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STRT 6200 Alphabet Diversification Discussion

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Alphabet Diversification

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What is the rationale for Alphabet owning a variety of businesses that are

significantly different from each other?

The reason for Alphabet to own this many businesses is to ensure future growth and

reduce the risks. Early investments can go long way and become very profitable in the

future. And having these many companies under Alphabet will also ensure its dominance

in new fields. It is hoping to explore and enter new markets and gain market share and

eventually dominate through its superior services, research and development and brand

image. Also having a variety of businesses may prevent the business units from

competing with each other.

Alphabet did not own that many businesses because it need to increase its revenues, not

really. It is considered a long term investment which may prosper and grow into a

business of the future.

We can observe that Alphabet’s revenues from its core business grew by 34% over the

last 3 years and represent about 99% of the total revenue. On the other hand revenues

from Other Bets grew by 3,633%. It doesn’t as seem much in comparison but if you

consider the growth and potential it may be worth while keeping those division and further

develop them as the company see fit and close or sell the divisions that seem too weak

and struggling.

Why did Alphabet invest in Nest? How is this different from its core businesses?

I think Alphabet acquired Nest because it doesn’t want anybody else owning it. But

sometimes we can’t really understand what goes behind the scene and why they did it.

Most of these operations are kept secret and confidential till it is announced. It could be

that Alphabet made this strategic investment because it is going to be the future of

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Alphabet Diversification

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automation and control and it want to be the owner and controller of this platform and it

could utilize its services to make it one of the greatest companies in the world.

It is a gamble, where it could bring huge revenues in the future. If the gamble works, it

could considerably strengthen the company’s presence in the household industry,

including smart TV, thermostat, lights, speakers, and others services. Nest’s core

business is focused on manufacturing smart thermostats, which learn users’ habits over

time and adjust the temperature of the place accordingly.

The investment in Nest is different from the other business that Alphabet runs. Alphabet

owns 8 other subsidiary companies and the core of the business for each ranges from

artificial intelligence, TV, internet services, life science research, etc. So adding Nest to

its portfolio broadens and strengthen its presence in the industry and expands its reach

and dominance over the markets and the world.

Discuss the Alphabet reorganization, its purpose, and trade-offs. What are the

risks and benefits of greater decentralization?

I think Alphabet reorganization and restructure comes as a positive response to

investors and analysts who called for great transparency in the company’s expense.

So the restructuring will make its businesses more transparent than before. By doing

so, the company had become a multidivisional structure. As the company grows in size

becomes more complex, it changes its organization structure as it grows too. Alphabet

is the new parent company and each Strategic Business Unit (SBU) has its own CEO

and its own profit – loss responsibility.

This new structure allows the company to identify and separate its highly profitable

search and advertising business from its “moon shots”.

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Alphabet Diversification STRT-6200 What is the rationale for Alphabet owning a variety of businesses that are significantly different from each other? The reason for Alphabet to own this many businesses is to ensure future growth and reduce the risks. Early investments can go long way and become very profitable in the future. And having these many companies under Alphabet will also ensure its dominance in new fields. It is hoping to explore and enter new markets and gain market share and eventually dominate through its superior services, research and development and brand image. Also having a variety of businesses may prevent the business units from competing with each other. Alphabet did not own that many businesses because it need to increase its revenues, not really. It is considered a long term investment which may prosper and grow into a business of the future. We can observe that Alphabet’s revenues from its core business grew by 34% over the last 3 years and represent about 99% of the total revenue. On the other hand revenues from Other Bets grew by 3,633%. It doesn’t as seem much in comparison but if you consider the growth and potential it may be worth while keeping th ...
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Tags: Alphabet Diversificatio Alphabet brand image Alphabet revenues Alphabet acquired Nest Alphabet strategic investment