Last week, Google co-founders Larry Page and Sergey Brin announced they’re stepping down from their active roles at Alphabet and handing over the reins to Sundar Pichai making him the CEO of the holding company. While Pichai has been heading Google for four years, one may wonder as to what prompted the co-founders to take a step back suddenly? There’s more to the story than what meets the eye and while everyone is talking about a corporate change, in a bigger picture, this move may end up massively benefitting Alphabet.
Almost everything that we do today online, uses a Google service directly or indirectly. That’s how powerful a company Larry and Sergey built. Be it the smartphone market via Android, its ecosystem of internet services which are built on top of its all-powerful search engine which combines to create leverage for the world’s most powerful digital advertising machine. Amidst all the clutter, one thing remains constant – Google has always been a company run by nerds.
Since the early days of Google, Page and Larry have been focused on inventing with 100x moonshots that they believe could change the world. The duo never cared about the spotlight and preferred to work silently in the background. They also surrounded themselves with the smartest minds and have never shielded away from teaming up with the best.
So this sudden change might be surprising but it echoes the creation of Alphabet four years ago. But more importantly, it shows how these two founders are now having their cake and eating it too.
The illusion of letting go
- Both Larry and Sergey retain dual-class voting power as stakeholders. They cumulatively have 83% of the Class B shares, each [PA1] with the voting power of 10 GOOGL shares. This allows them to obstruct any move in the boardroom against them. This structure is meant to ensure control of corporate vision is in the hands of the founders, without diluting actual control of the company to the mercy of the investors.
- Just after three years of incorporating Google, the duo got onboard Eric Schmidt who was hired as CEO as the company was in need of adult supervision. Schmidt remained as CEO for more than a decade and then became executive chairman first of Google, then Alphabet. This enabled the duo to focus on moonshots, the next big thing while the Google Search machine marched on. All this while, Schmidt was responsible for corporate governance and was the face of the company while Page and Larry continued to passionately follow their pet projects some of which we now know to be augmented reality glasses, self-driving cars, hyper-fast internet for the masses amongst others.
- When in 2015, Page and Brin created Alphabet, a holding company that held control of Google and other bets which, Sundar Pichai was tasked to run Google while the duo looked after the parent company with CEOs of all subsidiaries reporting into them. This created the framework for them to relinquish day to day public-facing operating control of the company. Pichai ran Google, while Page and Brin focussed on other bets. In fact, Pichai represents Alphabet/Google for everything be it earning calls, keynotes, famed Google TGIFs and even senate hearings. While all this was happening, he never had full control; for instance when Larry Page unilaterally signed off a $100 million severance package to Android founder Andy Rubin despite him being accused of sexual harassment.
- Despite removing themselves as CEO and President of Alphabet, Page and Brin retain full control of Alphabet because of the dual-class voting power. They still retain their seats on the board, they still are Alphabet employees and they haven’t spoken anything about divesting their controlling stake. Pichai may now be the CEO of Alphabet but the status quo remains the same. Technically nothing changes at Alphabet or Google for that matter, though you can imagine, Pichai having more say in what the “other bets” do as he may make them financially more viable with him having the fiduciary responsibility towards shareholders.
The co-founder’s DNA
The last time Page was publicly seen at a Google event was in 2013 at Google I/O. He unexpectedly took over the keynote and his statements give us a fair idea of what he wanted to achieve for Google. He controversially said, “We haven’t built mechanisms to allow experimentation and there are many, many exciting and important things you could do that you just can’t do because they’re illegal or they’re not allowed by regulation. And that makes sense — we don’t want our world to change too fast.” By this, he insinuated that there should be places free of regulation where corporations like Google can experiment for the sake of innovation.
This gives us a clear understanding of his thought process and the organisational culture at Google, Page fostered. The Google founders have always been rebellious, innovators and on-point with a vision were experimenting with technology and building something meaningful out of it is their only goal. They don’t want anything to do with menial tasks of running a publicly-traded company, that too something of the scale of Google.
In fact, if one looks at Google’s history properly, the founders have not run the company for a large part of its 21-year-old history. Eric Schmidt became its CEO in 2001 and remained in that role until 2011. And for the last 4 years, Pichai has been CEO of Google, which is basically 95% of Alphabet. In fact, since 2014, Pichai has been the lead product czar at Google usurping even the likes of Andy Rubin at the company when he was made senior VP of product. Even before this change, the Chrome and Android teams were unified under Pichai.
On the flipside, Brin has been focussed on projects like Google Glass inside the Google X research unit while Page has been largely a shadowy figure leading the holding company Alphabet.
But, not everything is fine at Alphabet
The rebellious work culture also happens to be Google’s Achilles heels. Google has been in the news for a lot of wrong reasons off late — fraternizing employees, regulatory crackdowns, discrimination, and more.
- The rumours of romantic affairs of some of Google’s founders and top executives have been around for a long time. In fact, Larry Page dated Marissa Mayer (Former Yahoo CEO) when she was one of the company’s earliest employees. Brin dated Amanda Rosenberg, a then-27-year-old public relations manager at Google while. This was even weirder as she was dating Google’s former VP of Android Hugo Barra and this news only came out when he left Google to join Xiaomi in China. How do you expect thousands of employees to follow basic workplace etiquettes when the top management isn’t following them and rather publically bucking them.
- Andy Rubin, the creator of Android, was alleged to have an “inappropriate” relationship with a subordinate while at Google. Page asked for Rubin’s resignation. However, the company mysteriously still continued to pay him millions of dollars in instalments of $2 million per month for four years. It has been revealed that Larry Page unilaterally signed paycheck off despite being aware of Rubin’s indiscretions.
- Alphabet’s Chief Legal Officer David Drummond quietly married a current Google employee in the legal department. Another former Google employee alleged a year-long relationship with Drummond. This is a huge deal as Drummond is one of the oldest confidants of Page and Brin as he was the one whom they hired when they were forming the company.
- Similarly, Google’s former head of search, Amit Singhal was asked to leave a couple of years ago for sexual harassment. Singhal was key to the company as he was the guy who rewrote the iconic “Page Rank” algorithm invented by Page and Brin in their Stanford dorm room. It can be said that Singhal is more responsible for Google’s current success even more so than its founders.
Change in culture
- James Damore, a software engineer at Google, was fired after he circulated a controversial anti-diversity memo. Employees supporting James started a nationwide protest at Google campuses. The protests were meant to raise awareness on how Google does not respect freedom of speech and censors dissenting voices on its video-sharing site YouTube.
- Google employees have accused the company’s leadership of developing an internal surveillance tool that they believe could be used to monitor workers’ attempts to organize protests and discuss labour rights. It would automatically report staffers who create a calendar event with more than 10 rooms or 100 participants, according to an employee memo.
- Google fired four employees on the grounds they violated data security policies, prompting ire among colleagues concerned it was retaliation for worker organizing. One of them was connected to a petition against Google working with the US immigration and border patrol agency.
- Google CFO Ruth Porat, is being positively viewed by both employees as well as investors. She joined a mass protest at the company’s handling of sexual harassment allegations. Porat sought to portray a company that gives its employees “voice” and listened to their demands. She has overseen a dramatic restructuring of the company while also doubling its stock price. Investors shall be bullish because Porat and Pichai make an excellent team.
In the eyes of the law
- Being a global company, Google is also facing regulatory hurdles on multiple fronts. Chinese regulators are reportedly mulling an “Unreliable Entities” list in retaliation for the ban on Huawei products in the U.S.
- The U.S. Justice Department (DoJ) is preparing an antitrust probe against Google. Many American politicians also want to break-up tech giants into smaller companies since they are afraid one entity is becoming too influential and obtaining a monopoly.
- Lastly, regulators across the globe no longer see fines as sufficient, especially as the company appears to simply take the penalties as the cost of doing business.
- Google also planned to launch a censored version of its search engine in China, dubbed Project Dragonfly. Employees have been against the project because Chinese authorities could censor web content and monitor citizens’ behaviour online. Investigation documents suggested that Google engineers were at one point working on ways to filter out individual websites – including the BBC and Wikipedia – from search results, based on web censorship in China.
- European regulators have already fined Google billions for anti-trust issues with regards to Android and pre-bundling of Google apps. It is entering an era of even more scrutiny in places all around the world which doesn’t bode well for it which is why it needs a change in culture.
These challenges have rattled the tech giant internally as well as externally. The pressure to fix the company’s culture is slowly increasing while regulators are hunting for blood. The co-founders want nothing to do with these challenges.
Sundar Pichai – Eric Schmidt v2.0
Sundar Pichai’s ascent to the apex of Google/Alphabet began with his invention of the Chrome web browser. He went on to lead not only Chrome but then Google’s suite of online web apps and eventually Android. Since 2014 he’s been in charge of all of Google’s consumer products and in 2015 with the creation of Alphabet, he was elevated to the role of Google’s CEO.
He has had to worry about product strategy and execution, build teams, work with other internal groups and outside companies, fight for recognition, and deal with short-term issues and long-range goals.
Since 2014, Pichai has been the de facto face of the company. Whether it’s meeting the President at the White House or manning financial calls, he’s done it all. And, this is exactly what the co-founders needed — as they don’t have any interest in menial managerial tasks that a modern CEO is expected to do in 2019.
It is also an interesting fact that Pichai is a relative outsider at the company joining in 2004. At Google, he leapfrogged luminaries like Amit Singhal, Marrisa Mayer, Andy Rubin, Urs Holzel, Nikesh Arora to rise to the top of Google to become more or less the true successor to Eric Schmidt who left his role as the executive chairman of Alphabet earlier this year.
Under Pichai, Alphabet’s stock has also skyrocketed increasing by more than 100% in the last four years which shows that he has the business acumen to run a company of the scale of Google with some good success.
Pichai has led Google’s charge into the public cloud and he was the one who first got Diane Green to run the Google Cloud and then along with her recruited Thomas Kurian, a long-time Oracle executive to run its now quickly growing cloud unit.
Pichai is also known to be one of the nicest guys in tech which is a nice change from the reclusive founders who are also very rebellious and don’t care for what ordinary humans do. If there is anyone who can humanise Google for the world, then Sundar is perhaps one of the best people to do so.
So is this change a good thing?
The thing about this change is that this could be good for both Alphabet and Google. The co-founders have always been elusive disconnected personalities. For the last couple of years with them handing reigns to Pichai has resulted in better value for shareholders, more focus on some of the meandering bets like Nest and the Google Cloud.
Nest got fused into the Google Hardware team while now Google Cloud is a robust number three in the public cloud space trailing AWS and Microsoft Azure. Even Google self-driving car unit Waymo is now a separate company which according to many is worth more than $100 billion even though it isn’t making any money right now. With Waymo reporting into Pichai we could see an acceleration into profitability.
From a PR point of view also this could be a masterstroke as now Pichai is the de facto chief executive. He is the face of the company, not a proxy which seemed like the case when Page was CEO of Alphabet and Brin was the President.
However, this also brings another reality to light. Up until Page and Brin start divesting their stock with their dual-class votes and board seats, they hold ultimate control over Alphabet. In reality, they now are puppet masters behind Pichai.
The duo has ensured they continue doing what they want, without worrying about corporate politics and board meetings. They’ve just cleverly ensured that anything that distracts them, doesn’t get in their way of following their passion. And for sure, finally, after 21 years they’ve figured out a way to have their cake and eat it too.
For investors, nothing could be better — they have managed to retain the pioneering co-founders while having a more accountable chief executive. However, from a societal point of view, only time will tell if this is a good thing or not as there is no company in the world that has more power over the way humans consume information than Google — that consolidation of power is indeed worrisome.