Why is Google Suddenly a Subsidiary Company?

Why is Google Suddenly a Subsidiary Company?

Google is in the habit of paying millions or even billions of dollars to buy other companies—some of which, like Youtube, were giants in their own right but still looked tiny compared to the big G. So if you asked me to name one company that would not become a subsidiary of someone else, Google would probably have been my pick. But, in a surprise announcement, that’s exactly what happened last week.

On August 10, with no warning, Google announced to major shifts: it will now be a wholly owned subsidiary of a new parent company, Alphabet; and its two founders are leaving Google to head the parent company.

So what happened?

The Details

Here’s everything we know about the change at present:

  • Google itself will remain in operation providing (more or less) exactly what it’s already known for: a search engine, maps, an ad platform, Youtube, and a variety of nifty apps. Android will also remain a part of Google.
  • A new company, called Alphabet, is being formed as a holding company. That business will buy out Google’s stock and then hold Google as a subsidiary. Other Google-related ventures will also be owned by the Alphabet umbrella, each as separate businesses.
  • There is no hostile takeover behind this. The dramatic move appears to have been orchestrated within the system by Google’s founders, Larry Page and Sergey Brin.
  • Page and Brin themselves are vacating their roles at Google to lead Aphabet. (This includes Page giving up his role as CEO of Google.) Page will now be Alphabet’s CEO and Brin will be its President.
  • Google’s new CEO will be Sundar Pichai, formerly a senior vice president at Google.

The other child companies of Alphabet, at least at the outset, will be formed from Google Ventures (the venture capital arm of Google), Life Sciences (working on technology that integrates with the human body), Fiber (the internet access arm), Google X (the crazy sci-fi arm that is working on self-driving cars), Nest (which makes in-home smart devices), Calico (which researches longevity) and Google Capital (an investment fund). Each of these will now be uncoupled from Google as such an operate as an independent venture within the Alphabet armada.

Why the Shift?

The reasons for the shift seem to be encapsulated in Page’s own statement:

“Our company is operating well today, but we think we can make it cleaner and more accountable.

“…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… Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related.”

In other words, Google itself will be more of an actual search business, and less of the sprawling empire-of-cool-ideas that it has become. That makes sense, and could result in more focus and efficiency within each spinoff company.

Elsewhere, Page’s language is more personal. It seems that he and Brin still have the entrepreneurial spirit and want to get out of the daily work of running an established company. He says he and his co-founder want to get “more ambitious things done.” To many, running the word’s greatest internet company would be ambitious enough, but it’s likely this sense of vision that made Google so great in the first place. I’m curious to see where Alphabet goes.