Indian Hypocrisy and purpose of creating Google’s Alphabet

Namastey India  !!
If you are happy to know that an Indian is  about to operate american internet giant and you believe talking about brain drain makes you a nationalist then my friends – Welcome, You are Hypocrites too !!

It was August 12 when a 43 years old Indian american became the CEO of Google then whole 1.2 billion population started celebrating. Social media was flooded with “congratulations Sundar Pichai”. Politician, Bureaucrats , celebrities, everyone was busy wishing him. Earlier all these people were concerned about the brain drain of India.

One of my friend in America asked me an innocent question – “ talking about brain drain earlier and now celebrating for Sundar Pichai doesnt make you a hypocrite ? We Americans would never do that”

I was speechless at that time. Just couldnt find an answer instantly but now here i go –

Dear Emily,

Yes, we are happy to know that an Indian is about to run a giant and prestigious company called google. The name “google” is so familiar to us that we never gave a second thought of its american origin. When  our internet doesnt work then also we type google in address bar just to check if net is working. We are world’s biggest economy to use google. Half of us dont even know where google belongs to. Most of us dont even know the search algorithms of google and we type and ask questions to google as if someone is sitting there to answer our queries. We always found google as our own product.
We were never so happy when Anshu Jain became the CEO of deutsche bank.
We were never so happy when Shantanu or Indira Nooyi became the CEO. We are not happy because Sundar Pichai became the CEO of an American Company, We are happy because Sundar Pichai became the CEO of google.

And yes we are not Hypocrite too. We are still concerned about the brain drain. Its because our GDP is not as big as yours. We will not be worrying the day when our per capita will reach at 50,000 USD.

Sincerely
A happy Indian


 

What was the purpose of creating Google’s Alphabet ?

google-alphabet-final

Okay, As whole world is wondering what is Albhabet and whats the Google’s purpose of creating it ? Well, Alphabet Inc has many similarities with Berkshire Hathaway.

 

Now, Larry and Sergey will be playing their roles just like Warren Buffet is doing in Berkshire Hathway. They will be running the company as investors, not entrepreneurs.  Looking at them in this new light gives some ideas of why this was done.

1. Freedom of capital allocation

Larry and Sergey will be working as money managers and have larger freedom to assign substantial capital to any business they choose. Under Google, they would be subject to shareholder questions like“Why invest in Calico (a life longevity company)  when it has no demonstrable impact on ad revenues?” or “Is Project Loon (balloon based internet) really strategic to Google?” As shareholders of Alphabet, you are trusting their judgment as money managers and not as operators of any particular company. Genius, isnt it ??

2. Tax benefits

Under the new structure, Alphabet Inc. does not engage in any business operation, which enables the holding company to reduce the responsibility of owning a business. Alphabet Inc has no manufacturing, no products and no services. This allows it to maximize the profits and minimize taxation liability because the dividends it gets from subsidiaries are not taxed (if ownership >80%).

3. Risk mitigation

 New formation means that any individual company does not bear liabilities of other companies. This means Google Inc does not bear any liability for potential moonshot projects like Google X that might have substantial losses. Google Inc., becomes a predictable business with predicable growth/ revenues.

4. Google Inc escapes quarterly scrutiny

 Alphabet might not choose to declare the P&L accounts for Google Inc.,  in depth.

For example – Amazon did not explicitly mention the revenues and expenses of AWS as a business line until Q1 ’15. They had to make assumptions/ predictions. Investors think that AWS can be very profitable as a standalone business, which means that Amazon stock as a whole is undervalued.

google alphabet

Therefore , Google’s Alphabet  has now –

– More freedom for R&D/ risky projects
– Not to stress about quarterly results or shareholder perception.

 

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