Alphabet Soup

So yesterday, out of the blue with no leaks no speculation & no anticipation, Google goes and reinvents itself.

How does the most important company in the world (note I did not say most valuable), do that?

I have always had a tremendous amount of respect for Larry Page and Sergey Brin and the senior team they surround themselves with. When it really matters, they do things right and get things right.

The way I see it, Google is the cash cow that finances all the big bets Larry and Sergey are making inside Alphabet. The public markets get the transparency of seeing how the cash cow is performing and how the entire holding company is performing.

Think about it this way. For $445bn, you get $70bn of cash, Google, which does $70bn of revenue and produces $20bn of operating cash flow (probably more now that is it not going to burdened by all of these other investments), and all of these big bets, including Google Ventures and Google Capital, which are about the biggest investors in the VC sector right now.

That’s what you got when you bought Google last month, but now it is a lot clearer what you are getting.

You could easily make the argument that buying Google at $445bn gets you all of these big bets for free because the cash cow is almost certainly worth the $375mm of enterprise value that the market is putting on it.

Makes me think seriously about going out and buying our family some of that alphabet soup. I think its going to be good.

#VC & Technology

Comments (Archived):

  1. awaldstein

    Still wrapping my head around this.Om’s post helped put it in perspective for me:Analysis of Alphabet aka Google’s new corporate structure

    1. William Mougayar

      Great analysis by Om.

      1. awaldstein

        Yup–he is always my go to person on topics like these.

        1. JamesHRH

          Key phrases – ‘ one trick pony ‘ ‘ hardly a bronze medal in mobile ‘ etc.At least Om has enough guts to turn off the BS firehose and describe L&S track record accurately.

          1. LE

            That is actually the scary part for investors. You have two guys with tremendous power who grew up riding and executing (with the help of thousands of others I might add) a one trick pony straight out of college. Yet people seem to think that as a result of that success what they think will happen next is what is going to happen. To me that type of blind worship is pretty scary.Google is total shiny ball and will fork to and neglect legacy products (and kill them) as they see fit. (Google voice is a perfect example.). What is sad about this is that they have enough cash to actually do a good job and keep those products current and improved and get good people to work on them. But yet they don’t. Which is what a company run by adults with a wad of cash would do typically.

          2. Rob Larson

            If investors don’t have confidence in L & S, they are free to sell their shares or short the stock. So far the market doesn’t seem to be doing that.I agree that L & S have a tall task ahead of them – they have been brilliant at Google, but so far there’s limited data to suggest they’re skilled at allocating capital Warren Buffet – style. But… given the degree to which the economy is awash in capital these days, I’d rather give my capital to them and let them try to innovate at something than invest it in someplace else like corporate bonds.

    2. christopolis

      That is a horribly written and thought out article. Om likes rewriting history much more than he likes writing about it. This is just ridiculous.”Google failed to understand the power of social.””rise of mobile has allowed Facebook to surge ahead of Google. “Man he is annoying when he says stuff like this”The Facebook threat is very real and it is way bigger than most people realize.” I thought they already surged ahead? But thankfully we have super OM to tell us what most people realize or dont in this case.

  2. TM

    And @alphabet got some new followers 😉 Interesting that the Google guys picked a not so cryptic name for the holding company.

  3. LIAD

    Ironic juxtaposition yesterday reading Paul Graham forcefully advocate entrepreneurs must own the .com of their name then seeing hours later Google morph into a .xyzOnly rule is there aint no rules.

    1. awaldstein

      The only constant is that whatever the market believes is right.Everything else is what we do to get the market to think of things from our own perspective.

    2. Jess Bachman

      Bit of a coup for the folks running .xyz. Good for them. Not a fan of PGs remarks though. Does he know how much the dot-coms cost? It’s quite a non-trivial financial distraction for startups.

      1. LIAD

        I agree with him wholeheartedly. Would never build a business without the .com. Short-sighted and weak. Same goes if didn’t have the twitter handle. Which for the record google don’t have either. Maybe when you’re one of the biggest brands in the world like them you can zig when all others zag.

        1. Jess Bachman

          Well I would, and encourage others to build a business without the .com. It’s a legacy barrier to entry that needs to be abolished. We all don’t have the resources to come out the gate with We keep saying the costs for starting a business is shrinking, and yet PG expects 5 figures for a domain name, or do the twisted contorted dance that leads to a .com thats actually affordable?Funk that. Getting a dot com like building VHS backward compatibility into your product.Sure, it should be done when you have the resources, but by no means should it be an initial barrier to a business.

          1. awaldstein

            The cost to start a business is shrinking. The cost to discover and penetrate a market and build a brand have dramatically increased.

          2. Jess Bachman

            Have they really tho? There will always be an expensive way to do it… and a smart way. If Lulitonix launched 15 years ago, would it have been cheaper to penetrate the market? I don’t think so.

          3. awaldstein

            I think yes and that is true across all categories, tech or not.The tipping point for market fit is simply higher and the price to get to that inflection point more costly.

          4. JamesHRH

            And the noise is 100x higher.What does it take to create word of mouth buzz or street heat today?

          5. awaldstein

            My point.

          6. LE

            I think yes and that is true across all categories, tech or not.Exactly true.

          7. JamesHRH

            You are wrong.

          8. Jess Bachman

            It’s been known to happen.

          9. JLM

            .Part of that is also how we define building a brand and success.The unicorning of startups has set the bar at an increasingly unrealistic level.JLMwww.themusingsofthebigredca…

          10. awaldstein

            I repeat myself;)Easier than ever to start, tougher and more expensive than ever to break through.What the internet has done is to make the impossible possible, not easier.Still a huge step forward.

          11. Elia Freedman

            And let me to tell you what that does to us poor fools starting these businesses. Head cases, the lot of us.

          12. JLM

            .Yeah, but we already knew that entrepreneurs are nuts anyway, Elia.Being an entrepreneur is camouflage for being crazy anyway you look at it.I might have one or two more deals in me but I laugh when I remember how nuts I was when I started the first three businesses. Wow, was I nuts.JLMwww.themusingsofthebigredca…

          13. awaldstein

            #truth my friend.Doing a bootstrapped one in my home now and it is just nuts.

          14. Twain Twain

            Ah, Elia, it’s not so much that we’re head cases and “crazy fools”.It’s more that we have hearts, guts and inimitable spirits to venture and do where others don’t dare to.We may fail. We may succeed. Our hearts may get broken or they may soar.Regardless, we put our hearts at stake because we believe.

          15. Elia Freedman

            Or we are delusional fools who give up hundreds of thousands in wealth and sane lifestyles in exchange for the hope we can change the world and make millions doing it.(Ignore me. I’m shipping soon.)

          16. Twain Twain

            Be sure to tell us when you do since we’re first-adopter types!!!:*).

          17. Elia Freedman

            That’s nice of you. Thanks!

          18. Alex Dunsdon

            Yes yes yes. Tech is increasingly cheap and easy. Understanding markets / penetrating them / getting people to care = hard

          19. LIAD

            Funk that. – I like it.Reality doesn’t change just because you will it is where its at. Financial constraints don’t change that.

          20. Jess Bachman

            “.com is where its at.” – Just sounds like it was ripped out of 90’s movie about the Internet Superhighway.As for reality, sounds like an interesting place for a ‘reasonable man’.

          21. LIAD

            Nice retorts. You and me are going to get on just fine.

          22. falicon

            I believe the point of his post was that you should be able to figure out a good name where the dot com is either available or at least ‘affordable’ for your current stage.Names only bring a tiny fraction of value on their own…the company, the people, the branding and the marketing are what really build the value and reputation behind a name.Getting stuck on a specific attribute or name too early in the game will make it that much harder to move forward and thrive.

          23. LE

            where the dot com is either available or at least ‘affordable’ for your current stageTrue and a good start but what many fail to realize is that certain owners will raise the price of the name after the startup has visibility and/or additional funding. [1] Meaning what you can buy the domain for now is not necessarily what it will cost you down the road when you are in a position to actually purchase it. There are a few creative ways around this problem of course.That said there are many cases where purchase is a non-starter from every angle you look at it. For sure that is a situation that needs to be avoided. This is by far the most common mistake that startups can make.[1] Or in some cases another company comes along and buys it before you can purchase.

        2. LE

          Maybe when you’re one of the biggest brandsTo be clear they aren’t selling anything that requires the identity created by that web address. However even if they were, they are a special case simply by the large presence, footprint, and recognition that they already have. [2]For example, if you are the White House your mail will arrive even if it doesn’t contain “1600 Pennsylvania Avenue”. [2] Ditto of course if you are in a small town and everybody knows you as a flip case.[1] Prince at one point was “the artist formerly known as Prince”. There was a point at which some artists decided to use a single name rather than two. Most still use two names, right?[2] Same with Santa Claus.

        3. Dale Allyn

          For a project with which I’m involved we have the .com, .net, and .org TLDs as well as all of the likely misspellings of the .coms, plus several key topic .coms which relate to the project. Some are for defensive purposes, and some for helping confused netizens trying stumble in.Likewise, Twitter and FB accounts. It’s all just part of starting something these days. We’d have changed the name if we couldn’t get the .com at minimum.CC: @domainregistry:disqus

          1. LIAD

            For sure. Lack of twitter handle is deal breaker for me these days

          2. Dale Allyn

            Agreed. For Twitter we’re seeing some “modified” handles out of necessity, such as “@SlackHQ”. It’s worked well for them, but they have their stuff together, too. And they own and operate as a blog to tie it all together.

        4. Mark Essel

          I can see app only products not requiring a domain for some time. But they require visibility in the app marketplace, and it can’t hurt for search to find their app install link (ASO + SEO).Gotta agree with @awaldstein here, cost of initiating a business has gone down, but the cost of gaining attention has gone up.

      2. LE

        Does he know how much the dot-coms cost?You must not know who Paul Graham is I am suspecting.

        1. Jess Bachman

          The question was rhetorical.

          1. LE

            Doesn’t seem like a rhetorical question to me.

          2. Jess Bachman

            Ok, well of course PG knows how much they cost, which means he thinks the .com is an acceptable business expense for early stage startups.

          3. kidmercury

            have to side with jess in this beef. it is painfully obvious that the question was clearly rhetorical.

      3. LE

        Bit of a coup for the folks running .xyzWhat will happen is speculative registrations will outnumber real registrations by a extremely wide margin. Most people doing speculative registrations have no clue how long they will wait until a buyer comes along that is willing to pay a decent price and that you need a large number of speculative registrations to even stand a chance of ever making a cent back.

    3. BillMcNeely

      Do you have a link to that PG essay? I would love to read it.

        1. BillMcNeely


    4. LE

      Only rule is there aint no rules.Rules are different for the little people than they are for the big people or special people. Steve Jobs was able to drive around without a license plate in silicon valley. [1] Trump is able to get away with what any ordinary politician could never even imaging doing. The United States of American can do things that no podunk country could ever get away with. The rules haven’t really changed.[1] Which always raises my philosophical question of “why does Bill Gates continue to wear a suit”.

      1. CJ

        Success is its own rule.

    5. LE

      Noting that the market for any product is typically self correcting. [1] Owners of .com, if they felt the price of their asset is decreasing, would sell that asset for a lower price thereby making it more attractive and potentially countering the effect of the encroaching competition if it was in fact a threat. And in any case as quite often happens the company that chooses the .something ends up back to buy the .com when they have more money, if they ever get to that point that is.Domains are like real estate in some ways but not like real estate in other ways. With physical real estate (take Manhattan vs. Brooklyn for example) we have many cases where someone priced out of the former market resides in the latter market and that market ends up increasing in value because of demand. But note that the former market “Manhattan” has not decreased in value but has continue to increase and be seen as desirable by a great deal of people. And this is not unique to NY Metro area either.[1] Remember what happened with the Saudis and oil prices falling?

      1. PhilipSugar

        I think they are like real estate at the beach.You are either on the beach: great .com nameYou are close to the beach: ok .com nameorYou are not at the beach

        1. JLM

          .Excellent analogy. I would say “spot on” but I have sworn off that for the rest of my life.Well played.JLMwww.themusingsofthebigredca…

        2. LE

          Would also add that it’s better to have a small place “at or close to the beach” then no place at all. Stuff yourself into 1 room if you have to.I remember when I was younger we had these friends who kept putting off getting a place at the beach. Why? Because damn it if they were going to have a beach place they were going to do it “Gordon style” (their last name..) As each year went by property values increased and they weren’t even able to take advantage of that appreciation because they didn’t own anything.Here is the thing about beach property. Each year there is an entire group of people – young kids, relatives, friends that end up coming and enjoying someone else’s beach or close to beach property. Assuming the weather is nice (a big if on the East Coast as you know) they end up having a great time. [1] When these kids grow up or when the friends end up with money they then come onto the market (which as you know is quite limited and constrained) and want to buy their own property. Which is why in any reasonably desirable location (as opposed to, say, Atlantic City) prices consistently go up.People always say prices go up because “they aren’t making any more land”. But it is actually more than that. It’s because there is a predictable supply of people that are being exposed to the product which then will become future buyers of that product in one form or another.[1] I also have this theory that says if the weather is nice on holidays at the beach it really goes to further the future interest and desirability of beachfront property simply because more people are exposed and have a great time. (Like remembering snow storms as a kid..)

          1. PhilipSugar

            One of the things my wife can give me a great big I told you so was she wanted to buy this property at the beach. It was a run down place. You could see the sand from inside the house. But it was a prime, prime lot in Dewey. Big lot beach block.I said they want more for this than I paid for my house at the time. Just the lot has gone up 8 fold. They tore down that house and put in some big condo’s.

          2. LE

            I have an ex brother in law (the one who worked for Apple) that bought a house in poor condition at the Jersey shore in the early 90’s very cheaply and renovated it. I remember asking him “are you putting in Gas or Electric” and different questions about the renovations. He had no answers he just said “don’t know the contractor is doing all of that stuff”. Like he hires some guy, guy gives him prices, he goes for it. (Honestly just like that…).Well years later you know what has happened. Doesn’t matter market went up and as they say “rising tide floats all boats”.If your wife gave you a convincing argument at the time as to why she was right and you were wrong then she has the right to say “I told you so”. If not she can’t claim the victory the way you tell the story.My Dad fought with my mom (she was very conservative) and ended up buying properties literally behind her back (in Old City Philly). He had to setup a separate slush fund to do this or something like that. He bought because he was in the area everyday and knew what was going on on a gut level. He could feel the activity and the beat of the place. My mom was my mom she wasn’t smart enough to be convinced. So he just did it. (He would stalk widows after their husbands died in one case bought a place for 14k iirc.)My point is taking a gamble is not the same as being right because you have carefully considered all of the factors and come to a particular conclusion. My ex brother in law simply gambled (was 100k which he needed to mortgage at the time) and it turned out right.But the same guy also got sucked into buying property in Arizona which he lost on. When he did that I thought “why Arizona?”.As my Dad would say “people tell you about their wins but not their losses in the stock market”.

          3. PhilipSugar

            Oh, she knew and told me. She was right.

          4. PhilipSugar

            And I agree a small house at the beach is much better than a big house where you have to drive to the beach.If you look at what bankrupted Wilmington Trust it was the fact they loaned money for people to build big houses a couple miles from the beach.The thought was hey if that little house on the beach is worth X this big house two miles from the beach is worth X.Nope.Rental values prove this out. Want to rent a house on beach block??? You can rent every weekend. Two miles out??? Never.It is exactly what you said. I stayed with my kids in a hotel that was a literal dump but right at the beach. Paid the same price as I did to stay at the Waldorf Astoria Suites. Not the regular Waldorf rooms, I was next to Winston Churchill’s room. You have your own entrance and elevators.

          5. LE

            Noting also that you could take kids to the Holiday Inn in Edison NJ (if there is one there that is) and use the indoor pool swimming next to white trash and they would have a good time. Very few kids at a young age (younger than teens) have any clue as far as nice or quality.They won’t even notice the specific surroundings until post puberty.

          6. PhilipSugar

            No the beach is the beach.

          7. LE

            No my point was they don’t care about the hotel as long as there is water to swim in. So my example used a shitty hotel in Edison NJ as opposed to the Ritz Carlton in NYC with mints on the pillow. Actually they do like the mints on the pillow.

    6. LE

      Rahm Emmanuel has a saying such that “never let a good crisis go to waste”. So on the buy side here (I both buy and sell) I would use this info to my advantage to goad and FUD people that I need to buy .com’s from into believing the value of their asset has now decreased and will decrease further going forward. [1][1] And some will no doubt end up believing me if I spin it in a skillful way.

    7. Twain Twain

      Owning .com, .wtf (@wmoug:disqus), .googol doesn’t matter.Two things:(1.) It’s a holding company not the brand name of the products themselves or the name of the operating entities, and it’s only those which would appear as line items under brand value and goodwill on an accounting basis.(2.) It’s whether Google owns trademarks for Alphabet which matters.

      1. Twain Twain

        @liad:disqus @wmoug:disqus @jessbachman:disqus @eliafreedman:disqus @billmcneely:disqus — following up on my comment above, here’s BMW and its Alphabet trademark issues:* http://uk.businessinsider.c…Notably, Cisco and Apple reached an agreement to use the iPhone trademark; Cisco originally owned it.BMW may reach an agreement with Google for the Alphabet trademark.

        1. Twain Twain

          Then BMW posted this.

    8. Elia Freedman

      I went a little nuts yesterday when I read his post. Thought I was going to lose my mind as I was going to use a .io for my domain. (.io has some significance for my product.) But then I realized that while .com is important, the company name is less so. We can make the .com work. For instance, 37signals used (I think) for years. It isn’t as clean as but it is pretty close and will appear high on searches for basecamp. When they could afford to purchase, they did and dropped the hq part. I think that still follows Paul Graham’s advice.

    9. prceurope

      Except this from the announcement “I should add that we are not intending for this to be a big consumer brand with related products.”

    10. Alex Dunsdon

      Don’t think matters as non consumer facing holding company / brand

  4. William Mougayar

    4 comments on this:1/ When things get big within companies, the only way to manage it is to keep breaking it up in smaller pieces. What Google did was brilliant and they are allowing each chunk to be independent and strong going forward.2/ The stock has shot up by +$130 since mid-July and no one could really explain why, so it seems like there was a controlled leak somewhere.3/ I love the name abc@xyz. But I think the name Alphabet is a bit pretentious. Regardless, there is a bit of fun in those names: it says- you can call us whatever, and we’ll be in any business we want to be in, from A to Z.4/ The Wash Po article captures well what has happened:”With this move, Alphabet is formally acknowledging that the era of search is receding into the rearview mirror and that the era of the Internet of Things has truly begun.”Oops got to go. Alphabet just called, they want me to run their W&M divisions.

    1. awaldstein

      Agree a cumbersome name. They will become know by their url I am certain.

      1. William Mougayar

        It is what it is. Poking fun at one self at that level is something to be highly respected. Apparently, it also means Alpha + bet; above average bets. Smart.

        1. awaldstein

          Google has always been smart.Not necessarily marketing smart but smart is the edge of their personality and brand obviously

          1. Jess Bachman

            Yeah I bet the and Alphabet came down from the top. Before their marketing dept had a chance to ruin it. They should do more of that.

          2. awaldstein

            Google has a marketing department?

          3. Twain Twain

            It could also be because Google is increasingly competing with Amazon.See Amazon’s logo? From A to Z

        2. Vasudev Ram

          My guess is that they meant the name to be many things – again, programmers and word play, as I commented earlier in this post.And one of my guesses as to the meaning is Alphabet as in A to Z – meaning they want to work on any / many areas, not restrict themselves to just some. IIRC, Larry is known to have said something on those lines to Andy Rubin (former head of Android) when he was moving on to other things – “more moon shots, please, Andy” or words to that effect.Edit: searched for “more moon shots please” and found:…among other hits.Also, as I said to someone a while ago, for L & S, after having done a moon shot themselves (Google Search), doing anything much smaller would seem pretty tame …

          1. William Mougayar

            I like that last paragraph. I’m sure it’s nagging them internally.

    2. Twain Twain

      Here are some likely reasons they called it Alphabet.

      1. William Mougayar

        Good ones 🙂

  5. Bernard Desarnauts

    That’s an incredible move – only possible from their foresight so long ago to maintain dual-class stock structure etc. Probably genius move and the markets seem to agree.

  6. creative group

    When a company can wow and amaze you by doing what you least expect and push the innovative needle you realize you are witnessing something very special.

  7. kenberger

    sort of reminds of the exact opposite of how Obvious Corp / Twitter went.

  8. Tom Labus

    The move provides some additional financial clarity for the new stuff but control remains exactly where it always has been with Sergey and Larry.Their best move over the years still remains that control. I’m suprised others don’t follow suit.

    1. Twain Twain

      Examples of dual-class structures include Facebook, LinkedIn, Alibaba, Amazon, Newscorp, NYT Group, Under Armour, Nike, Comcast and Berkshire Hathaway.Twitter decided on no dual-class structure for its IPO. Some may argue that that makes its share price more vulnerable to the whims and pressures of investors because its founders don’t have the same voting controls as FB, Google et al.Institutional investors can be terrific resources. Equally, founders (especially the technical and product ones) really do bring value that goes well beyond balance sheet engineering.So enabling them to make tough decisions and “GO FOR IT” because dual-class structures are in place can produce exceptional ROI for investors.Just think…2006/7: Yahoo offered $1 billion to buy FB. Zuckerberg had control so could persuade his board to reject the offer.Q3 2007: MS made a strategic investment that valued FB at $15 billion.May 2012: FB’s IPO valuation is $16 billion.Aug 2015: FB has a market cap of $265.7 BILLION.

      1. Tom Labus

        Requires complete trust in those that can vote

        1. Twain Twain

          Absolutely. It requires complete trust that CEO and mgmt isn’t just going to burn the cash irresponsibly and pay themselves ridiculous salaries & benefits.It really is territory for investors with the guts to back mission-driven founders who will change the world and not just make fast bucks.Founders like the Page-Brins, Zuckerbergs, Mas, Besoz etc and their teams.

        2. JLM

          .Why should an entrepreneur/founder — who can retain control — ever give up control?JLMwww.themusingsofthebigredca…

          1. Tom Labus

            Some founders lack complete conviction in their own mission and are “persuaded” by a pile of cash to move aside. But public cos are owned by the shareholders so dual citizenship kinda violates that big time. We need an activist opinion.

          2. JLM

            .Overlooking my normal bias toward favoring the interest of entrepreneurs/founders/CEOs, fresh blood at the top for an enterprise that has its legs under it is very healthy.There are professional managers out there who can allocate resources better than founders who have a bias deep in their DNA because it is their baby.Shareholders need to know what they own and who they are backing.You are right, it is like dual citizenship.JLMwww.themusingsofthebigredca…

          3. boteman

            Because the founder doesn’t have the knowledge or skill necessary to grow the company BIG. Many are the examples of the tech startup whose founder won’t relinquish control, yet is strangling the company by being spread too thin.

          4. JLM

            .Then, the founder brings in the right management while still retaining control of the enterprise.Founders have vision. Visionaries take companies and people to places where they would never get by themselves.Managers are resource allocators. Managers make sure the journey to the promised land is pleasant and effective. This is almost a logistics exercise.Control is a cap table issue.A founder can relinquish the management of her company while still holding on to control and this showing up in the cap table.JLMwww.themusingsofthebigredca…

          5. Rob Larson

            Why should an entrepreneur/founder — who can retain control — ever give up control?Agreed. I get the impression some public investors feel that their rights as investors are getting abused by entrepreneurs who retain control. Nothing could be further from the truth. Investors are only entitled to whatever rights the founder sells to them.If they feel this leads to a sub-optimal situation, and that removing control from the entrepreneur would lead to greater value creation, then they are free to vote with their share purchase decisions, which influences the share price. Thus share price = the “negotiation” over control between founder & investors. If the founder ever becomes convinced that his valuation is overly depressed due to lack of investor confidence in his leadership, then at that point he can decide to “sell” the control to the market and dissolve the dual share structure. But given what i’ve seen from investors & founders (and given the short avg investor holding period), 9 out of 10 times I’d rather have the founder retain control of any company I own shares in.

          6. JLM

            .Rob, yours is a very reasonable and informed voice. [I say that to everyone with whom I agree.]If the founder is going to maintain control of his foundling, then some investors are comforted. The ones who are troubled, should not buy any stock.More importantly, the founder has told everyone that is the deal.In many instances, that is a huge comfort.Berkshire-Hathaway will not be the BH of yore when Warren Buffett dies.JLMwww.themusingsofthebigredca…

          7. Rob Larson

            Well said

      2. pointsnfigures

        Ford also has a dual class structure; Berkshire has BRK-A and BRK-B

        1. Twain Twain

          Thanks, for this.Just curious, as an angel investor, are you pro or anti-dual class and why?

          1. pointsnfigures

            Never had it confront me. Really reserved for IPOs and much later stage financing. At an early stage, I want preferred shares.

          2. Twain Twain

            I’m now wondering if YCombinator startups are dual-class? There was a period where terms were “founder-friendly” and I know Dropbox is dual-class.Then there’s Zynga which is triple-class; Mark Pincus had 70 times more voting power than other investors, apparently.

      3. Vasudev Ram

        >2006/7: Yahoo offered $1 billion to buy FB. Zuckerberg had control so could persuade his board to reject the offer.I think I read somewhere (*) that Google (L&S that is), in their early days, offered to sell Google for $1 million – maybe to one of the existing big search engines of the time – Yahoo / Lycos? And they said no.(*) Maybe in the book “The Google Story”.

        1. Twain Twain

          “Google is our friend”…(1.) Vinod Khosla, TC Sept 2010: Excite declined to acquire Google for $1 million.*…(2.) 1997: Yahoo declined to buy Google for $1 million, quoting from ‘The Google Story’:*…(3.) Terry Semel, then CEO of Yahoo, May 2006: Yahoo declined to acquire Google for $1 billion (around 2001/2).*…Lots of lessons to be learned from the stories of all the great techcos and businesses about how founders don’t know from the start what value they may build and how investors don’t know either.This is why everyone needs to be open-minded, open-hearted and GET ON WITH MAKING STUFF, TRYING IT OUT, DOING STRATEGY, SHIPPING IT & IMPROVING ON IT.

  9. Brad Lindenberg

    In the last 4 yrs revenue has gone from $37bn to $66bn yet profit has gone from $12bn to $17bn. There is $29bn in gross margin they are spending on non-core business. If their new CTO curbed that back to $20bn ebitda will rise 52%, and I think Alphabet is the first move in the chess game for something like that to happen. I’m a buyer.

    1. JamesHRH

      Thanks for these numbers.Eliminating the hubris could double the stock price for sure.

  10. BillMcNeely

    Do you have a link to that PG essay?

  11. JamesHRH

    Come on – like its an amazing breakthrough to get a pro in to run the cash cow while the founders get to run the lab.What will be amazing is if they do anything else of note.They are the greatest startup founders of all time, but far from being great business leaders.

    1. SubstrateUndertow…”Alphabet is therefore the “holding company” of Google A+, Google A and Google B. I can only suppose that the separation of A+ from A (and the previous A from B) allows the founders to distance themselves even further from the purchase decisions which, through pricing signals, determine where value lies and how resources should be allocated. That must be a great relief.”

  12. thorsky

    Gutsy, uncommon, and definitely the right strategic move. So many big companies fail over the long run by focusing exclusively on the business that got them there rather than on new opportunities for growth. So it’s fun to see the leader of a large organization take such a dramatic, concrete step to promote innovation, rather than just giving it lip service.It seems to me that the key to success will be managing Wall St. expectations for the Google entity. Greater transparency means Wall St. will start tracking new metrics on the core business, and you can bet they’ll also start demanding more growth in those metrics from management. If management can deliver, or successfully ignore, those demands, this will be fantastic.But that will be hard to do, especially if we see an economic downturn and/or the core business delivers less than the Street thinks it could. That will put Sergey and Larry’s long-term capital allocations under much more intense scrutiny, scrutiny they didn’t have to face back when those decisions were made under the cover of the combined entity.But if they can manage or ignore all that chatter, this new structure should give them terrific focus on their new businesses. Exciting!

  13. William Mougayar was taken.

    1. JimHirshfield

      That’s funny! Good one Wm!

      1. William Mougayar

        you were a few minutes late, so i had to crack a joke to keep the audience distracted.

        1. JimHirshfield

          They get restless

    2. Richard

      Feels like a scene in the movie rounders. Got to love Google going all in on this.It either alpha bet or alpha but

      1. William Mougayar

        good thing they didn’t call it 27bets…would have been tacky.

      2. Vasudev Ram

        >Feels like a scene in the movie rounders. Got to love Google going all in on this.Like a lot of programmers, they (Google) are into word play, inside jokes, etc. See:

    3. Rick

      What’s different or new in google alphabet? For a century companies have had divisions or owned other companies that they guided. It’s the standard organizational hierarchy. You place fewer people at the top and more and more people on each lower level. Leaders at the top guide the next level down who then guide the next level down etc.

    4. Mark Essel

      hahahah, our team at Cameo was hipchatting each other random domains ending with .xyz. My favorite, the real alphabet

  14. andyswan

    Google is focused like a laser….on everything.(Not my quote—but I like it)Look I agree with everything Fred said in this post. BUT– there is a downside to this kind of thing. Look at GE over the last decade….still trying to sell off cash cows.I can guarantee you that Fred wouldn’t invest in a startup with this kind of structure, and for good reason. This is different though…this is a breakup without the breakups…yet. This is CREATING startups not building one. And an acquisition engine (oh hey $TWTR).Tldr

    1. andyswan

      Don’t try this at home

    2. JamesHRH

      Look, when you pull the lever on the greatest single business ever created, I think some lattitude on getting to run a nicely appointed lab full of projects is allowed, don’t you?And corporate innovation (stuff that Fred would never invest in) does occur – check out P&G over the last 15 years.But, the chances that Larry & Sergey get their scrappy post-grad ‘ stealing CPU cycles from the U to prove we are right ‘ mojo back are < 0.000000001%.In a weird way, they are irrelevant.

      1. CJ

        Genius is never irrelevant. I’d argue that this move proves that they are more relevant to the entire portfolio than they realized and broke it up so that they can spread their genius across the companies in the portfolio easier without having the be ultimately responsible for the day-to-day at any of them.This is a macro vs. micro move. It’s all about leverage.

        1. JamesHRH

          The issue is that polymathic genius is almost unheard of in any field.Larry & Sergey are information sciences / web geniuses. Business geniuses they are not. Everyone lauds their dual share structure…it is widely considered an amateur hour move by investors at all levels (I can’t shape my destiny so I will control it instead). People respond with ‘ they could do it and most founders can not – you are just jealous. ‘Like I told my son when he was 5 – just because you can, does not mean you should.I agree that it is a macro move….its just that the C-suite @ Alphabet is a one trick pony and their 2 time loser babysitter (speaking as pejoratively as possible to make my point)…….so you are leveraging people with no track record at conglomerate portfolio management.Now, if this cat –… – was in the C-Suite @ Alphabet, you would have some leverage.

          1. CJ

            Yes and yet they are winning. They’re not doing it in the tradition of old, they’re shaping their destiny as they go. They’ll make some missteps along the way but it’s clear that they don’t want to follow the blueprint but create one instead. Some will buy into it, others won’t. I don’t think they care too much as they control the company, public or not.

          2. JamesHRH

            Well, what is your yardstick: personal destiny or performance?Could be having two different conversations here.

          3. CJ

            Honestly, I think they’re winning at both. They get to do what they want and they’re killing in market value and making money hand over fist.

          4. Twain Twain

            P&G is one of those top case studies in b-school.They innovated in and delivered on physical products, delivery channels, brand values and inclusion AT THE SAME TIME.*…Silicon Valley techcos have some catching up to do in business innovation. This video is from 2011 and P&G were already well-ahead on their execution.SV techcos didn’t even start reporting on diversity data until 2014 and have limited strategies to “change the world” in this area.

    3. JLM

      .I suspect that in some measure this is an attempt for Google to put structure around its “intrepreneuring” efforts.This is a difficult thing to do well and nobody can criticize Google for not buying what they can or what they find more difficult to make internally.Google is pretty damn good.JLMwww.themusingsofthebigredca…

    4. Richard

      The risk here is that Google is trading the “what would Google do” culture and brand for an unknown. If alphabet can’t replicate that across its other letters, it will turn out to be scrabble.

      1. Vasudev Ram

        > it will turn out to be scrabble.Or a spelling mistake – which Google Search is good at correcting (for us).I’m not sure if that is some kind of Zen-like joke or not – just thought of it 🙂

    5. Doug Gibbs

      It sounds like a Berkshire Hathaway model to me. They are doing a copy of Warren’s business model. The big advantage is moving capital around inside the company is easy. If they want to play in revolutionary markets, they can pour money into the companies from the cash cows.

  15. Matthew Perle

    It looks like the right move structurally, but they are essentially moving away from their core competencies of search and advertising by becoming a conglomerate. Has there ever been a company this large that changed their core business and succeeded?

    1. William Mougayar

      I don’t think they are changing their core with this re-org. The changes have been happening for a while. They have empowered themselves to better manage this diversification.From a diversification point of view, GE and Berkshire Hathaway come to mind.

      1. Matthew Perle

        The core that got them to this point was search/ads. The other businesses they’ve gotten into haven’t had a material impact on their earnings.Not sure about GE, but Berkshire under Buffett has always been an acquisition vehicle.

      2. pointsnfigures

        Private Equity firms, though. Not VC. Different game. Think AlphaBet will be a relatively hands off partner like Berkshire?

        1. William Mougayar

          But still, diversification is the key theme I was pointing to.

          1. pointsnfigures

            Right. Counter argument: Do I want Google diversifying my portfolio for me, or would I prefer to do it myself? (not thinking in terms of VC investments, but publicly traded stock investments)

          2. William Mougayar

            well, they are doing a good job it seems. investing in the future is not an easy thing.

          3. pointsnfigures

            Agree. So, as a shareholder of Google do I want them doing it for me? Or, would I rather have the money handed to me in a dividend so I could invest in several VC funds that I chose?

          4. William Mougayar

            but not everyone is as sophisticated and capable as you are, to understand these nuances.

          5. Vitor Conceicao

            Amazon is doing the exact same thing, they just haven’t restructured themselves into a holding company yet, but I think in due time they will end up following Google’s path.I also think that Tesla is going into this direction with the bet on home batteries.Looks like we will see conglomerates becoming fashionable again.Interesting topic to discuss.

          6. William Mougayar

            Good point re: amazon. If you fetch well inside, they are more than e-commerce.

          7. pointsnfigures

            Not about me. It’s about markets making better decisions than individuals (which is why I also detest buybacks)

          8. SubstrateUndertow

            By what metric ?

          9. William Mougayar

            Market cap & stock price (from an investment perspective)

        2. Jess Bachman

          Ha, right. Alphabet is intrinsically linked. Almost the opposite of Berkshire. Both by blood and money. There are GOOG employees now who don’t even know who they work for.

      3. Salt Shaker

        GE was a conglomerate of disparate companies (NBC, GE Capital, GE Appliances, GE Engines). Company became unwieldy and lost focus. Alphabet presumably will be single-mindedly geared towards providing tech based solutions across a range of sectors (e.g., healthcare, transportation).Interesting how WS had problems w/ diversification before re-org but is embracing today. It’s as if the Principal now says it’s okay for the lads to play in the courtyard.

    2. pointsnfigures

      Koch Industries is a conglomerate. GE. It’s few and far between. Operations and management is tough, and often don’t scale. But, the old 1970s-80s conglomerates were manufacturing, hard industry based. Will be interesting to see if a software tech business can be a conglomerate and scale internally.

      1. Matthew Perle

        I think Betaworks might be the closest a tech company has come to being a conglomerate in the mold of Koch or Berkshire. I don’t know of any who have grown with a product then made the switch though.

  16. pointsnfigures

    Interesting that you put it that way. My friend @chicagosean tweeted that Google now is generating “alpha” through “bets”. I recall my professors in business school saying that conglomerates come into fashion and go out of fashion. Few actually have staying power and work. We will see if Google can pull it off. Markets make better decisions than individuals, unless individuals have asymmetric information or some other built in advantage. Simply being smart and having more money isn’t always an advantage but it helps.I don’t have an opinion, but Google like you pointed out has a steady gusher of ready cash that doesn’t seem like it will run out. Seems to take risk away.Here are a couple of antithesis thoughts I gleaned from the web: Classic case of a cash-rich firm, with smart founders who may have way too high a view of their “visionary” abilities. Instead of giving cash back to shareholders, they are spending it on the founders’s views of what a good investment is.Is Google’s Board of Directors asking skeptical and probing questions about why the company is best to invest VC money? What would happen if they gave all the cash to shareholders?

    1. JamesHRH

      Alpha thru bets, if true, is PMarcA / A16Z ish impressive.

      1. Girish Mehta

        Actually, Larry said it in the announcement -“We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!”…

        1. pointsnfigures

          my friend isn’t so witty!

    2. Salt Shaker

      Well, I doubt they’re going to bet the farm w/ any significant reallocation of capital. Creating a holding company reduces WS pressure and allows the boys to play w/ new toys, w/ GOOG, the cash cow, providing funding. None short-term will likely impact GOOG’s financials.Any comparison to GE or Berkshire w/ new structure is totally unwarranted. For example, GE was a hodgepodge of disparate companies, NBC, GE Capital, GE Appliances, GE Engines. Alphabet investments presumably will be single-mindedly geared towards delivering tech based solutions across a range of sectors. It’s investing in and doing what the boys do best.

    3. Rick

      Hmm… Remember Microsoft? They were the can’t lose leader of tech for decades. Is this the bet that kills google? When has one small group having all the money and all the control ever done good for the world?

  17. William Mougayar

    I’d like to know who was the brilliant person who came-up with that combination. In one stroke, they also upped Apple and Amazon.- Alphabet is ahead of Apple & Amazon, on alphabetical sorting- sure beats Amazon’s A–>Z

    1. pointsnfigures


      1. William Mougayar

        can’t deny the influence.but we could say avc started that trend many years ago. it took them a while to catch up 🙂

    2. JimHirshfield

      “upped”? You mean the advantage of being listed prior to Amazon and Apple in the Yellow Pages??? 😉

      1. William Mougayar

        online lists, whatever…

      2. LE

        Good one! You have reclaimed the title from William for his “” earlier today.Anyway on this topic please see this excellent WSJ article about an essentially nobody author in part:…Almost every paper by “G. Aad et al.” involves so many researchers that they decided to always list themselves in alphabetical order. Their recent paper, published in the journal Physical Review Letters, features 24 pages of alphabetized co-authors led by Dr. Aad. There is no way to tell how important each contributor might be… https://uploads.disquscdn.c

  18. Twain Twain

    Google’s restructuring is not all that interesting. What’s more, “Seriously?! What?!” is they’re proposing we all swallow pills with microchips everyday which will let them do User Identification and Authorization on us (and presumably track our location as well as our innermost bodily functions — maybe even our brains, over time).Yes, as in the Matrix: “Take the red pill or the blue pill.”Apparently, the pill is already FDA-approved.*…*…Regina Dugan who heads Google’s Advanced Technologies and Projects Group was previously Head of DARPA.

  19. Joe Marchese

    They have long been the leaders in technology innovation, but laggards in business model innovation. All business models have been in service of search. I’m hoping this marks an inflection point where the all-around innovation leads to broader and deeper growth.

  20. LE

    What must be scary from an investors point of view is that it’s very clear to me that much of this has to do with the vanity and personal interests of Larry and Sergey and is not possibly grounded in good business sense. [1] I am not talking about the structure they have created (that is fine and in response to what the market wants) but the underlying bets that they are taking.For example back when I was in my first business (80’s) I bought a multi user unix computer and proceeded to write programs for the business to automate it. I was able to justify (to myself) that I was doing it for business purposes. And in fact it was a smart decision and it paid off in many ways (can’t even begin to go into that). However the biggest driving force that caused me to invest in the expensive computer system (and it was very expensive back then) was that quite frankly “I liked and wanted to play with computers”. That was actually the primary driver and motivation. There is no question in my mind that Larry and Sergey are driven by the same mentality. I know it when I see it. It’s about them and what they want to spend their time on. It remains to be seen of course if any of these bets end up paying off. The thing is, back when I “played” I was using and risking 100% of my money and would take the fall if I was wrong.[1] Similar in a way to Fred investing in music startups because he has an affinity for music. He is not detaching his own personal interests from cold hard business judgement.

  21. Twain Twain

    No leaks, no speculation because the last two times Google did anything wrt advance notice to press, Wall St and end-users this happened…@fred — maybe Google realized they’d “Been there, done that” and had learnt those lessons on PR and push-out.

    1. William Mougayar

      If you look at the stock chart, it has moved +$130 in the past 30 days. Someone knew.

      1. Twain Twain

        The spike up happened mostly following 16/17 July after Q2 earnings call.GOOG mgmt likely provided information about how they could better manage their “moonshots” and monetize them without cannibalizing / harming existing cash cows.Another aspect which hasn’t been covered in comments is to do with European regulators and the scrutiny / potential fines they’re considering.The new structure may enable GOOG to be more nimble about those issues.

      2. Twain Twain

        Here’s the stock chart.Here’s a true story and example of how UK missed the boat on an opportunity. Back in 2000 I was working at a data startup (jv with the FT). I proposed a product where we track corporate activities with news timelines attached to share price line graphs — similar to how Google Finance started doing it in 2009.

  22. Salt Shaker

    In many respects, done to appease WS (or at the very least reduce some of the pressure). So, the boys created a holding company (out of boredom and/or a legit need) and can now play in many sandboxes w/out too much fear or criticism from the Street cause of a re-stated corp objective. Google likely always will be the cash cow, but re-org makes it easier to explore, create and scale non-core businesses.

  23. Humberto

    Another complexity to be dismantled when the founders leave in a few years.Only focus lasts.

  24. TeddyBeingTeddy

    Step 1) Internet everywhere – balloonsStep 2) Google Contacts – the next evolution of Glass Step 3) Robots. Leveraging Boston Dymanics – military use first, eventually used in commerce Step 4) Buy TeslaStep 5) Driverless cars, leveraging all the above in addition to MapsStep 6) Robot insurance and service contracts. A monopoly.Global domination baby! Or should I say Google domination!

  25. george

    Google financial engineering at its best! I’m more impressed when they announce product/service inventions but this is a really sweet move! They just proved out the value theory – repositioning the portfolio would extrapolate more underlying intrinsic value into the markets…

  26. William Mougayar

    1/ Thank 2/ You 3/Charlie.

  27. LE

    Along those lines I was annoyed the other day when Carly Fiorina decided to try and be so cool and with it by doing the “.” after each word punctuation. I hate that type of thing.

  28. awaldstein

    Add an excess of capital to that, shake well and you have the market climate.

  29. Drew Meyers

    lots and lots and lots of noise

  30. JamesHRH

    I agree – just subtract 99.9% of the ‘business genius’ hoopla.

  31. Twain Twain

    Reasons for a merger?I’ve spoken with Amazon’s CTO and Google’s SVP of Search at conferences, so would say their cultures and strategies are different.Amazon takes pride in the fact people don’t go through Google search to buy products from their platform and now they’re ring-fencing those customers (and recurring revenues) even more with Dash button and Amazon Echo.If anything, Google’s playing catch-up to Amazon in directly linking search results with product purchases. Amazon has 10+ years of data on what people are buying that Google doesn’t have.Ha, okay, if they did merge the combined company literally would cover A to Z of products & services we need online.

  32. Twain Twain

    Haha, Charlie, you’re one of my teachers on AVC alongside JLM, William, Le, pointsandfigures, Jim the wit, JamesHRH and others!When I was a young Turk banker, all sorts of mergers & acquisitions seemed to make sense. That’s what the banks train its top 1% to look for on the balance sheets and those equity analysis metrics.However, over time, I’ve learned that the cultural fit factors have dimensions which don’t fit neatly into any cell on the spreadsheets.

  33. JamesHRH

    It is a gold product and a last place business.It is defensive and it ceded the margin in the space to Apple.

  34. JamesHRH