Rainbow-colored search engine tech giant Google surprised everyone in August with their creation of Alphabet, a parent company under which Google and its adjacent companies and acquisitions will be structured.
The company’s CEO Larry Page announced Alphabet’s nexus in a blog post, describing it as a “collection of companies” under which a slimmed-down Google and other Google-affiliated companies can be managed independently.
The idea of Alphabet as holding company, with Google and other diverse ventures sprouting out beneath it, is essentially the configuration of a conglomerate. This is a new spin on an old and sometimes controversial model that hasn’t enjoyed much praise lately.
The rise and fall of the conglomerate
Technically speaking, a conglomerate is “a combination of two or more corporations engaged in entirely different businesses that fall under one corporate group, usually involving a parent company.”
Conglomerates emerged to huge popularity in the 60s and enjoyed several decades as a dominant form of US capitalism, before taking on a sour reputation in the 90s, when the trend was dubbed a “colossal mistake” due to mismanagement and financial loss.
Even today, there’s a trend toward breaking down conglomerates rather than building them up. You see, investors tend to prefer one company that does a specific thing very well, as opposed to those with a lot of baggage and risky ventures attached.
The Buffet inspiration
While some conglomerates like General Electric are trimming down, there are signs of revival — and not just by Google. Warren Buffet’s Berkshire Hathaway conglomerate is a success story that keeps growing, having recently announced its acquisition of aerospace supplier Precision Castparts.
What that means is everything from airplanes and underwear under the same company umbrella. And it appears Buffet’s type of conglomerate is just what Google is inspired by.
Alphabet, like Berkshire Hathaway, is emphasizing the importance of strong leadership for each umbrella company. Other conglomerates have failed in the past by restraining companies with over-reach, instead of allowing them the freedom to innovate like startups.
Projects under Alphabet will range from delivery drones, to smart contact lenses, to longevity boosts and much more.
A new trend in tech?
Some are calling Alphabet the a digital-era conglomerate, or a 21st century Berkshire Hathaway. With other huge tech companies like Facebook, Apple and Amazon collecting diverse acquisitions and functions, it will be interesting to see if Google’s restructuring model catches on.
Disadvantages aside, Google now has the opportunity to flesh out its “moonshot” projects, reallocate funds, and report earnings separately and transparently without compromising its nimble and innovative ethos.
If successful, this new model could prove to be a huge disruption, challenging not just tech industries, but life science, healthcare, finance, and telecommunication industries as well. Ambitious? Yes. But that’s exactly the point.