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Alphabet Learns That Change Isnt as Easy as ABC Backchannel

Alphabet Learns That Change Isnt as Easy asABC

The Company Formerly Known as Google is still figuring out how to be a conglomerate. But at heart, its the same world-changing cashmachine.

Follow-Up Friday is our attempt to put the news into context. Once a week, well call out a recent headline, provide an update, and explain why itmatters.

It used to be that i/o, Googles huge annual developer conference, offered one of the very few opportunities for fans of the companyand reporters who cover itto spot its publicity-shy CEO Larry Page. In 2013 he took audience questions for the better part of an hour, and as late as 2015, he showed up at an off-the-record press gathering and patiently mingled with scribes.

In 2016, there was no Page to be found at i/o, even though it was held across the street from the Google campus. But then, in 2016, Page was no longer the CEO of Google. Instead, he was the leader of a holding company called Alphabet, a rearrangement of the company that left Page in charge, but gave a degree of autonomy to the leaders of its various divisions, who now assumed CEO titles. At the annual i/o press gathering it was Pages successor as Google CEO, Sundar Pichai, who was surrounded by the throng of reporters.

Back when he was CEO of Google, Larry Page speaks at i/o in 2013. (Justin Sullivan / GettyImages)

The part thats still called Google remains mighty, but it is not Alphabet. Its just part of it. But its the part that most people interact with, with search, Android, Gmail, and even the data centers. The new companiesGoogle Ventures (now GV), Verily, Fiber, Calico, Sidewalk, Nest, Google Capital, and Jigsaw (formerly called Google Ideas)are structured as entities, but for earnings purposes are all bundled together in a category called other bets.

How it all works together is mysterious. A year into the experiment, theres still some confusion about how the Company Formerly Known As Google actually operates. Alphabet also seems to be experiencing a degree of turmoil, fueled by some recent departures, including two CEOs.

At the center of it is still Larry Page. Hes not answering any questions. Too badbecause Alphabet is still raising them.

Pages blog post a year ago announcing Alphabet shocked not only some of Googles closest followers, but also many top Googlers. Months in the making, the plan to shift Google from a single enterprise to a hydra-structured holding company was concocted by a very small group of executives, operating at a level of stealth unusual even for the normally secretive firm. Googles press people were unable to offer many details, not so much because they werent authorized to go beyond Pages statements, but because a googolplex of details had yet to be worked out. (For instance, the PR people themselves werent sure if, from then on, they would report to a single Alphabet head of communications, or the CEO of the division they worked for. After a few weeks, Alphabet determined the latter.)

Page himself explained in his blog post that one big reason for the change was to empower the division heads, now CEOs. Alphabet is about businesses prospering through strong leaders and independence, he wrote. This seemed quite a switchwhen Page himself became Google CEO in 2011, he took steps to make the leaders (known as the L-team) work together, even to the point of sharing a physical space in the afternoons. Speculation was that the switch came in part because Page was afraid that if the L-team members werent able to run their own operations somewhat autonomously, they would go elsewhere.

Other observers saw the influence of Googles new CFO Ruth Porat (now CFO of Alphabet). Wall Street had long complained that Googles approach of baking its side projects and moonshots into its financials made it hard to evaluate the companys actual success. Siloing the numbers into the various duchies makes things cleanerand would put pressure on the division leaders newly separated from Google to start paying attention to the bottom line.

But left hanging was the question, how would it work? Some observers (like me) wondered if splitting the company in divisions would be subtraction by subtraction. Maybe by adopting individual missions, the new CEOs would fail to serve the larger vision that Larry and Sergey have followed for almost twenty years now.

Alphabet is a weird company. Only one part of it makes significant profits: Google, whose revenues are humongous. Its CEO is almost never heard from. But it would be wrong to say that he isnt present. All the CEOs report to him. He has strong opinions about the activities of each division. And tellingly, while the public sees little of him, hes still a regular internal presence in the weekly TGIF meetings that any of the 60,000 employees can attend on campus or via livestream.

Wall Street seems to appreciate the Alphabet structure. In the last year, the stock price has risen over a hundred points and reached a record high this year, at a market cap of almost $550 billion. Its revenues virtually all come from the Google division, of course.

One part of the Alphabet scheme doesnt seem to have worked too well: the one about retaining the high-powered executives who now hold CEO titles. In early June, CEO Tony Fadell of Nestperhaps the archetypal Alphabet company, with an evolved revenue stream and business modelresigned his post. (In a blog post he indicated that it was a personal decision: The future of Nest is... bright, he gushed.) Just this week another CEO also left, Bill Maris of Google Ventures, er, GV. (In an interview with ReCode, Maris said he left because everything is great.)

Meanwhile, there have been reports of intra-personal tensions that led to the departures of other important leaders. News reports charge that Andrew Conrad, CEO of Alphabets life sciences division, Verily, has driven off some of his underlings. And there has been trouble at X (the moonshot division that, pre-Alphabet, was called Google X). In preparation for breaking out the self-driving car project into its own entity, Page appointed an executive from the auto industry to be the CEO. In the last few months, some of the teams best engineers have left, including the projects CTO Chris Urmson. The New York Times reported that he had fought with Page over the projects direction. Urmson disputed the Times report, and in his Medium post about the move, he said, basically, everything is terrific. (Alphabet better be carefulif things get even better, no one will work there anymore.)

But maybe the departures are misleading. People close to the company tell me that each instance is a unique circumstance, not related to the Alphabet move. Indeed, for most people who work for the company, life is pretty much unchanged. The vast majority of people working for the Alphabet conglomerate are official Googlers. Most of the people in the other bets divisions are doing the work they were doing before. Some things in those virtual companies work differently than they do at Googlein compensation schemes and other operational kinds of things. But by and large the biggest difference between Alphabet and pre-August 2015 Google is the way the company reports its results. By splitting into those divisions, and forcing each to delineate its mission, Page has provided outsiders a degree of transparency that lends coherence to his ambitious, risk-taking approach.

No matter what you call the company, it is a search-centric, advertising-based cash machine that takes on daring bets on the future, some of which may well pay off big time. Its one of the worlds most powerful forces in machine learning, a technology that will have a massive impact on the world. It has miles of fiber in the ground and petabytes of data. And its raking in the money$21 billion in the last quarter, a number that underscores the great performance of our businesses globally, crowed Porat in an earnings call.

By the way, Porat was joined in that call not by Alphabets leader, but the CEO of Google, Sundar Pichai. The latter also wrote Alphabets annual founders letter, a task that previously had alternated between Page and company co-founder Sergey Brin.

Interestingly, a lot of what Pichai talked about were things within his own domainGoogle without the other betsthat exposed an interesting phenomenon. Even after shedding all those spun-out subsidiaries, Google itself is still packed with a grab bag of divisions: Android, Chrome, Research Cardboard, Google for Work, and Advanced Technology and Projects (a kind of mobile research division). Even YouTube is still part of Google.

Yes, the company that Larry and Sergey built, now called Alphabet, is still speculating on moonshots. But when the loot takes center stage, its still Google talking.

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