Please read Case 1 from the section on the case studies Alphabet Inc.: Reorganizing Google from your textbook and provide a minimum of eight (8) APA formatted papers (and at least six (6) peer-reviewed resources) Please make sure that your writing should be analytical and includes the followings: The effect of the event that happened in 2015 on Google's stock prices; please explain this by preparing a table that shows historical data. o Was this move due to Google's stagnant share price and an attempt to pacify investors? Analyze the effect of Google's decision to restructure itself under a new holding after 2015. Evaluate whether the expansion of Google Inc. into non-core businesses, including self-driving cars, life sciences research, high-speed Internet access, and investment divisions was a good move for Google. Please provide historical data to prove your points. Describe how the restructuring has made the company's competitiveness stronger in the market and increased profitability and company valuation? Finally, if you conclude that this move was beneficial for Google, explain the economic ground for this profitability: o Diversification, o Higher market share, Alphabet Inc.: Reorganizing Google In October 2015, in an unexpected move, global tech hemorrhaging money in pursuing projects fancied by its nology giant Google Inc (Google) restructured itself as founders such as developing robots and self-driving cars Alphabet Inc (Alphabet), a new holding company under and studying life sciences. Investors began to question which Google's non-core businesses, including self- the heavy investments the company had been making driving cars, life sciences research, high-speed Internet in non-core businesses and the lack of clarity concern- access, and investment divisions, were spun off as dis- ing risky investments. Analysts too found it difficult to tinct entities and separated from the company's Internet evaluate the company's broad set of businesses and figure operations such as Android, YouTube, and the Google out their individual performances. Eventually, the senior search engine. The businesses were reorganized into management realized that the company had become two reporting segments: "Google' and 'Other Bets? This too complex to manage and that a change was required marked a massive shift from the earlier setup in which to allow for cleaner operations and more accountabil- Google was in charge of a number of diverse compa- ity. Subsequently, they announced a radical shake-up of nies, some of which carried it far afield from its core Google's corporate structure and management, and cre- search business. Under the new structure, a number of ated a new holding company called Alphabet that would businesses including Google operated as subsidiaries of manage a collection of companies, the largest of these Alphabet and were run independently, each with its own being Google. CEO. According to a statement posted by Larry Page Industry observers saw this move as being a co-founder of Google, on the company's official blog, response to Google's stagnant share price and an "Fundamentally, we believe this allows us more manage- attempt to pacify investors. Some analysts lauded the ment scale, as we can run things independently that aren't move saying Google's decision to restructure itself very related. Alphabet is about businesses prospering through under a new holding company would protect its core strong leaders and independence [...). This new structure brand Google, increase the operational independence will allow us to keep tremendous focus on the extraordinary of the individual businesses, and usher in greater finan- opportunities we have inside of Google." cial transparency across divisions. On the other hand, Co-founded by Page and Sergey Brin in 1998, some analysts criticized the change and questioned Google provided Internet-related services and products how the restructuring would make the company's busi- including web-based search, cloud computing, software nesses competitively stronger and increase profitability applications, online advertising technologies, mobile and company valuation. operating systems, consumer content, enterprise solu- Post restructuring, Alphabet pushed for more finan- tions, and hardware products. Since its inception it cial discipline and accountability from its riskiest ven- had focused on innovation and come out with dis- tures. The non-core companies were struggling as they ruptive technologies from time to time. The company faced unprecedented pressure to bring their costs in line had branched out into hosting services like video and with their revenue. In fiscal 2016, 'Other Bets' posted a mapping, enterprise services, e-mail and chat, social loss of about $3.6 billion. Moreover, some key execu- networking space, payment gateway services, mobile tives who were chosen to turn the riskier Other Bets operating software, and wireless device sales. Google's into reality departed from Alphabet, allegedly over technological innovations made it one of the most rec- pressure to perform. Going forward, investors would ognized and valuable brands in the world. likely pile up the pressure if the company faltered and However, over a period of time investors had begun nothing profitable emerged from 'Other Bets said ana- to voice strong concern over Google expanding into areas lysts. The questions being asked were: Will the creation unrelated to its core search business and into unknown of Alphabet spell a new successful era for Google? Can territory in terms of profitability. They felt that Google Alphabet maintain Google's lead as an innovator and had got distracted from its core web search and was challenge competitors in a wide array of industries? Background Note of venture capitalists who wanted to cash out, Google filed for an IPO in April 2004. In the IPO prospec- Google's roots lay in a research project on search engines tus, Google's founders attached a letter subtly warning taken up by two PhD students at Stanford University, potential subscribers that Google was not a conven- Larry Page and Sergey Brin, in 1996. Google pioneered a tional company and did not aim to be one. The dual new technology called 'PageRank, which determined the class equity structure proposed by Google's founders importance of the website by the number of other pages proved controversial Google's IPO comprised only the linked to it and their importance that linked back to the issue of Class A shares, each of which was entitled to a original site. This new technology marked a shift from single vote. Google's founders, venture capitalists, and the earlier method followed by other search engines other insiders held Class B shares which were entitled to which ranked the results by the number of times the 10 votes per share. Class C shares had no voting rights, search terms appeared on the page. The search engine except as required by applicable law. Critics lambasted was initially called 'BackRub' as it determined a web- this share structure as they felt that it gave the founders site's relevance by checking its back links. The name was significant management control and could lead to poten- finally changed to Google, based on the word Googol- tial management abuse. But Page and Brin defended the the number one followed by a hundred zeroes. structure on the grounds that it would help them fulfill Google's primary domain 'www.google.com' was their long-term vision for the company without getting registered in September 1997 and the company was bogged down by short-term financial demands.? incorporated in September 1998 in a friend's garage in By the mid-2000s, Google faced a new challenge in California, USA. In 1999, Google moved its headquarters the form of the ever-expanding high-end mobile phones to Palo Alto, California, home to several other technol- dubbed as smartphones. Developing applications for ogy companies. Google's mission was to organize the the variety of platforms on which these smartphones world's information and make it universally accessible were available proved to be cumbersome for Google. and useful." In August 2001, Eric E. Schmidt succeeded The company therefore decided to launch its own open- Page as the CEO of Google, just five months after joining source platform for mobile phones, which would give the company as chairman of the board. application developers the freedom to develop applica- Google started to sell advertisements associated with tions for various mobile phones without depending on search keywords. This advertising model was success- any handset manufacturer or service provider. Hence, ful and the company started getting a major part of its Google acquired an open-source mobile platform called revenues from search-related advertising. From 2001, Android from Android, Inc. and released its first version Google based its growth strategies on acquiring many in the market in 2009. Android proved to be an instant small companies with innovative products. It added hit in the market and soon emerged as the dominant many other products to its product portfolio like Google mobile operating system in the world. Earth and YouTube" in this way. Apart from acquiring In April 2009, Google launched a venture capi- other companies, Google also launched its own products tal arm called Google Ventures to invest in a diverse like the free webmail, called "Gmail, in April 2004. Gmail array of industries, including the consumer Internet, was also well received by the web community due to the software, clean tech, and healthcare. In January 2011, massive increase in storage space provided by Google Schmidt stepped down as CEO of Google and Page (initially one GB). The success of Gmail and YouTube took over. Schmidt continued as Executive Chairman made Google the undisputed leader on the Internet, with of the company. In August 2011, Google acquired the company overtaking many other established Internet Motorola Mobility LLC for $12.5 billion in order to companies like Yahoo! Inc. make its own hardware for smartphones, tablets, and Google's promoters were hesitant to go in for an other devices. Initial Public Offering (IPO) as they were apprehensive Other than acquiring other smaller companies for that public scrutiny and financial regulations would launching new products, Google also focused on inno- make the company less agile." But, due to the demands vation and spent huge sums of money on developing new services. However, rather than a simple iterative the earnings coming from online advertising. The com- approach to innovation, Page wanted Google to develop pany had more than 59,976 employees worldwide as of a moonshot mentality' where it would be inspired to cre- October 2015. ate products and services that were 10 times better than the competition. Google X, a separate division which was Why Google Became Alphabet established in early 2010 to come out with 'moonshot projects, was Page's brainchild. In 2010, Google started Since its inception, Page and Brin had massively diversi- to invest heavily in developing technologies which were fied Google from its origins as an Internet search engine both related and unrelated to its core business. Most of to invest in several projects that were unrelated to its these products were innovative and were totally new to core business such as self-driving cars, renewable energy, the world. One of the most hyped up technologies devel- wearable technology, artificial intelligence, mapping ser- oped by Google was "Google Glass, a wearable computer vices, and the Android operating system. According to which came with its own optical head-mounted display them, Google being just a search company, no matter (OHMD)- This wearable computer performed many of how successful, would not be able to consolidate its posi- the tasks traditionally performed by other portable gad- tion in the highly competitive tech market without diver- gets like smartphones and tablets. Another important sifying. The duo began to pour money into far-off fields technology that Google had been working on was the by increasing their spending on research and develop- Google Driverless Car project. This project was aimed at ment. In the 2004 Founders IPO Letter, they wrote, developing autonomous cars which would drive on their "Google is not a conventional company. We do not intend to own without the need for any physical drivers. Google become one. Do not be surprised if we place smaller bets in was testing cars which ran using this technology across areas that seem very speculative or even strange when com- the world and was expected to release it for the mass pared to our current businesses. Although we cannot quan- market once it obtained the legal clearances. tify the specific level of risk we will undertake, as the ratio In September 2013, Google entered into healthcare of reward to risk increases, we will accept projects further research by creating a new company called Calico to outside our current businesses, especially when the initial make advancements in human health and well-being. investment is small relative to the level of investment in our in particular understanding the aging process and current businesses." increasing the longevity of people. There were two Though Google's diversification strategy drove the other innovative technology projects of Google aimed company forward and benefited customers, it created at improving accessibility to people around the world. several issues. Google was tight-lipped about its risk- The more ambitious of the two was Project Loon which ier and non-core investments, including the moonshot aimed to bring Internet access within the reach of people projects, which left investors feeling uneasy. "Historically, living in remote parts of the world. Another new service Google has notoriously been a black box. Larry Page and that Google was experimenting with was Google Fiber company consistently marched to the beat of their own which promised to bring very high-speed Internet access drum," said James Cakmak, an analyst at equity research (100 times greater than the prevalent broadband speeds) and trading company Monness Crespi Hardt & Co. within the reach of everyone. Moreover, the financial returns of the search engine In order to make its mark in smart-home systems, and advertising business were not observed separately in January 2014, Google acquired Nest Labs, Inc., a from the investments in all of the new businesses. This smart-home appliances maker of thermostats and appeared to limit transparency, accountability, and dis- smoke alarms, for $3.2 billion. Less than three years after cipline across the company. The moonshot projects lost acquiring Motorola, Google sold the smartphone maker $1.9 billion in 2014.12 to Chinese PC manufacturer Lenovo for $2.9 billion Google came under some pressure from Wall Street in January 2014 as investors began to question the heavy investments In June 2015, Google started an urban innovation it was making in non-core businesses and complained company called Sidewalk Labs that used technology about the lack of clarity regarding risky investments. and innovation to improve urban life. Google's revenues The shareholders were upset as there were no paybacks for the year 2015 were $74.5 billion with over 90% of to them in the form of dividends or buybacks. Profits