Saturday 17 March 2018

Google shake-up: jobs for the boys or transparency boost?

Google's tax status will not change as a result of the changes. Photo: Reuters
Google's tax status will not change as a result of the changes. Photo: Reuters

Adrian Weckler and  Donal O'Donovan

Investors yesterday backed Google's surprise overhaul of its operating structure by sending shares 4.14pc higher to €690.59 each, valuing the tech giant at almost €455bn.

On Monday Google said it will create a holding company called Alphabet to sit over its numerous and increasingly disparate subsidiaries in a move that will hive off its core web advertising business from newer ventures like driverless cars.

Google's operations in Ireland, which employs up to 5,000 people when contractors are taken into consideration, is not likely to be affected. The Irish arm is part of Google's stable commercial machine that focuses largely on sales, marketing and finance.

Google's tax status will not change as a result of the changes either, and nor will the internet giant's overall balance sheet.

What is likely to change is the degree of transparency for investors around the break-down of income to Google's units, including the search engine cash cow.

At almost 20 years old, Google is now a well-oiled commercial machine that makes the lion's share of its income from straightforward online display advertising. That kind of business is a long way from the technological pioneering favoured by founder and outgoing Google chief executive Larry Page.

Under the new structure Page is freed up to be "seriously in the business of starting new things" together with Google co-founder Sergey Brin. A more cynical theory is that, as one of the world's largest and most valuable companies, Google is now succumbing to the time-honoured corporate tradition of creating more divisions, and more management jobs, which can help lure talented executives with the prospect of becoming a 'vice president' or unit 'CEO'.

"It (the new structure) suggests that in all likelihood, Google is not going to slow the pace of their experimental processes like self-driving cars," said Michael Yoshikami, head of Destination Wealth Management.

The new structure could also give Wall Street better insight into Google's investment in moonshot projects like Google X, a secretive lab that produced the unpopular Google Glass wearable device.

"They are aware that they've got this hodgepodge of companies," said Roger Kay, an analyst at Endpoint Technologies Associates. "Maybe it's better to sort them out a bit and make it clearer which ones are bringing in the bacon and which ones are science projects and which ones are long-term bets."

While it is synonymous with its search engine Google, co-founded by Larry Page and Sergey Brin in 1998, it has grown from an internet search engine to a far-reaching conglomerate that employs more than 40,000 people worldwide.

Google's new structure resembles the way companies like Berkshire Hathaway and General Electric are organised, with a central unit handling corporate-wide activities such as finance and relatively independent business units focused on specific areas.

Under the new corporate structure, the Google unit will encompass the core search engine as well Google Maps and YouTube.

In addition to Google X, the company's new ventures such as Calico, which focuses on longevity, and connected home products maker Nest will be managed separately. Other units that are part of the new structure include Fiber, for its high-speed internet efforts, venture capital arm Google Ventures, and Google Capital, which invests in larger tech companies.

At the top of the pyramid Alphabet will replace Google as the publicly traded entity. Shares of Google will automatically convert into the same number of shares of Alphabet, with all the same rights.

In a filing with the Securities and Exchange Commission in the US, Google said the new arrangement will take effect later this year and that it will likely result in two reportable, financial segments.

Sergey Brin will become president of Alphabet, and Eric Schmidt, chairman of Google, will be executive chairman.

The company's current directors will become directors of Alphabet. (Additional reporting Reuters)

Irish Independent

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