The announcement earlier this month that Google was to restructure as one division of a new holding company called Alphabet (abc.xyz) caught the IT industry by surprise. No one saw it coming.
In the new setup, Google's computer scientist co-founders take the lead roles: Larry Page will become Alphabet's new CEO, and Sergey Brin its new President.
Meanwhile, the Google division of the new organisation is still going to generate over 90% of the organisation's revenues. Taking the helm is Google's product supremo Sundar Pichai, who moves from leading product and engineering to be CEO of the 'slimmed down' Google division.
Google's shares are redistributed one for one as Alphabet shares under the same NASDAQ trading names of GOOL and GOOG. But 'slimmed down' in this context just means moving current Google non-core activities to another place in the structure outside the Google umbrella.
That's where that final 10th of revenue comes from: A series of ventures which will each now become divisions of Alphabet with their own CEO. It's not yet clear how all these divisions will fit, but the companies created are likely to include Fiber (Infrastructure), Calico (Biotech and anti-ageing), Nest (home automation) Life Sciences, Ventures and capital (investing) and Google X (driverless cars and drones amongst others). The objective will be to grow their revenues as spectacularly as Google has managed to do in past years.
However, today, Google shareholders still own exactly the same portfolio of revenue earing companies and technology pot-boilers as they did a few weeks ago, and Larry Page and Sergei Brin are still the two Google founders in charge of the whole operation. So exactly what has changed?
Firstly the re-organisation is a powerful signal of the determination of Page and Brin to move beyond search and search-related revenues as the place to further build and develop the bigger organisation. Perhaps with such a huge share of most of these markets already, concerns about limits to growth were becoming apparent, but in any case, Google's engineer founders have always been ambivalent about ad-sales as a business model, even for search; so to end up with a huge company and brand which is almost entirely reliant on such revenues may strike a dissonant chord with them.
The new structure makes it easier to manage and develop the diverse Google X incubator projects that are already in progress, such as drones or driverless cars. And these are the areas that seem to excite Page and Brin. It also makes it a little easier to make key new acquisitions to the Alphabet portfolio without all the complexities that bringing known brands into a top draw brand like Google have presented in the past.
It also creates a structure with its own proven cash generation capability in Google as well as its own investment operations (Ventures and Capital).
Finally, it makes the CEOs of a series of new, and well-resourced companies feel much closer to the aims of a new, larger, organisation, while still able to run their companies more like the start-ups that Google once was itself...
So both in term of acquisitions, which one might reasonably expect to accelerate under this new model, and new company development and or acquisition, the structure can be seen as more supportive of Alphabet's long term goals of further innovative growth, that the previous Google one.
The much-quoted model for this new structure is that of Warren Buffett's Berkshire Hathaway, the US holding company which has managed and monetised a portfolio of successful US companies through an engaged conglomerate holding company. The company has become a poster bearer for a devolved operational model which successfully supports a wide variety of business as opposed to more the traditional hierarchical corporate structures seen in most US businesses.
It's perhaps not surprising that this might seem a more attractive approach to company founders always proud that Google is 'not a conventional company'. Investors will hope the same magic fairy dust that Buffett uses can be sprinkled of Google's diverse and ambitious incubator companies.
In the meantime, the 90% revenue earner Google company, under its new, but already well established CEO, can carry on just as before. As well as search and ads, Google will still include YouTube, Android, apps and maps, just as it always has. Which means that for the average buyer of Google products and services, there is unlikely to be much discernible change.