In October 2015 Google underwent a thorough restructuring and emerged as Alphabet, a multinational corporate parent for the tech giant’s many enterprises. After all, Google has explored a variety of different fields in its 18-year history, including recent forays into self-driving cars and home automation. As these projects stacked up, however, managing them all under the Google name became difficult both for operational and marketing reasons. Now, separate companies working under Alphabet’s umbrella manage all these outside ventures. For instance, research into self-driving cars moved to an Alphabet subsidiary company called X.
Innovative products like these could eventually become Alphabet’s next big revenue generators. For the time being, though, the company’s trusty search business remains decidedly at the top of the heap. Last year Google made a whopping $74.5 billion in revenue, $23.4 billion of which was profit. In fact, those financial results combined with Alphabet’s roster of innovative enterprises have led to a historic valuation for the company. Over the last six months Alphabet’s market cap has risen by some $200 billion to reach a grand total of $558 billion. This gargantuan valuation catapulted the company past Apple’s $535 billion cap to become the most valuable public corporation in the world.
Alphabet reached such a lofty summit by sticking to core principles while remaining open to innovation. Google’s homepage stands as a prime example of this strategy: its layout remains clean and simple even as the site’s search tools have expanded vastly. The company has also learned to make the most of advertising, its primary money driver. While Google still maintains a popular and profitable ad network, the bulk of its advertising revenue (some $13 billion) comes from its own sites. That’s because there’s no better place to put an online ad than Google, a site that facilitates billions of searches every day. As a result, Google charges as much as $50 per click for ads that display at the top of popular searches like “lawyers” or “health insurance.” These dedicated revenue streams then allow Alphabet to fund experimental projects that will hopefully turn into profitable ventures.
Questions:
- Will products like the self-driving car eventually make as much money for Alphabet as online advertising?
- Why did Google restructure itself as Alphabet? What sort of advantages does this present for the company and its employees? Is it something that more companies should do?
Source: Alex Hern, “How Alphabet Became the Biggest Company in the World,” The Guardian, February 2, 2016; Matthew Lynley, “Alphabet Becomes the Most Valuable Public Company in the World,” TechCrunch, February 1, 2016. Photo by Kyle Van Horn.