Making sense of the new Alphabet
As word spreads of Google's self-imposed acquisition by its latest creation, Alphabet Inc., the question on many marketers' minds is what the restructuring means for the conglomerate's ad business.
The Mountain View, Calif.-based company's new organizational structure will probably not have many direct consequences on marketers' day to day jobs. Still, given Google's (and new CEO Sundar Pichai's) penchant for taking on new projects, there's a chance that ad tech -- from video to mobile to programmatic -- will receive extra attention from the move. Advertisers may not see any immediate side effects, but in the long term, some experts argue it may help reduce inefficiencies in ad tech.
From a branding standpoint, the news will have little tangible impact on decisions to invest or advertise. But by siphoning off its ventures into separate silos, Alphabet is reinforcing in the minds of ad buyers and investors that Google's core Internet business is a money maker.
"Google will still be Google the brand, and nothing will change," Boston University Advertising Professor Edward Boches told Marketing Dive in an interview.
He chalks up the restructuring as an operational change that will allow Alphabet to pursue new interests (read: more moon shots) without eating into Google's profit or spooking advertisers.
Connecting the dots
The new holding firm will consist of "mostly a collection of companies," with Google -- the Internet business -- being the largest of the lot. Projects that are not a part of the main Internet business will now be separate ventures under Alphabet.
Google (as marketers know it) will be absorbed as one of the businesses under Alphabet, but will retain control over most of the company's biggest products: search, ads, maps, apps, YouTube and Android. This company will still be called Google (and even continue trading on the Nasdaq under stock tickers GOOGL and GOOG).
The Alphabet move shows that the Internet giant is doubling down on its core search and ad businesses, according to Anindya Ghose, marketing professor at NYU Stern School of Business. And "this is another assertion that Google is serious about mobile," Ghose told Marketing Dive in an interview. "The change isn't going to affect brands or advertisers in any meaningful way yet," but it could eventually help reduce ad dollars wasted.
New research from Proxima found that 30% of total advertising budgets in the U.S. were not reaching target audiences. Ghose explained that the marketing and advertising technology spaces are so fragmented that it is difficult to know what technologies or metrics will stick. In separating out its focus areas, Google may throw more money at mar- and ad tech, likely by building out its own ecosystem of services and products around its existing flagships.
Recent updates point the way to where the new, slimmed-down Google is going. In the past couple weeks, Google Analytics gained a Publisher Reporting section that will include AdSense and Ad Exchange reports, and announced it would be rolling out a new AdWords Report Editor over the next few months. The tech giant is expanding marketers' insights into display ad campaigns on AdWords through multi-platform conversion metrics that track views from apps to websites. And not one to be left out of the buy button race, Google is adding shopping capabilities to display ads served via its network. With TrueView ads, which serve essentially as click-to-buy buttons, the Internet giant has made purchasing possible on YouTube ads. An Android pay feature that works for both in-app and in-store purchases has also been announced.
Marco Bertozzi, president of global clients at Vivaki, the media arm of Publicis Groupe, was bullish about the announcement, penning a guest post for Brand Republic in which he cheered both Pichai getting the nod as CEO and Google seemingly reinforcing its focus on video.
"When we talk about working with Google, it now clearly means search, video, maps and all things connected to their advertising business. The new chief executive, Sundar Pichai, can be singular in his ambitions to grow and innovate without distractions and this can only be a good thing for the business and for their largest advertisers. It is also reassuring that things will not go the way of Microsoft, albeit it from a different angle; they gave up advertising for software," Bertozzi wrote.
What about YouTube?
It is still unclear where some of the other projects that are not being kept within Google will be housed. For example, Google didn't spell out where Project Fi, its virtual mobile network, would land, while home automation darling Nest is now under the Alphabet fold. However, surprising some, YouTube is still under the Google brand.
Fortune magazine offered a handful of theories as to why that is, including that Google needs YouTube for revenue purposes. Another explanation is that the video network isn't a moonshot (think GoogleX, Google Glass, Calico) and is a key part of the core Internet business.
Bertozzi thinks the founders made the right move in not spinning off YouTube given how integral video is now to the media terrain. The news "that YouTube inventory will no longer be available on the open exchanges [reinforces] Google’s commitment to dominate the video space as it did with Search," the Vivaki exec wrote.
Last week's YouTube decision gives Google more control over ads, but at the expense of third-party ad tech firms that rely on the soon-to-be out DoubleClick Ad Exchange to manage campaigns. Industry insiders believe the change is based on the search giant wanting to force buyers into its own ad tech ecosystem.
"It sent a strong message to all third party video companies that the doors are now closed for direct business only, a trend we are only going to see get stronger," Bertozzi said.
The most intriguing theory regarding YouTube is that it was part of the deal to keep Pichai at the Internet giant. (Rumor has it Twitter was attempting to lure Pichai for their vacant CEO spot.) But perhaps the simplest explanation is that YouTube is not a distraction from Google's core Internet business and is very much an integral part of that business, especially if you strip it down to what it is: a video search and advertising tool.
Pichai, formerly Google's SVP of Product, was previously touted as Page's No. 2 in profiles by Bloomberg Businessweek and Fortune. He will now be tasked with running Alphabet's mature Google Internet business, while Google's co-founders will now focus on growing the company's less mature ventures. The new CEO is known for his product innovation. In eleven years at Google, Pichai has been in charge of core projects such as Chrome and Android, as well as playing a prominent role in developing Maps, Search and commerce.
"Pichai has a reputation for helping make the products simpler and easier to use," Boches said. And "the easier they are to use, for individuals and small businesses, across all screens and devices, and the more Google's products -- search, mail, cloud access, mobile apps -- work seamlessly, the better for both users and advertisers."
Cutting through the distraction
For shareholders, the move was met favorably as it is in line with Google CFO Ruth Porat's goal of making the giant more fiscally responsible. Page said they decided to restructure in order to streamline Google and make it "cleaner and more accountable."
Wall Street's reaction to the reorganization was largely positive, as investors agreed the move will provide more transparency for shareholders and allow Alphabet to separate the money-making Google businesses from the money-sucking moon shots. "The hope is that the founders' dreams will be rationalized, and Google's profits maximized," Dana Blankenhorn wrote in a post for Seeking Alpha.
In his explanation for why they went with the name Alphabet specifically, Page gave investors a nod, saying: "[Alphabet] means a collection of letters that represent language, one of humanity’s most important innovations ... We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!"
For Google, a company known to nearly everyone on Earth -- a company whose name has become so famous that it is even a verb in the dictionary -- the restructuring signals that Alphabet intends to continue innovating and reinventing itself as a business. The question for marketers is, will Google's core Internet business keep innovating?
"In an age when everyone is a digital user, that is essential," Boches said.