Good morning everyone.

Today I will be talking on a topic which created a sensation and

broke the internet on Monday when the tech company Google
announced that it would rebrand itself as Alphabet– a new holding
company whose largest wholly owned subsidiary will be Google.

It has been said that, later this year, Google will create Alphabet as a wholly
owned subsidiary of itself. Alphabet will then create its own wholly owned
subsidiary, which will merge “with and into” Google, leaving Google –
through the magic of corporate finance – a direct, wholly owned subsidiary
of Alphabet.

So what is this Alphabet all about?

To put it in simple words, Alphabet is mostly a collection of companies.

It is easiest to think of Alphabet as a holding company. A holding company

exists for the sole purpose of controlling another company rather than for the purpose of
producing its own goods or services and when a business is 100% owned by a holding
company, it is called a wholly owned subsidiary.

Alphabet won’t have any consumer facing role itself, instead it is designed
to give its subsidiaries room to develop their own identities.

Alphabet will own the companies founded and manage them internally.

What does Google's Alphabet do?

More detail of the surprise restructure is expected in the coming weeks, but here's a brief
guide to Alphabet's core areas of activity so far:
Google

Going forward, the business known as Google will be in charge of search, ads, maps, apps,
YouTube, and Android, as well as the tech that underlies these services. This means that
pretty much everything that makes money will be grouped together, under the care of Sundar
Pichai, google’s new chief executive, who has previously been in charge of Android.
Currently, Google makes about 90% of its revenue from advertising so it will also be
responsible for virtually all of Alphabet’s revenue and profit.

Nest

Google acquired Nest last year for $3.2 billion, a company initially known for its smart
thermostat (which is basically a product able to learn about users' behaviour and decipher
whether a building was occupied ) Since then, Nest has released an expanding line of
Internet-connected gadgets for the home.

This has included, most recently, a camera that senses movement in a user's home and alerts
them via a smartphone app.

Google Ventures and Google Capital

These are Google’s investment arms. Google Ventures, which invests in early-stage
companies, has made over 300 investments, including Uber, Periscope, Blue Bottle Coffee,
and 23andMe. Google Capital invests in later-stage companies, including LendingClub,
SurveyMonkey, and FanDuel.

Google X

This is Google's research and development lab, where projects like the driverless car, drone
delivery service Project Wing are born and nurtured.

Last year pharmaceutical giant Novartis agreed a deal to work with Google X on a smart
contact lens for people with diabetes, designed to measure the level of glucose in the wearer's
tears and communicate the information to a mobile phone or computer.

It refers to some of its more outlandish projects as "moonshots" - a Google X code word for
big-thinking propositions.

Calico

Google launched a separate health-focused research and development company in 2013,

with Larry Page announcing in a blog post that its work would be based around the research
areas of "health and well-being, in particular the challenge of ageing and associated diseases".
He said, "Through our research we're aiming to devise interventions that slow ageing and
counteract age-related diseases."

Fiber

Google Fiber is a superfast broadband and TV-on-demand service, promising speeds of up to

1,000 megabits per second. It's currently only available in certain parts of the US, including
Atlanta, Nashville and Salt Lake City.

Google Robotics

It is unclear whether Google's robotics work will also become a more separate entity under
Alphabet Inc.

Google snapped up six robotics companies in 2013 - including military robot-maker Boston
Dynamics which developed Cheetah, the world's fastest running robot..

The next question which arises is why are google founders

creating this new company Alphabet?
We all know that Google started as a company that built a search engine, but over
time it's become a lot more than that. The company has created or acquired a
number of other hugely popular internet products, including YouTube, Android,
and Gmail. More recently, the company has begun pouring resources into projects
like self-driving cars, anti-aging technology, and balloon-powered internet access.

The founders Larry Page and Sergey Brin believe that these projects have become
too diverse and sprawling for a single operating company to manage all of them
effectively. Different projects require different types of leaders, different company
cultures, and different types of resources. So they're creating Alphabet as a holding
company that will oversee all of these different ventures while allowing each to
have more independence. Thus the new structure could help the conglomerate be managed
more effectively and run things independently that aren’t very related.

It is also said that Google’s reorganization into this new conglomerate called Alphabet may
provide more transparency to investors worried about Google’s growing spending on so-
called moonshot projects. The benefit of separating Google’s search business is that investors
will be better able to value the unit based solely on its financial performance.

it will be easier to present firms such as Nest, Calico and Fiber as separate
entities if they are only united by a common owner. And, if the worst
happens for Google, the new structure makes it easier to hive off these
subsidiaries entirely.

The executives in charge of Alphabet will be the same execs in

charge of Google today -- CEO Larry Page, President Sergey Brin,
Executive Chairman Eric Schmidt, CFO Ruth Porat, and chief
counsel David Drummond.

This whole phenomenon of corporate restructuring makes a

lot of people think that what will happen to google?

The old Google isn’t going anywhere. While Page describes it as “a bit
slimmed down”, almost every aspect of Google that typical consumers
interact with is staying a part of the new, lighter, Google 2.0. That includes
YouTube, Android, Maps and Gmail, as well as the company’s search and
advertising businesses. What gets hived off are the companies “that are
pretty far afield of our main internet products”, such as Calico and Life
Sciences.

Each share of each class of Google stock issued and outstanding

immediately prior to the Alphabet Merger will automatically
convert into an equivalent corresponding share of Alphabet stock,
having the same designations, rights, powers and preferences and
the qualifications, limitations and restrictions as the corresponding
share of Google stock being converted.
Google’s new Alphabet soup is much too
thin

Negative

However, it seems that Google founders Larry Page and Sergey Brin are trying
to distance themselves from the core business (i.e. revenue through
advertisements) just when its business model is facing problems.

Google reports about $2.5 billion, sometimes more, in capital expenditure and
about $2.7 billion in research and development costs every quarter. The
company’s segment reporting is for now simple: just “Internet search
advertising” and “Licensing and other revenue.” Once this becomes more
detailed due to separation of their areas of activity, investors may get a glimpse
of how the investments are split among projects. The company follows a
70:20:10 framework wherein Seventy percent of its investment goes into the
core business, 20% into adjacent areas (mostly the company’s cloud business)
and 10% into long-shot innovations, such as the life sciences projects and
calico.

The latter will now be broken out as separate parts of Alphabet, and these will
draw a lot of attention.

This may not be the best moment for the founders to leave their core business to
somebody else. In the second quarter of 2015, 90% of Google’s $17.7 billion of
revenue came from search engine advertising. The revenue still appears to be
growing strongly — by 18.9% in 2014 and by 14% in the last 12 months — but
Internet advertising is facing two serious threats: ad blocking and exposure as a
scam.

According to a fresh report from PageFair, a firm that helps advertisers adjust to
widespread ad blocking, 198 million people actively use software that blocks
advertising, costing publishers $22 billion this year. Blocking grows much
faster than Google revenue, and it will soon be a major threat. Google may
boast of strong growth in video advertising on YouTube but people aren’t really
watching these ads. They’re waiting for a “skip ad” button to come up once the
formal viewability requirement has been met.

The online ad business, some insiders claim, is broken enough to worry Google
about the long-term sustainability of the company’s biggest revenue stream. The
core requires a bigger share of the founders’ attention but Figuring out how to
fix the business model problem is a tough job that Page and Brin don’t seem to
want. It is said that They prefer to play with self-driving cars and delivery
drones.

The new segments will be broken out in Alphabet’s financials in early 2016,
though the holding company will be registered “later this year” according to
the filing.

I think that Mr Larry Page himself might acknowledge, most of Google's ambitious
bets in these far flung projects are unlikely to pay off at all. But if a few of them do
work out, it could reap huge benefits for the organisation.

Internet advertising is becoming less and less effective: Click which is used to
determine whether an ad has been seen — are ridiculously lax. The Media
Rating Council considers an ad viewable if 50%b of its pixels are in view for a
minimum of one second; for video, the standard is 50% for two seconds. For a
human brain, that’s no time at all. Plus, a lot of the ads are only seen by bots.

Big advertisers are worried. Kellogg, for example, won’t buy ads on YouTube
because Google won’t allow third-party companies to check viewability there.
Many companies suspect — and in some cases know from experience — that
they’re being scammed. That’s only natural: There’s a big disconnect between
what they’re being sold and the ad executives’ own experience as consumers,
which consists of ignoring ads or clicking them away at the first opportunity.
Targeting, which Internet companies have sold as their advantage over
traditional media, is also deceptive: The data collected from people by
companies such as Google is too circumstantial and often irrelevant to be of use.

If you haven’t heard of Alphabet, don’t worry: neither had most people in
the world until 5pm EST (10pm BST) on Monday, when Google announced
a restructuring. When it’s all done, the search company will become a
wholly owned subsidiary of Alphabet Inc, a new holding company headed
up by Larry Page, Sergey Brin and Eric Schmidt, formerly the bosses of
Google.

It may seem like a simple name change, but the reality is more complicated.
Confused? You’re not alone.

Larry Page, the former chief executive of Google who is now in the same job
at Alphabet, has a helpful answer:

Of the major subsidiaries named in Google’s SEC filing, such as Google X,

the company’s experimental division, and its longevity research firm Calico,
only one, the home-automation company Nest, joined Google as part of an
acquisition. and should give Page, Brin and Schmidt plenty to occupy their
time.

Also separated out from Google are the company’s financial wings, soon to
be known simply as Capital and Ventures. These have a history of making a
lot of money for Google through investing in startups and other stocks,
most notably Uber, which the company bought 6.8% of in 2013. That share
alone is now worth $3.4bn (£2.2bn).
In other words, even after this reorganisation, New Google will still be one
of the biggest companies in the world. It’s just that Alphabet will be bigger
still.

Will anything change for me?

The short answer is: no. The vast majority of Google’s customers only use
services that will stay firmly under Google’s branding. YouTube, Gmail,
search, Maps, ads, Android, photos, and more will be functionally no
different from how they exist at the moment.

Who will head up the new Google?

Instead, the reshuffle is likely to be motivated by the reasons Page cites in

his letter: allowing Google to focus on doing what it does best, Meanwhile,
the other companies under Alphabet can make the gambles that will bring
it dominance in new areas.

But why Alphabet?

A mixture of terrible jokes, grand ambition, and carefully studied banality.

The pun comes from the fact that “alpha” is a financial term meaning
return on investment above the benchmark, making Alphabet a good
Alpha-bet; the ambition comes from the fact that the Alphabet is one of
humanity’s most important inventions, as well as the implicit claim (in the
company’s abc.xyz url) that it encompasses everything from A to Z; and the
banality comes from the fact that Alphabet is perhaps the most generic
name imaginable, perfectly standing for anything and nothing at the same
time.
Google’s planned structure resembles the way companies like Berkshire Hathaway and General
Electric are organized, with a central unit handling corporate-wide activities such as finance and
relatively independent business units focused on specific areas.

A big part of the duo's new role will be to focus on "starting new things." Like
many founders, Page and Brin are more excited about launching new
ventures than they are about managing existing ones. The new structure will
allow them to periodically create new projects and then hire others to handle
day-to-day operations.