On Monday Google announced that they are transforming into Alphabet Inc, a giant holdings company that will include a smaller more streamlined Google, as well as more of its edge products all under the Alphabet umbrella. The move has been described as a method of maintaining a startup-like feel in an increasingly bigger corporation. The quote from Larry Page’s Google founders letter goes “Google is not a conventional company. We do not intend to become one.” While that phrase has been repeated ad nauseam lately, it does have the distinction of explaining some of Google’s bolder moves, like spinning off non-core components into their own subsidiaries. There is another undiscussed reason for making this huge change and it is slightly less unconventional than you might think. Hint, it involves lawyers.
Most large companies, like your Sonys, and General Electrics already have this same arrangement albeit with a less silly sounding name. Google, or rather Alphabet’s new companies like Google X, Google Ventures, Google Capital, and Calico have been given a little breathing room to grow but in addition to that they are also their own separate subsidiaries. What that means is that each company has its own CEO, management teams, profits streams, and, in this case, most importantly… liability. The reason that is so important is it offers protection for each individual company within Alphabet.
Look at it this way, if a Google X project were to become self-aware and attempt to eradicate the human race from the face on the planet, that might be grounds for a bit of legal action, not to mention lawsuits from countless victims (or their next of kin, as the situation might warrant.) With the new structure, Google itself, Calico, Google Ventures, Fiber, Nest Labs etc. would be protected from the legal ramifications that Google X will face. Admittedly that situation is incredibly far-fetched (or is it?) but real possibilities of liability issues can and do exist. Remember those self-driving cars Google has been working on? If one of those cars were to malfunction and crash into a school bus it could easily become one giant legal mess for Google. Under the old corporate structure, every part of Google would be liable for the ramifications of that accident. For example, Nest Labs could be shut down even though they had nothing to do with the car in question. Really, the only question at this point is why they haven’t made a move like this sooner.