ALPHABET Case Solution
It was in 1995, when at Stand Ford University Larry Page and Sergey Brin came up with an idea which later become the largest search engine of the world in 2000 with its 1 billion pages. And the journey of success continued and in 2006, the name Google become a verb in the Oxford Dictionary. In the year 2015, the company had more than 60% of market share of engine search in the United States and dominated the overall market. But the company’s revenues stand at $75 billion and total assets at the time were $147 billion. Even though Google always remained successful with its expansion and growth strategy while at the same time empowering their employees, but Google’s relationship with its investor always remained at odds from its first IPO in 2004, due to its failure to create value to the investor and build trust because of its corporate governance strategy and unrevealed research budget, moreover, Google also didn’t pay the dividends to its shareholder like other tech businesses, that’s why it reduced its shareholders value.
Background of Restructuring
As of Alphabet, it is the holding company that Google established in 2015 to achieve the objective of restructuring, which was introduced with the vision to introduce new opportunities in the market along with new brand image. The core purpose of this restructuring was to change the way Google reported its earnings to its investor because it didn’t want any more of shareholder value. As Google has many subsidiaries like YouTube, Double-Click, Nest etc. so the method of segment wise reporting of earnings will help Google to report its earnings separately. Mr Page become the C.E.O of Alphabet and Sundar Pichai the C.E.O of Google.
Rationale behind Owning Variety of Different Businesses
After analysing the Alphabet’s core business objective and its strategy to impact more and more people around the world, it has from its inception adopted very aggressive strategy of acquiring businesses. As even at times in 2013, the company’s revenues were largely dependent on the revenues from online advertisements. The company’s managements sensed the need for alternatives courses to make the company competitive and stable in the long-run. That was the primary reason for which Alphabet was formed, to gain the trust of investors by reporting the performance of each subsidiary separately.
Moreover, the other reason for owning such different businesses was to decrease the dependence on just online advertising and open up more dimensions for the company to adopt a course of action in future. This would decrease the risks in the long-run as there will more opportunities for the company, moreover, this help the Google and other bets to define their own goal and objectives to attain the objective of Alphabet to impact more and more people around the world.
In addition, owning different businesses will help the company to remain updated about the customer’s preferences and desire for technology, this would increase the focus of the subsidiaries while providing them flexibility.
Reason behind Investing in Nest and Its Difference from Core Business of Alphabet
Nest is the business that primarily produces internet-connected smoke alarms and thermostats for homes. It was in 2011 when Nest introduced its first thermostat and nearly 1% of the US homes had thermostat by the end of 2013. Google acquired Nest in the year 2014 for $3.2 billion which was company’s third largest bid. This can be confirmed through the Exhibit 6 of the case which shows highest bids made by google.
Due to its innovative technology and future growth potential, Alphabet acquired the Nest to continue with its long-term strategy to impact the lives of more and more people around the world. As the increasing trend of modification of smartphones from cellular companies are posing a great challenge ahead for the Google to remain competitive and sustainable if it continued to rely just on online advertising services, as the figure show in the last quarter of 2014, 30% of total cell phones shipped were altered or modified, which become not much compatible with the services of Google. Not only this, there was an increasing trend of innovating services introduced by many companies such as that mentioned in Exhibit 3a and 3b of the case, where Bell Labs and Xerox PARC introduced numerous innovative services which shows the importance of diversifying operations in a growing competitive environment. Since there is a lot of competition in the market therefore Google had to innovate its services as well and saw a great potential in Nest in the long-run, as the company had expertise in producing something which is different from the core operations of the company. This would open up many new fronts for the company to focus in future and also help in decreasing future risks…………
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