By Andreas Hoepner, Associate Professor of Finance and
Director of Enterprise at the ICMA Centre.
If you owned a brand with an estimated Forbes value of over US$ 65 billion (#3 in the world) would you walk away from it?
Well, Larry Page did and put a new household name ‘Alphabet’ on the corporate landscape. But why? Many standard financial economists speculate (i.e. in the FT) about the suitability of the reorganisation. While most of these arguments make sense and might well apply, they do not address the critical question: ‘why a new name if you have a beautiful brand of enormous estimated value’?
The answer appears to lie in the ‘limits to branding’. While developing and maintaining a brand is the key competence of many organizations such as Apple, Coca Cola or many US banks – and these organizations would probably never ‘reorganize their brand’ as it justifies their margin – a few selected organizations have a core competence that is stronger than their (very strong) brand: the ability to invent new technologies!
Normally, developing technologies does not conflict with branding, especially if you have a very honorable business model like Google that is essentially a public service. In fact, Google Maps, Android and new technologies that followed Google Search made Google just more useful to us and built the brand further. However, if Google is serious about being a ‘non-conventional company’ and obviously confident in their technological ability, they are aiming to break technological barriers (eternal youth, driverless car, and all those other ‘X’), which a considerable percentage of the global population is not particularly educated in and hence understandably nervous about.
This anxiety of large parts of the global population is a huge risk for Google’s core business, whose success might rest as much on its technological advantage over competitive search engines as it does on its ‘Don’t be evil’ spirit. Hence, walking from Google to Alphabet is unlikely directly detrimental to the ‘Google’ brand but aims to safeguard it from the image spill-overs of other business models that Alphabet might want to explore.
But how well will this safeguard work? In a globalized society with dozens of NGO campaigns starting every week and shareholder activists becoming very aware of social and environmental issues, a simple branding distance between two businesses without legal separation might not even last a minute when a large scandal hits. Thus, I see two quite separate ways ahead for Google & Alphabet:
1) An Alphabet of Googles
As much as challenging technological barriers can be very rewarding from a business and personal perspective for true pioneers like Larry Page and Sergey Brin, they will remain keenly aware of the crucial importance of public goodwill for ‘Google’. Hence, they will be extremely careful not to scare large parts of society. This scenario would lead to lesser technological innovations than would be possible but all of the innovations will have the Google-esque ‘Don’t be evil’ spirit.
2) Google vs. Alphabet
It is also very feasible that this reorganization and brand separation is just the first step in a process of separation, which eventually creates two separate legal entities with some members of the leadership continuing the Google as we currently know it, while others go on to break technological barriers of mankind at the risk of being misunderstood.
Only time will tell but this would certainly not be the first time that an organization divides itself, even the Roman empire did. eventually