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Tim Green

Google’s New Alphabet for the 21st Century

by Tim Green | Dun & Bradstreet Editor

August 12, 2015 | No Comments »

Google alphabet blockYou could think of Alphabet, the new Google holding company announced Monday, as a Berkshire Hathaway of the 21st century.

Within Alphabet (the URL is abc.xyz) are Google and other businesses the company has been developing. They include things that Larry Page, former Google CEO and now Alphabet CEO, said Google outsiders characterized as “crazy.” Page announced the new structure in a blog post.

He listed Google maps, the Chrome web browser, YouTube, and the Android smart phone operating system as some of those crazy ideas — that now have more than a billion users each. They might also include Google’s pursuits in space, health and medicine, and autonomous vehicles. At least Google Fiber, which offers high-speed Internet service, and Loon, the venture providing Internet service from balloons, have something to do with the company’s core Internet search and advertising business.

Alphabet, Page wrote, will continue to do crazy things.

Crazy is something Warren Buffett, CEO of Berkshire Hathaway, has not been called. His 50-year assembly of Berkshire Hathaway has brought together diverse undervalued businesses from insurance, energy, transportation, restaurants, and media (including newspapers). Berkshire Hathaway brands include Acme Brick, Fruit of the Loom, GEICO, Burlington Northern Santa Fe railroad, Johns Manville, and Dairy Queen — all born and bred in the 20th century.

Berkshire profits when its companies ride the economic cycle back to growth. The value of Alphabet’s non-Google businesses, if there are any, will be realized sometime this century.

While it’s never been hard to understand Berkshire’s businesses, some of Google’s operations have been something of a mystery to investors.

The company’s main business is selling advertising and ancillary services based on searches. It had revenue of $59 billion from advertising in 2014 — 89% of total revenue. In its annual report, the company lumps the remaining 11% under “other revenue.”

That “other revenue” and what it means for the future of Google might become clearer under the new corporate structure.

Separate companies within Alphabet will be Google, which will keep search, ads, maps, apps, YouTube, and Android; Calico, which studies longevity; Nest, developer of smart thermostats and smoke alarms; Fiber; Google Ventures and Google Capital, investment entities; and Google X, which incubates developing technologies. The company will break out results for each unit when it reports fourth-quarter earnings.

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

Under the new structure, Page will be Alphabet’s CEO and Google’s other co-founder Sergey Brin will be president. Sundar Pichai, a Google executive who has led product and engineering at Google’s Internet business since October, is Google’s new CEO. Each of the other businesses under Alphabet will have its own CEO.

Just a few hours before Google announced its new structure, Berkshire Hathaway made news of its own.

The company said that it bought Precision Castparts, a maker of components for the aerospace industry, for $32 billion. It’s Berkshire Hathaway’s biggest deal.

Warren Buffett, at 85, seems as comfortable in the 21st century as his counterparts at Google.

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

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