Alphabet Inc.: Reorganizing Google | Case Study Solution | Strategic Management
Question: Case Study of Alphabet Inc.: Reorganizing Google
Please read case 1 from the section on the case studies “Alphabet Inc.: Reorganizing Google” from your textbook and providing 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:
1. 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?
2. Analyze the effect of Google’s decision to restructure itself under a new holding after 2015.
3. 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.
4. Describe how the restructuring has made the company’s competitiveness stronger in the market and increased profitability and company valuation?
5. Finally, if you conclude that this move was beneficial for Google, explain the economic ground for this profitability:
○ Higher market share,
○ Economies of scale, or
○ Something else
Case Summary: Alphabet Inc.: Reorganizing Google
The case discusses about the reorganization of global giant technology company, Google Inc. by separating its highly profitable search from its non-core businesses. Google was founded back then in 1998 primarily was involved in providing core services like web-based search, OS, cloud computing, consumer content, hardware products, software applications, etc. With the passage of time the company started investing in many of the non-core businesses by bringing technological innovation that helped the company to position their brand remarkably in the market and the company achieved a lot of success as well. The non-core businesses that the company got involved into include self-driving cars, social science research, life sciences research, high-speed Internet access, developing robots and investment divisions.
Expanding to these non-core businesses helped in covering many customers as per their interest. Though the company focusing on the innovation aspect expanded their business activities into the new areas which made investors concerned about their investments (Visnji, 2019). Because the company had involved in too many things made the operations and functioning of the company too much complex for management regarding individual performance of each product or services.
In order to resolve this issue, Google reorganized itself as Alphabet Inc. a holding company in the year 2015(Google becoming Alphabet) that looks after Google’s non-core business activities which runs independently (SHARMA, 2020). Each of the business is handled and operated by the strong leader which helps in operating the business easily and effectively in the long-run.
Restructuring Decision and Google’s Stock Prices:
The news regarding reorganization was announced by the Google on August 10, 2015 where the company separates its business activities into separate companies so that will be easy to manage them. Before the restructuring, Google itself was handling all those businesses and it was very difficult as complex to look after the every businesses in depth (Aman & Nguyen, 2008). In this cut-throat competition, it is not easy to handle and operate multiple businesses without sufficient expertise, monitoring and proper knowledge.
Table 1: Historical data of Stock Prices of Google before and after Reorganization
Stock Price of Google [Before Reorganization]
|Year||Year End Stock Prices[in $]|
Stock Price of Google [After Reorganization]
Year End Stock Prices[in $]
|Year End Stock Prices [in $]|
As soon as the news was announced the stock price of Google increased and reached to its highest ever which was around $700. Yes, it was true that the decision regarding restructuring was made because of the stagnant stock prices of Google and to pacify their investors as well. When the Advertisement business which was previously doing very well experienced slow growth and the other business activities brought ore complexities for the company.
Investors were concerned regarding their investment which made the stock price of Google stagnant. This scenario can be seen at the stock price of Google which declined from 58.43% (2013) to 52.56% in the year 2014 (Erkama, 2010). The investors felt that founder of the company to expand into the other non-core businesses without proper research and analysis which can result significant to them.
Effect of Google’s restructuring Decision:
The decision taken by Google regarding restructuring it under the holding company Alphabet Inc. seems to be a good decision. After the company announced its reorganization decision in the year 2015 had highly affected the performance of the company. The other non-core businesses which fall under other Bets were handled independently by separate leaders who were expertise in their respective fields (Clement, 2020).The restructuring decision made each of the businesses more transparent, financially viable as well as followed the practice of corporate governance more properly and managed the activities more ethically.
The restructuring decision helped the company to gain trust of their shareholders again that seemed to be fading as they were very concerned about their investment when the company invested so much in the non-core businesses. After the restructuring decision, the stock price of the company increased by 5% making it the highest price ever which was around $700. Therefore, the restructuring decision has brought positive changes for the company.
Analysis of Google’s Expansion to non-core businesses
For any company focusing on the part of innovation is a good thing in this cut throat competition where every organization is working with their blood and sweat to position their brand and be profitable. Likewise, the Google did the same by expanding into many non-core business activities like self-driving cars, high-speed internet access, life science research, etc. After the Restructuring decision was made, those non-core business activities were classified as Other Bets (Miners, 2013).
Table 2: Revenue that were reported from its Google’s non-core business [Other Bets]
|Year||Revenue (in millions $)||Year||Revenue (in millions $)|
After the restructuring decision, the revenue contribution from ‘Other Bets’ in the year 2015 was only $445 Million but in the same year they faced the operating loss of around $3.65 billion. On the other hand Revenue from the Google’s core business was around $75 Billion. After the restructuring, the Alphabet Inc. reported the highest revenue with an amount of $90.3 Billion by defeating Apple Inc. and become the most valuable company. Among the revenue that the Alphabet reported only the amount worth of $288 million was the contribution from the ‘Other Bets’.
Though the contribution of ‘Other bets’ towards the revenue of the company was not even 1% of the total revenue reported, we cannot say the decision of expansion was completely wrong. From the above figure 2 we can see that with the passage of time in the following years the revenue reported by ‘Other Bets’ seems to be improving. Therefore, the company might be long-term oriented in terms of their portfolio of businesses.
Restructuring on Company’s Competitiveness, Profitability and Valuation
It is true that the restructuring decision made by the company had made the company stronger in the market in terms of their competitiveness, profitability as well as their valuation. Restructuring decision helped the company to work independently and hence create their own unique brand identity. Restructuring decision separated the core and non-core business of Google. When the restructuring news was announced the valuation of company also started to improve which reflected in their stock prices which increased by 5% and became the most valuable company in the world in the year 2016.
Restructuring decision really helped the company to deal with the cut-throat competition and become profitable. The company also started earning some amount of revenue from the ‘Other Bets’ as reflected in the figure 2 that deals with the non-core businesses of the company.
Economic Ground for the Google’s Profitability:
We cannot deny or doubt on the fact that the decision regarding reorganization has increased the profitability of the company massively in the past years. When we compare the revenue of Google before and after restructuring then we can see that the revenue growth was almost double (Vo, Nguyen, & Pham, 2016). The company has a market capitalization with an amount over than $1 trillion which was possible only because of expansion (diversification) of businesses, higher market share and focusing on innovation.
Apart from the core web-based search business, Google had diversified its businesses into other non-core businesses as well like self-driving cars, life science research, investment divisions, etc. Expanding to these business activities brought too much doubt and confusion for the investors regarding their investments which made the Google’s Stock Prices Stagnant. Therefore, after the restructuring the investors developed confidence regarding their investments (Curwen, 2018). After the restructuring, the company had been able to be the most valuable company in the world by 2016 in terms of market capitalization defeating Apple Inc. The company has achieved remarkable profit and large market share after their restructuring decision.
Aman, H., & Nguyen, P. (2008, December). Do stock prices reflect the corporate governance quality of Japanese firms? Journal of the Japanese and International Economies, 22(4), 647-662.
Clement, J. (2020, February 5). Alphabet: annual Other Bets revenues 2013-2019. Retrieved from https://www.statista.com/statistics/771766/alphabet-annual-revenue-other-bets/
Curwen, P. (2018, June). Google. Digital Policy, Regulation and Governance, 20(2), 191-194.
Erkama, N. (2010, June). Power and resistance in a multinational organization: Discursive struggles over organizational restructuring. Scandinavian Journal of Management, 26(2), 151-165.
Miners, Z. (2013, May 6). Google CEO: ‘Big bets’ on non-core products are worth the risk. Retrieved from Computerworld: https://www.computerworld.com/article/2496923/google-ceo—big-bets–on-non-core-products-are-worth-the-risk.html
SHARMA, R. (2020, December 7). Why Google Became Alphabet. Retrieved from Investopedia: https://www.investopedia.com/articles/investing/081115/why-google-became-alphabet.asp
Visnji, M. (2019, May 24). Why Google Created Alphabet? Insights From Google Acquisitions. Retrieved from Revenue and Profit: https://revenuesandprofits.com/why-google-created-alphabet-insights-from-google-acquisitions/
Vo, X. V., Nguyen, H. H., & Pham, K. D. (2016, July). Financial structure and economic growth: the case of Vietnam. Eurasian Business Review, 5, 141–154.