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What Is Everyone Missing from the Alphabet Google Restructuring?

There is more to learn from the Alphabet-Google restructuring than Google’s PR narratives.

First for those paying close attention, this restructuring and Alphabet branding should spotlight Google’s truly amazing accomplishments to date, and Alphabet-Google’s breathtaking ambitions going forward.  

At core this restructuring formalizes Alphabet-Google’s very real transition, from a Gcosytem focus of disintermediating and dominating much of the Internet and tech sectors, to a Gconomy focus of disintermediating and dominating much of the rest of the economy.    

More than anyone, Alphabet CEO Larry Page understands that if you first “organize the world’s information,” then second track and analyze most all of most everyone’s interaction with that information, one can then understand global supply and demand better than any mortal entity, which then third enables one to disintermediate, disrupt and dominate most every sector of the economy over time -- to the extent that that sector becomes dependent on the Internet and the technologies Google increasingly dominates.

To those paying close attention, Alphabet-Google has tacitly announced its ambitions to be the world economy’s only borderless superpower.  

Second, more than anyone, Alphabet CEO Larry Page deserves credit for grasping the immense potential business power of harnessing three exponential dynamics together: 1) the scaling of Moore’s Law with 2) the Internet’s viral speed, and 3) with the combinatorial-network-effects of near total, digital, vertical integration.

Reading between the lines, Mr. Page’s restructuring is a public act of supreme confidence that his existing Google business creation already has the economies of scale and scope of a perpetual dominance machine -- almost automatically virally spreading successive billion-user apps from search to YouTube, to Maps, to Android, to Chrome, to Play, to Gmail, to many more Google services in its billion-user queue of tying and network effects.

Mr. Page and Mr. Brin can confidently shift their primary management focus, from the largely invisible scaling of the highly-integrated Gcosystem, to the more challenging and visible scoping of Alphabet services throughout most every sector of the new Gconomy.

Google is the scale-driven part of Alphabet because it is all about the frictionless virtual world of “bits” (ones and zeros) that enjoy exponential growth dynamics. As a new start-up brand in 1998, “Google” was a trademark-able play on the word “googol,” which was the largest named number, 1 followed by 100 zeros, and which captured Mr. Page’s ambition to accomplish the biggest challenges imaginable, like “organizing the world’s information” -- which Google has already effectively achieved. 

The non-core-Google part of Alphabet is now the scope-driven part of Alphabet because it is all about actual world “atoms” of real tangible things like cars, drones, thermostats, people, etc.

Take note, as a brand, Alphabet is every bit as ambitious as Google/Googol was in 1998, in that it captures Mr. Page’s unparalleled ambition to accomplish everything from A to Z in the world economy like “curing death,” worldwide Internet connectivity, driverless cars, drone deliveries, gigabit fiber, etc.

Like the strongest passwords are “alphanumeric,” a combination of numbers and letters, Mr. Page apparently believes the strongest company will combine the Google math of bits, with the Alphabet language of letters.

To those paying close attention, Mr. Page’s original and truly brilliant insight of PageRank®, i.e. to index the entire WorldWideWeb, represented a brilliant intuitive grasp of the potential power of near perfect Internet economies of scope. This seminal insight manifested itself in Google’s mission “to organize the world’s information and make it universally accessible and useful.”   

Thus Mr. Page’s new vision for “Alphabet” is a real world version of the virtual world vision of organizing all the WorldWideWeb’s information and links.

As maybe the world’s penultimate contrarian and challenger of the supposed impossible, Mr. Page’s Alphabet vision is a well-known hand gesture to those who urge Google to focus and simplify. Mr. Page has proven he knows better than conventional wisdom because he truly understands the potential economic power of economies of scope better than maybe anyone to date.

So simply, Alphabet signals that Google will be extending its unparalleled economies of scale and scope to eventually reach every corner of the economy that generates data, unless or until, antitrust enforcement or sovereign entities figure out how to effectively limit the tornadic market power of the world’s emergent borderless superpower.      

Third, Alphabet CEO Larry Page’s implied new mission statement is to “organize the world’s information and activities.”

The common thread that ties together everything Alphabet-Google does, is informed by, and leverages the unparalleled information, data, and metadata that Google’s search and advertising dominance and infrastructure yields.

Every Google product/service and Alphabet “moon-shot” wouldn’t exist or make sense standalone, because they all depend, one way or another, on the superabundant data, computer-processing infrastructure or capital flowing from its dominant Google core business.

So the Google-PR-touted “independence” and “autonomy” of Alphabet’s subsidiaries is more spin than reality because most all of these subsidiaries’ value and success will depend on the economies of scale, scope, reach, entrée, and vertically-integrated network effects of Google’s core dominance.

New org chart and PR-spin aside, Alphabet’s subsidiaries remain functionally and financially more subsidiaries of Google than the artificial Alphabet pass-through structure.

Don’t mistake an organizational control structure artifice with where the real economic value and market power reside.

Also make no mistake, Mr. Page will remain in very firm CEO control of Alphabet-Google, beyond the ultimate controlling-fact that the Alphabet CEO, President, Chairman, etc. will continue to own a controlling majority of Google’s stock.

Mr. Page’s Alphabet post made clear he will still “rigorously” control what matters most in management: CEOs compensation, capital allocation, financial management, and execution oversight. Mr. Page has wisely created a CEO-rich organizational structure for executive retention and investor perception purposes.

However, in reality these Alphabet CEOs are more akin to Chief Operating Officers, because they do not report to their own board, they report to the true CEO, Larry Page, which has a board that realistically cannot fire any of the new Alphabet senior executives without their collective ownership consent.

This is not to say that this restructuring is bad, only that many are misinterpreting what it really means in the real world.        

Fourth, Google’s promoted Alphabet/Berkshire Hathaway analogy is mostly PR fluff and very clever misdirection.

Berkshire only buys proven mature companies to be “subsidiaries;” Alphabet’s subsidiaries are mostly never-been-proven “moon-shot” start-ups. Berkshire subsidiaries are low-risk, cash-cows; Alphabet’s are mostly highest-risk, cash-flow-holes. Berkshire is a hands-off, investment holding company that is heavily invested in publicly-traded companies; Alphabet is a much more of a hands-on operating holding company in mostly Google-created sub-companies. All of Berkshire’s companies have their own Boards of Directors; whereas it appears Alphabet will have only one Board of Directors, which previously was the Google Board.

This all suggests that the Alphabet holding company structure may be more contrived for public consumption than it appears, especially since Alphabet and Google will share the same CFO.

Given the multitude of lawsuits and enforcement investigations facing Google around the world, one could wonder if the structure provides additional legal and PR moats of protection from liability or critical inquiry for the majority owners of Alphabet-Google.

In addition, this structure also could facilitate the spinoff of Google Fiber or Project Fi, if the contagion of the FCC’s Title II common carrier regulation seriously threatened Google’s core dominant operations. A protective spin-off however, would also spell the demise of Google Fiber because it could not survive standalone without Google’s subsidies, tying, branding, and lobbying cachet.

In short, the most significant thing that everyone maybe missing in the Alphabet-Google restructuring announcement is its new implicit strategic vision.

That vision is to extend its current unparalleled Google market power to disintermediate, disrupt and dominate the virtual world of the Internet and information technology, into Alphabet’s plans to disintermediate, disrupt and dominate much of the actual world economy that depends significantly on information to create value.  

Better than anyone, Google has shown that it understands how the Internet and information technology have created a new pervasive economic reality that I call “digital dissonance,” which is a de facto divergent economy where the virtual and actual world economies enjoy dramatically different economics.

And Alphabet-Google is showing that it alone is moving faster to master the arbitrage, integration, and disruption opportunities of straddling these two very different sets of economies and economics, than any other company.

In a word, Google appears to have become one of the world’s most pervasive cyber systemic risks.

Forewarned is forearmed.

 

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc. Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.

 

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