Google and Alphabet: What does this all mean?

Q&A: Google chief executive Larry Page has announced a dramatic restructuring of the company that will see it renamed Alphabet. We explain.

Larry Page Google
Larry Page announced the restructuring on Monday night Credit: Photo: 2012 Getty Images

On Monday night, Google announced a surprise overhaul that will see the internet giant split up and owned by Alphabet, a new parent company.

Parts of Google's more outlandish divisions, such as life sciences, Google X and Nest, will be separated from the core business, which includes search, YouTube and advertising.

What exactly is happening?

Google will have a new corporate structure, which will essentially take it from one company that does a huge range of things, to a conglomerate that owns a string of businesses.

That conglomerate will be called Alphabet, the biggest subsidiary of which will be called Google. This will be the old Google's core business - search, web advertising, Gmail, YouTube, smartphone software Android and so on - essentially what you and I think of as Google.

Other businesses owned by Alphabet will be Google's more ambitious research projects such as Life Sciences division Calico, Google X, home automation company Nest Labs, investment group Google Ventures, and internet service provider Google Fiber.

Larry Page, who co-founded Google and has run the company since 2011, will be in charge of Alphabet, while Sundar Pichai, who was Page's number two, will take over "new Google".

If that's confusing, maybe this will help.

Interactive: Google Alphabet

Okay, but why?

Page and Sergey Brin, who co-founded Google two decades ago, have massively diversified Google from its origins as an internet search engine.

As well as products that help its core business, which is essentially gathering information and delivering internet adverts that are as relevant as possible, such as Android, Gmail and Maps, it has invested in driverless cars, high-speed internet and home gadgets to name just a few.

However, this diversification has created several issues. Investors have raised questions about these heavy investments and whether they are really going to pay off, while the broad collection of operations makes it more difficult for analysts to figure out how the core business is really doing.

Page and Brin, meanwhile, are becoming more focused on the research projects, which may change the world and be highly lucrative, but could take decades to bear fruit. This has led to questions over their commitments to the core business.

Developments such as Google Glass, a first attempt at which was retired last year, have been classed as failures.

Google founder Sergey Brin says using a smartphone is 'emasculating'
Brin, in particular, has focused on "moonshots" such as Google Glass

So the new structure is seen as a win-win: Google's founders are able to step back from the day-to-day running of Google and focus on the big picture, while investors get a clearer picture of the company they own and are able to understand it better. "Sergey and I are seriously in the business of starting new things," Page wrote last night.

What will it actually mean?

Not too much to you and me. On the face of it, this is nothing more than a (fairly major) corporate restructuring. Pichai has already been heavily involved in running Google, as Page's effective number two, and Page will still be his boss, so no major strategy changes are too likely. Most of the changes that consumers notice will be cosmetic: Google Fiber, for instance, might be renamed.

However, the restructuring solidifies a change in emphasis from Page and Brin, who still control Google despite not having majority ownership due to the company's dual-class share structure. Potentially, there will be more focus on ambitious research projects.

Page will certainly have more time to think about them having left day-to-day running to Pichai. "This frees up time for me to continue to scale our aspirations," he said last night.

What does it hold for investors?

Google shareholders will simply become Alphabet shareholders, with no significant change in the structure. Even the stock's Nasdaq tickers, GOOGL and GOOG, will remain the same.

However, investors aren't ignoring this. Shares in the company spiked in after-hours trading following the announcement on Monday night, climbing more than 6pc, close to an all-time high.

Analysts said the new structure would improve corporate transparency, allowing investors to see the real value of the company. Both Alphabet and Google will release quarterly financial results.

Another possible advantage is that the company will be able to offer more people the "chief executive" title. Pichai, especially, is highly thought of in the technology community, and was occasionally mentioned as a candidate for the vacant Twitter CEO position, although the theory that Google restructured just to keep him doesn't really stand up.

Some financial engineering from the new structure could give shareholders a boost too. Google has very little debt, and could easily borrow money if it wanted to buy back shares from investors. The new Google entity would possibly find it cheaper to borrow once it is separated from expensive research projects.

Google: a timeline of major events
Google has come a long way in the past 20 years. Here are some of the key events in the company's history
1995
The founders meet
Google founders Larry Page and Sergey Brin meet at Stanford University. Mr Brin, 21, is assigned to show Mr Page around the campus.
1996
The search engine project
The pair begin to work together on a search engine called BackRub as part of a research project.
1997
Google.com hits the web
Google.com is registered as a domain, the name having been chosen as a play on the word “googol”, the number one followed by 100 zeroes, to represent the near-infinite amount of content on the web.
1998
The company is incorporated
Google as a company is launched, filing for incorporation in California. The first office is in a garage.
1999
New offices
The company outgrows the garage and moves to new premises in Palo Alto with eight employees, then later the same year another relocation takes the company to Mountain View, where Google employs its first chef. The company raises $25m in equity funding.
2000
The world's largest search engine
Google is launched in ten new languages. Today search is available in more than 150 languages. In June Google becomes the world’s largest search engine, with an index of one billion pages.
2001
Eric Schmidt appointed CEO
Eric Schmidt, a former director of Apple, becomes chairman of the board of directors, then in August he is appointed CEO. Meanwhile Mr Page is president of products and Mr Brin president of technology. The same year, Google image search launches.
2002
AdWords introduced
Google AdWords, first launched in 2000, is given an overhaul with cost-per-click pricing. Google News launches, as does Google Labs which allows users to try out beta technologies from the research and development team.
2003
Blogger creators acquired
The company acquires Pyra Labs, creators of Blogger. Google AdSense is launched.
2004
Google floats
Google launches its IPO with a share price of $85. The company is valued at $27bn. Email service Gmail is launched. Google acquires Keyhole, a digital mapping company which later helps create Google Earth. The European headquarters in Dublin open.
2005
Google maps the world
February sees the launch of Google Maps and in June Google Earth is introduced.
2006
Google buys YouTube
In October, the company announces the acquisition of video site YouTube. A number of new features launch this year including Google Calendar, Google Translate and Google Docs and Spreadsheets.
2007
Android launched
In November, Google announces Android, the first open platform for mobile devices. Also this year, Google is named the best company to work for by Fortune. Street View is started in five US cities. But Google Earth receives some bad press as intelligence sources warn terrorists are using aerial footage from the feature to target British bases in Basra.
2008
The introduction of Chrome
Web browser Google Chrome is launched. Google Suggest, now known as Autocomplete, is introduced on Google.com, predicting search queries.
2009
Google supports innovation
Google Ventures is announced, a fund aimed to support innovation and new technology companies.
2010
Nexus devices and driverless technology
The Nexus series of smartphone and tablet devices using the Android operating system is launched. Google announces the development of technology for self-driving cars.
2011
Larry Page reinstated as CEO
Larry Page becomes CEO, ten years after he passed the title to Eric Schmidt, who is now named executive chairman. Google+ is launched.
2012
Google campaigns against censorship
Google is part of the campaign against the SOPA and PIPA bills in the US, saying they would censor the internet and impede innovation. In April, Google Glass is unveiled, as is Google Drive, a file creation and sharing platform.
2013
Shares pass the $1,000 mark
Less than a decade after Google’s flotation, shares hit $1,000. A milestone for Android as it passes one billion device activations.
2014
Stock split
A stock split creates a new level of non-voting shares and cements Mr Page and Mr Brin’s control over the company.
2015
Alphabet becomes holding company in big corporate overhaul
A massive corporate overhaul separates Google’s core business from its research divisions with a new holding company, Alphabet, of which Mr Page will be chief executive.