Will Google Turn into GE?

Google Screenshot - Taken on August 8, 2015

Google Screenshot – Taken on August 8, 2015

Google has announced a major change in how it will operate. It is essentially creating a new holding company called Alphabet. Google co-founder Larry Page will become the CEO of Alphabet, while Sergey Brin will be president of the company. Alphabet will be Google’s parent, overseeing a vast array of projects and investments in a portfolio-like approach. Google’s new CEO is Sundar Pinchai who has been essentially running the company since October 2014. Google CFO Ruth Porat will be CFO of both entities.

Self-driving cars (through Google X), curing death (through Calico) are just a few of the ventures that will be under Alphabet. General Electric (GE) had a similar model of being a diversified business a while back – obviously changing course recently. Other conglomerates like Samsung have taken a similar approach. The question looms, how will institutional investors react? Investors have publicly expressed concern that Google is distracted from its money-making search business. As of August 10th close, the company had a market capitalization of US$ 445.5 billion. As of December 31, 2014, Norway’s sovereign wealth fund has around a US$ 2 billion equity exposure to Google, owning 0.56% of the search giant.

According to an August 10th Google Blog post, “What is Alphabet? Alphabet is mostly a collection of companies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity).”

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