Google’s restructuring plan has come as a surprise for many. DW asked Tobias Kollmann from the University of Duisburg-Essen for his take on new holding company Alphabet and the future of Google.
DW: Google, the search engine giant, is to form a new holding company as part of a major restructuring effort. What’s the strategy behind it?
Tobias Kollmann: It’s a very clever move and there are three reasons why it will benefit the company. Firstly, holding company structures are usually robust and can withstand headwinds faced by its individual firms. So, if one of them does not work, it will not ruin the entire structure.
Secondly, it is easier to differentiate between the different areas of business. And we know that Google has long been a lot more than just a search engine – it is involved in life sciences, biotechnology and transport.
Also, the structure will be reflected in the way Google will report earnings. On the one hand, it’s harder to sum up the company as a whole, but in the individual segments, it’s much easier to document whether they’re successful or not.
Staffing is another area where the structure makes sense. The two CEOs, Larry Page and Sergey Brin, are making room for management expertise, as they’re both going to change over to Alphabet. So there will be more opportunities to hire responsible managers with in-depth knowledge in certain areas for the individual firms in the holding.
There is also a political reason for this restructuring. For a long time, there have been calls to split up the “big bad Google.” Those calls will be less loud now and people will be able to refer to what individual companies are doing and focus less on the Google empire.
What impact will the restructuring have on users and consumers?
None straight away, as its existing products and services will continue to be available. There will be new products in he various segments. Of course, the Google founders couldn’t in the past work on all segments with the same intensity, which is one of the reasons why they introduced this new structure.
Don’t forget, Google has not made great strides in the last few years when it comes to pleasing investors. So, one strategy to change that was to take some of the pressure off the two CEOs by creating a holding company with individual firms. And that could be a boon for consumers if it leads to more innovation.
What does it mean for costs, given that the markets keep a close eye on that aspect?
From an investor’s point of view, the restructuring spells new potential for increased revenue. The hope is that the segmentation means more market power so that revenues don’t just disappear into the huge Google construct but can be channeled into specific segments.
Whether that leads to higher costs as you also have to hire more skilled staff in the individual segments, remains to be seen.
But I think it was a clever move, not least because of the new name Alphabet, to breathe new life into Google.
Who do you think served as the inspiration for the restructuring – an innovator like Steve Jobs or a businessman like Warren Buffett?
I think it was a concerted effort by all involved. Given the situation in the market and also the stock markets, Google has to think long and hard about how to take the company forward and foster growth.
And the growth is no longer in the search engine business, as they’re already the market leader in that field.
Life sciences, biotechnology and transport will be growth sectors, as digital data and “noughts and ones” [binary code – the ed.] are needed in those areas too. So, Google is not abandoning its core business, but it is gradually transforming it to play a key role in the real economy.
That’s Google’s strategy – getting away from an Internet-only company to become a multi-faceted conglomerate in the real economy. And the restructuring announced on Monday is part of that process.
Oh and one more thing – the name Alphabet takes Google from G to A, meaning it is ahead of the F of Facebook in publications on big Internet firms.
Tobias Kollmann is a professor of economics and IT for business at the University of Duisburg-Essen. He specializes in e-commerce and e-entrepreneurship and is a founding member of the Association of German start-ups. He also advises the German government on issues related to the digital economy.