Why Google — and Larry Page — created their own Alphabet

With the launch of its new holding company, Alphabet, Google is trying its hardest not to be Microsoft. And Chief Executive Officer Larry Page is signaling that he does not want to be Bill Gates.

The software startup that Gates founded morphed into a tech giant and gradually took over nearly every computer desktop in the world. Its core products — Windows, still the dominant desktop operating system, and productivity software like Office, which made computers invaluable to office workers — minted money. With this cash flow, Microsoft funded a research arm that attracted the smartest engineers and scientists looking to do blue-sky projects.

Then the Internet took over. Bill Gates went off to fight malaria and to save the world. Microsoft receded slightly into a comfortable existence as an industry behemoth that did extremely well but no longer pulled in the brightest minds. Those computer scientists were accepting jobs somewhere else: Google.

Letters spell the word “Alpahbet” as they are seen on a computer screen with a Google search page in this photo illustration taken in Paris, France, August 11, 2015. REUTERS/Pascal Rossignol
Letters spell the word “Alpahbet” as they are seen on a computer screen with a Google search page in this photo illustration taken in Paris, France, August 11, 2015. REUTERS/Pascal Rossignol

A tech CEO told me this week that hiring the best engineers creates a network effect. They want to work with the smartest people on the best projects, and the more of them a company attracts, the better projects it can tackle — leading to more top people joining the company. That’s one reason why Seattle became a hub of tech companies like Amazon; Microsoft, which is based in Redmond, Washington, had done the groundwork by luring so many techies to town.

Google remains one of the coolest companies on earth, measured by the number of people clamoring for jobs there. For the last six years it’s ranked number one on Fortune’s list of the best companies to work for. The company has set the bar for perks that techies in San Francisco, Silicon Valley, and elsewhere now consider standard, like the legendary free cafeterias that offer chef-designed meals for all employees. But Google is not the only hot company, and it faces hiring competition from Facebook, Twitter, and a phalanx of newer startups. This is especially true as Googlers leave to start their own new companies.

Keeping a company on the cutting edge is about more than making workers happy. They have to feel relevant, heard and purposeful. One of the best ways to imbue work with a sense of purpose is to make people feel as though they are changing the world. Google’s wackier projects have the potential to be earth-shaking: driverless cars could reinvent the way we get around; even the much-mocked Google Glass might turn out to be amazing in the next iteration. The Calico life-extention project — which focuses on aging and age-related diseases — represents a push toward the holy grail of all technological research.

Commentators have noted the silliness of the name Alphabet and its abc.xyz domain. That’s not the point; Google is a pretty silly name as well. The message behind the reorganization is that Google is trying its hardest not to become irrelevant or complacent. Page and his co-founder Sergey Brin are aiming to prevent the company from missing out on the next major tech trends. If it puts too much focus on its search and advertising businesses, which make money, to the exclusion of new products, Alphabet risks failing to invent the next amazing product or service that will change the way we live the way Google search did.

The concept behind the reorganization seems to be anointing several non-search divisions as equally important as the core Google business. That’s just optics, because the company will continue to make its money in the same way for the near future. The most important change is in Page’s role, which is shifting to a spot at the top, with Brin, of the new Alphabet entity.

By formalizing a structure that gives weight to its most out-there, passion-project research, Page is inviting the coolest and most innovative engineers to come work for him. He’s saying that he does not know, as no executive ever does, what his company’s next big product will be. Prioritizing and separating old-school Google from the idea-factory divisions of the company may help ensure he gets the people he needs to make that next idea as big as his search breakthrough.

Chana R. Schoenberger is a business journalist in New York. She was formerly on staff at Forbes, Dow Jones and the Wall Street Journal.

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