In April 2011, Larry Page, one of Google’s two founders, became CEO of the company. Page had been CEO of Google from its establishment in 1998 through 2001, when Eric Schmidt took over.
After 10 years, Schmidt decided to step down and handed the reins back to Page. One of Page’s first actions was to reorganize the company into business units. Under Schmidt, Google operated with a functional structure that was split into two main entities—an engineering function and a product management function. The engineering group was responsible for creating, building, and maintaining Google’s products. The product management group focused on selling Google’s offerings, particularly its advertising services. There were, however, two main exceptions to this structure: YouTube and the Android group. These were both acquisitions, and both were left to run their own operations in a largely autonomous manner. Notably, both had been more successful than many of Google’s own internally generated new-product ideas.
The alleged great virtue of Google’s functional structure was that it was flat, with very few layers in the hierarchy and wide spans of control. Innovation was encouraged. Indeed, numerous articles were written about Google’s “bottom-up” new product development process. Engineers were encouraged to spend 20% of their time on projects of their own choosing. They were empowered to form teams to flesh out product ideas, and could get funding to take those products to market by going through a formal process that ended with a presentation in front of Page and Google cofounder Sergey Brin.
The products that emerged from this process included Google News, Google Earth, Google Maps, Gmail, and Google Apps.
By 2011, it was becoming increasingly clear that there were limitations to this structure. There was a lack of accountability for products once they had been developed. The core engineers might move on to other projects. Projects could stay in the beta stage for years, essentially unfinished offerings. No one was really responsible for taking products and making them into stand-alone businesses. Many engineers complained that the process for approving new products had become mired in red tape. It was too slow. A structure that had worked well when Google was still a small start-up was no longer scaling.
Furthermore, the structure did not reflect the fact that Google had become a multibusiness enterprise, albeit one in which search-based advertising income was still the main driver of the company’s revenues. Indeed, that in itself was viewed as an issue, for despite creating many new-product offerings, Google was still dependent upon search-based advertising for the bulk of its income.
Page’s solution to this problem was to reorganize Google into seven core business units:
Search, Advertising, YouTube, Mobile (Android), Chrome, Social (Google + and Blogger), and Commerce (Google Apps). Senior vice presidents who report directly to Page head each unit. Each VP has full responsibility (and accountability) for the fate of his or her unit. Getting a new product started no longer requires convincing executives from across the company to get on board. And once a product ships, engineers and managers can’t jump to the next thing and leave important products like Gmail in unfinished beta for years.
“Now you are accountable not only for delivering something, but for revising and fixing it,” said one Google spokesperson.
In 2015, Google reorganized again. A new corporate entity was created, Alphabet, which functions as a holding company for Google’s core businesses and several “moonshot bets” that the company is pursuing. Under the holding company structure, the Google subsidiary continues to be organized on a divisional basis (which now includes divisions for Internet Search, Google Cloud, YouTube, Android, and Chrome). In addition, as of 2018 there are 11 other subsidiaries that Larry Page refers to as “bets in area that might seem speculative or even strange.”
These businesses have included its self-driving car unit, a robotics unit, an artificial intelligence business, a unit focusing on longevity research, smart home technology maker Nest, and Google ventures (the company’s own venture capital unit).
Page argued that the reorganization helped to separate out the core revenue generating businesses from the moonshots, which allowed for greater transparency, particularly for investors. He also stated that the reorganization created a leaner more efficient Alphabet. Currently the Google subsidiary generates 99% of Alphabet’s revenues and all of its profits.

Questions
1. Describe the benefits of Google’s functional structure as it emerged during the early 2000s?
2. What were the limitations of Google’s functional structure? Why did these limitations start to become obvious by 2011?
3. What objective was Larry Page trying to achieve when he reorganized Google in 2011? Do you think he chose the correct organizational form?
4. Why do you think Page created the Alphabet holding company structure in 2015? What are the benefits of this structure? Can you see any drawbacks?