Will Berkshire’s beer, bulbs & biscuits be bad for Google?

Note: This is a thought piece rather than a background to Alphabet

I’ve read lots of articles over the last day since Alphabet was announced, Most state it’s an #awesome (if strangely named) move. Not only that but the financial markets thought it was a great move as well.

 

So why would I even question Alphabet? 1 key reason:

Blue Pill = Google are not a conglomerate

Is Larry Page basing Alphabet on Warren Buffett’s Berkshire (the UK version being famous for beer, bulbs & biscuits 🙂 Hathaway conglomerate fundamentally a great idea?

Google isn’t a conglomerate and so should it be learning from one?! Google’s businesses are fairly well connected, are pretty much all internet or technology companies, and are not subsidiaries.

Most importantly many of the businesses simply aren’t profitable and rely on Google’s PPC cash cow to stay afloat. When this is fully exposed for a listed company, as Google is, then the pressure to shut down some of the businesses will almost certainly ramp up.

Perhaps the above doesn’t matter as Page might be planning to build a conglomerate (super diverse businesses with subsidiaries) however is Page the man for this?

Buffet has invested his cash cow’s (the insurance business) profits into (largely) already successful businesses. Page on the other hand is thinking awesomely big but has not proven himself to invest in multiple profitable ventures.

 

1 key reason why Alphabet is a great idea:

Red Pill = Leadership and divisional focus

Being the company that “organises the worlds data” isn’t going to wash forever and this at least allows Google to spread its investment wings in a more strategic styley.

Pichai is THE dude to run Google. I bet Page and Brin are bored of the Search market hence leave them to focus on moon shots and investments whilst Pichai brings in the cash to fund it all (though will this mean Google sticks with it’s 70-20-10 employee investment rule?)

I would question Google’s investment strategy to date as it feels largely based on personally (Page & Brin) interesting ‘stuff’ rather than on sound financial reasoning. This Alphabet split feels like they are nailing their Google cash cow underpants to the mast and funding key areas to secure Google’s / Alphabet’s future…

Calico (life extension/improvement) will come out of the shadows and if successful will be MASSIVE.

Wing = drones = who can’t stop talking about drones at the moment?!

X Lab (aims at making major technological advancements) will create in house spin offs (like Calico and Glass)

Fiber could be a massive disruptor in the cable/ISP market.

Nest = Just bought one myself (and am sure will get suckered in to the super expensive additional smoke detectors and tracking camera) hence I can’t be wrong; right?! #theinternetofthingsrocks

The Ventures and Capital guys are going to be busy over the next few years sucking up exciting and innovative start-ups hence just make sure you get paid overtime guys.

Likely outcome?

Let’s wait and see.

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