As Google becomes Alphabet — at least from the perspective of investors — its founders, Sergey Brin and Larry Page, are going to become full-time capital allocators. From this afternoon’s out-of-the-blue blog post by Page:
“Alphabet is about businesses prospering through strong leaders and independence. In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed. We will rigorously handle capital allocation and work to make sure each business is executing well.”
Sundar Pichai, now a Google senior vice president, is going to become chief executive officer of the core business, which will continue to be called Google. For more on Pichai, there are a couple of nice Quora roundups by Googlers and ex-Googlers listing his positive attributes, plus profiles in Bloomberg Businessweek and Fortune. But what really interests me is the notion of Page, who will be CEO of Alphabet, and Brin, who will be president, as Warren Buffetts in training.
Up to now the standard rap on Google is that none of its efforts to move beyond its spectacular core business of selling ads against search results have amounted to much financially. Now Page and Brin want to separate out the businesses that are largely unrelated to the core (YouTube, Android and maps will stay part of Google) — it will be really interesting to see what kind of detail we get in Alphabet’s financial statements — and be “rigorous” about allocating capital to them.
Alphabet will be a conglomerate, basically. At this point it’s an extremely lopsided one, with Google making all the money, but if it is to succeed that has to change. Conglomerates generally don’t succeed, but those who have made a go of them — Teledyne’s Henry Singleton back in the 1960s and 1970s, Jack Welch at General Electric in the 1980s and 1990s and Buffett at Berkshire Hathaway from the 1970s to apparently the end of time — have tended to be pretty unsentimental about the businesses they buy, sell and shut down (although, as my colleague Matt Levine wrote earlier this year, Buffett somehow manages to do this while being all cozy about it).
Page and Brin have so far distinguished themselves as enthusiasts rather than as hard-nosed bean counters. At this stage in the development of side projects such as the self- driving car and Calico (a life-extension project), purely financial metrics probably aren’t the right ones to use in any case. But if the Google guys are to succeed in their new career as conglomerateurs, they’re probably going to have to get really good at saying no.
• Justin Fox is a Bloomberg View columnist writing about business.