BackAlphabet will be a disruption
Its creation marks the beginning of the next arc of digital transformation of industries propelled by the combination of human minds and powerful machines
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Alphabet, the new holding company created by Google founders Larry Page and Sergey Brin, is a portfolio of bold ideas embedded in an ecosystem of talent and financial capital to take on the world’s toughest challenges. In the years ahead, Alphabet could dramatically influence business models in many industries.
Its creation marks the beginning of the end of the e-commerce era defined by browsers, search, maps, and apps and monetized through advertising and the beginning of the next arc of digital transformation of industries propelled by the combination of human minds and powerful machines. This new entity could bring together human talent, technology scale, and long-horizon venture and investment approaches to construct business models that could pose a formidable challenge to those designed and perfected in the industrial age. In short, I think the new entity is much more than a typical corporate restructuring and promises to become a new type of conglomerate that could attract talent from a variety of scientific and technical fields and challenge incumbents in a wide range of industries.
A digital-era conglomerate. Alphabet is not a throwback to the bygone conglomerate model whose main purpose was to allocate financial capital across divisions and rebalance the portfolio through acquisitions and divestments. It is designed to spawn companies armed with deep science and technology that share a common world view on machine learning, Big Data, algorithms, analytics, and the cloud.
Digital companies in the e-commerce era could knit together their business models using standard modules from hardware, software, and cloud companies. The second era requires larger scale in technology and deeper R&D expertise. So Alphabet could gain a conglomerate premium relative to other companies that lack adequate depth and breadth of computational and industry expertise. Interestingly, Alphabet is now competitively positioned against GE with its new focus on the “Industrial Internet".
A longer time horizon. The name, Alphabet also reflects Page’s and Brin’s financial aspirations: “It means alpha-bet (Alpha is investment return above benchmark)," Page said when announcing the creation of the holding company on 10 August. But it is not another Silicon Valley venture capital firm seeking extraordinary returns from small number of bets with short time horizons.
Alphabet will have a longer time horizon, which will allow it to take on “moon shot" projects, and it is unlikely that it will sell the companies it incubates. So Page and Brin are different from such legendary venture capitalists as John Doerr at Kleiner Perkins and Marc Andreessen and Ben Horowitz, the two founders of Andreessen Horowitz. That said, fully expect Page and Brin to work with venture capitalists to pool the financial resources required for the moon shot projects.
A talent magnet. Pursuing bold innovations in healthcare, life sciences, and space explorations will require core competencies at the intersection of human minds and fast machines (to paraphrase GE’s definition of Industrial Internet). If Page and Brin succeed in attracting such talent, it could unleash innovations in the Internet of Things, health and wellness, food and agriculture, energy, and urban transportation.
By allowing it to attract experts and retain them with enticements of growth stocks, Alphabet’s decentralized financial structure may help it in this regard. Its bigger tent also could help it retain talent that otherwise might go to younger, more ambitious upstarts like Uber or Palantir.
A wake-up call. The creation of Alphabet should worry companies in many industries. Alphabet has singled out health and life sciences, and the impact on this sector could be more profound than what Google did with search-engine algorithms in advertising in the 1990s. It could challenge the ability of IBM’s Watson unit to retain top talent, and it could be attractive to technologists and scientists working at GE Software, Microsoft Research, Intel Labs, and Samsung Research, just to name a few.
If Alphabet can scale up Fiber and Loon, the telecommunication industry—especially AT&T, Verizon, and Comcast—also is at risk. The creation of Alphabet should also concern Apple. Can Tim Cook expand the scope of iOS into areas such as home, automobiles, and entertainment with the same structure and one integrated stock (which Wall Street does not see as a growth stock)?
In short, Alphabet is Page and Brin’s catalyst to unleash the next wave of Google-calibre companies in different industries. Digital disruption and the transformation of industries and markets shifted into a higher gear on 10 August.
N. Venkat Venkatraman is the David J. McGrath Professor at Boston University’s Questrom School of Business.©2015 Harvard Business Review. All rights reserved.
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