Why Google is renaming itself "Alphabet"

Google co-founders Larry Page and Sergey Brin.Justin Sullivan/Getty Images

Google founders Larry Page and Sergey Brin have never been known for thinking small. The journalist Steve Levy writes about a 2004 conversationbetween Google co-founder (and now CEO) Page and then-CEO Eric Schmidt. They were discussing international expansion, and Schmidt asked Page how big Google should get.

"How many engineers does Microsoft have?" Page asked. Page was told Microsoft had about 25,000 engineers. "We should have a million," Page said.

That kind of restless ambition was on display today as Page and co-founder Sergey Brin announced a massive reorganization of Google. When the process is complete, Google will become a subsidiary of a new company called Alphabet, which will be a holding company for a variety of ambitious ventures undertaken by Brin and Page. Larry Page is stepping down as CEO in favor of a relative unknown, Sundar Pichai.

Why are Google's founders creating a new company?

Google started as a company that built a search engine, but over time it's become a lot more than that. The Mountain View, California, 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.

Page and 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.

"We』ve long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes," Page wrote in his blog post announcing the change. "But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant."

Page hopes that giving the various parts of the Google empire more autonomy will make it easier for them to stay outside their comfort zones and push the technological envelope.

Who is Google's new CEO?

Sundar Pichai (LLUIS GENE/AFP/Getty Images)

Google's new CEO is Sundar Pichai, who has been at the company since 2004. Last year, a management shakeup made him Larry Page's top deputy. Fortune explained Pichai's rise through the ranks in a 2014 article.

RelatedSundar’s Google: What does the man who runs Google’s most important products want?

Pichai has managed a number of Google products over the past decade. He was an early leader of Google Chrome, which was launched in 2008 and has become the world's most popular web browser. As Fortune put it, Chrome's success "became the engine that powered Pichai through one of the fastest corporate ascents in the technology industry."

Pichai was put in charge of Gmail and then Android, two other highly successful Google products. Last year he was put in charge of the majority of Google's products, including its search engine, a position that put him in line to succeed Page.

Insiders say that Pichai is almost universally liked within Google and has a knack for navigating Google's politics without ruffling too many feathers. He's adept at understanding Larry Page's vision and translating it into practical business decisions and getting different parts of Google's often fractious organization to work together.

"Sundar has been saying the things I would have said (and sometimes better!) for quite some time now, and I』ve been tremendously enjoying our work together," Page wrote today. "He has really stepped up since October of last year, when he took on product and engineering responsibility for our Internet businesses."

What will Larry Page and Sergey Brin do now?

Page will be the CEO of Alphabet, and Brin will be its president. Page hopes the reorganization will allow him and Brin to focus on the big picture. But their announcement isn't very clear about what exactly that means.

PAGE AND BRIN ARE MORE EXCITED ABOUT LAUNCHING NEW VENTURES THAN THEY ARE ABOUT MANAGING EXISTING ONES

"Our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed," Page wrote. "We will rigorously handle capital allocation and work to make sure each business is executing well."

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.

"We are not intending for this to be a big consumer brand with related products," Brin says. "The whole point is that Alphabet companies should have independence and develop their own brands."

How will Alphabet be structured?

From a shareholder perspective, Alphabet is just the new name for the company that used to be called Google. Google shares will become Alphabet shares, and existing Google shareholders will continue to hold a stake in all of the Alphabet companies.

Full details of Alphabet's structure haven't been released yet, but Page did mention several ventures that will be pulled out of Google and may become independent ventures under the Alphabet umbrella:

Google's life sciences research into things like glucose-sensing contact lenses Calico, Google's human longevity project Google's X Lab, which Page says "incubates new efforts like Wing, our drone delivery effort" Google's investment arms, Ventures and Capital How will this affect me as a Google user?

In the short run, it won't affect you at all. Most of the popular Google products you probably use every day will stay under the Google umbrella and will continue to operate the way they always have.

If the launch of Alphabet affects users, it will be because some of those more ambitious projects pay off. For example, the Calico project hopes to extend human lifespans — that's probably not going to happen in the next year or even the next decade. Indeed, as I think Page himself would acknowledge, most of Google's ambitious bets are unlikely to pay off at all. But if a few of them do work out, it could have huge benefits.

Disclosure: My brother is an executive at Google.

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