Google Restructures, Forms Holding Company Alphabet

Sheltering its innovative -- yet what some might consider farfetched -- ventures like Project Loon, Google will form a new holding company for new and existing projects and businesses that might fall "pretty far afield of main Internet products." Google becomes a subsidiary of the parent company Alphabet.

Introducing Alphabet, cofounder Larry Page wrote in a blog post Monday that he will step in as CEO of the new company, with Sergey Brin as president. 

"This new structure will allow us to keep tremendous focus on the extraordinary opportunities we have inside of Google," Page wrote.

With the change, Sundar Pichai takes the reins as CEO of Google Inc. Ruth Porat becomes chief financial officer. 

Alphabetwill include Google as a slimmed-down wholly-owned subsidiary comprised of Search, Ads, Maps, Apps, YouTube, and Android. The smaller, non-core businesses like Nest, Fiber, Calico, Google Ventures, Google Capital, and Google X will run separately under the Alphabet umbrella beginning with 4Q15 results, writes Colin Sebastian, analyst at Robert W. Baird & Co., in a research note.

Google will adopt a structure similar to holding companies supporting a variety of advertising agencies to differentiate between its main business and longer-term -- and sometimes quirky -- endeavors.

Google earns about one in ten dollars spent on advertising globally, according to eMarketer. Companies will spend $577 billion this year on advertising globally, and Google is expected to earn a net $53 billion after paying back its ad partners, estimates the data firm

In the United States, Google holds 11% share of the total $187 billion spent on advertising across channels. The company accounts for 20% of ad dollars spent in the U.K., per eMarketer.

Alphabet replaces Google Inc. as the publicly traded company; all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. As Google becomes a wholly owned subsidiary of Alphabet, the two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG. 

"We liked the name Alphabet because it means a collection of letters that represent language, one of humanity's most important innovations, and is the core of how we index with Google search," Page wrote.

"[Sergey and I also like that it means alpha-bet (Alpha is investment return above benchmark), which we strive for! I should add that we are not intending for this to be a big consumer brand with related products. The whole point is that Alphabet companies should have independence and develop their own brands," adds Page.

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