect Google’s new operating structure and strategic vision.

4. To what extent do you agree with Larry Page that in the technology industry, where revolutionary ideas drive the next big growth areas, a firm needs to be a bit uncomfortable to stay relevant.

Sources:

Google official blog

The Guardian

Forbes

Marketing Magazine

Image: Flikr

 

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