Why Google’s brand restructure is a model for Web 3.0


Wednesday 12 August 2015 by Drew Heatley

Google shocked the digital world this week. The search giant announced that it’s restructuring from top to bottom and will operate under a newly-formed parent company, Alphabet. The move is a sensible one – and it’s a decision that will be replicated by more digital brands in the future.

Such is the company’s reputation for innovation, it’s sometimes easy to forget that Google is an elder statesman of the digital world. “Google” has even become a verb since the company quickly monopolised the global internet search market following its launch in 1998.

Fast forward 16 years and the company is a sprawling internet giant with countless sub brands, many of which are behemoths in their own right – like video network YouTube and mobile operating system Android to name just two. And Google continues to innovate, moving into experimental product areas like drones, driverless cars and robotics. But the company was becoming a dense and confusing maze of strategies, products and side projects – so something had to change.

The restructure is symptomatic of our progression to the third stage of the internet – or Web 3.0. The success or failure of Alphabet will determine the makeup of the world’s biggest digital brands in the years to come.

Investor clarity

Internet brands are typically characterised as nimble startups, operating out of bedrooms and garages – like Apple did in the early 1980s. But the tech boom of the past decade has meant even brands that seem like they’ve just burst onto the scene (think Twitter) are now huge, publicly-traded companies.

Google has been accountable to Wall Street since 2004 and although it has always performed well on the stock market, the company’s spiralling list of interests has made gauging the financial performance of its sub brands difficult. Speculation as to YouTube’s profitability has been rife for years, for example. And with Google constantly delving into new industries that have little relevance to its core ad business, some investors were becoming frustrated. Google cofounder and Alphabet CEO Larry Page says the new structure will provide greater “transparency and oversight” for these investors and other stakeholders alike.

Google’s not the first company to undertake a massive restructure, of course – but it might be one of the first to do so while still on the front foot. One of the biggest structural rejigs in recent years comes from IBM, which is still in the process of actioning its company-wide change. Realising that future growth lies in cloud-based solutions and services rather than hardware, the 104-year-old company has transformed its operations. Shedding units like its semiconductor and server divisions, IBM has turned its attentions to technology and business solutions – as well as innovative IP such as its cognitive computing technology, IBM Watson. The journey hasn’t been easy for Big Blue, and Google will hope that restructuring before investors lose patience will make for a smoother transition.

Tempering regulatory relationships

The formation of Alphabet could also help ease the intense regulatory scrutiny placed on Google in recent months. The company is embroiled in an EU antitrust investigation thanks to its internet search market share on the continent, which stands at 90%. Market dominance is not illegal, of course – Nike controls nearly 70% of the US athletic footwear space, for example. But some accuse Google of abusing its power. The internet is one of the primary ways we gain access to information, and if one entity controls the way we find that information there are obviously question marks around impartiality – particularly as advertising is the core element of Google’s business. Combine that concern with the fact Google has a similar market share in mobile operating systems (Android controls 68.4% of the European smartphone market) and can use that to gain a stranglehold over targeted ads beyond its search engine, and it’s little surprise the EU's Competition Commission is eager to look into things further.

Some analysts have warned that perceptions of Google as it pertains to search and advertising could hamper the long-term success of its more experimental products and services, such as its driverless cars. By spinning out its search, advertising and other digital services as Google under Alphabet, the company’s other projects can grow and develop independently.

Room to breathe

At the heart of this move are issues about brand identity. Google has always had a strong identity among the tech community as a pioneering and innovative digital giant with philanthropic ideals. But to the majority of everyday consumers, it’s just a search engine. The company has spent the last decade moving beyond that of course. It’s been shopping; the $1.65 billion purchase of YouTube in 2006 and the $3.2 billion deal for connected home devices firm Nest in 2014 are two of its most significant transactions. Google has also created IP from within through its “moonshots” division – a home for audacious projects that spawned products like Google Glass and Project Loon, a balloon-based internet delivery programme. It’s time these sub brands were given space to breathe and establish their own identities.

Diagram of how Alphabet will be structured.

Follow the leader

The restructure effectively positions Alphabet as the internet version of Warren Buffet’s holding company Berkshire Hathaway. The conglomerate, which is more than a century old, owns global brands like Fruit of the Loom and has holdings in some of the world’s biggest companies including American Express and Coca-Cola.

Other digital companies are likely to follow suit if forming Alphabet proves to be a smart business decision. The most likely candidate to me is Facebook. The social network has followed a similar trajectory to Google in its 11-year existence. Facebook has tied up the social media space, with 1.5 billion users and $11.5 billion in annual revenue from social media ads – a market that it kickstarted.

But Facebook as an internet brand is approaching a similar juncture to where Google is today. The social network has vastly expanded its portfolio of sub brands. Having already bought WhatsApp and Instagram, the company has dipped into virtual reality with a deal for Oculus, signalled its intentions to succeed in mobile infrastructure by purchasing startups Parse and Onavo, and Internet.org – Mark Zuckerberg’s project to provide internet access and services to underdeveloped countries – ticks the philanthropic box. I wouldn’t be surprised to see a similar holding company structure in place in the coming years.

All things considered, the restructure makes perfect sense for Google. The name Alphabet might not be seen very much by the public, but I think it’s another great choice. The alphabet is the framework from which language is formed. The structure of Alphabet Inc. is the blueprint for internet brands of the future looking to achieve long-term success.

Drew no longer works at The Frameworks

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