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20 AUG. 2015

Alphabet or Alpha Bet? How the Transformation of Brand Architecture Impacts Google

Zoe Ju and Mark Zhu

Brand Strategy Team

Larry Page once said to his staff, technology is revolutionary, not evolutionary. On August 10th, 2015, Google made a surprising announcement  it will restructure its businesses and launch a brand new holding company named Alphabetto separate the diversified business units from Google. The new search engine centric Google will remain the core of Alphabet, comprising services includingweb search, Google Ads, Google Maps, Google Apps, YouTube and Android. As one can tell from the titleof Alphabet’s official statement, G is for Google,the young group has more alphabets in its portfolio such as Calico (biotech), Nest (smart home), Google Fiber (internet and cable), Google Capital (capital fund), Google Ventures (venture capital) and Google X (breakthrough techlab), who are independent subsidiaries with businesses other than web services.

HOW DOES THE NEW CORPORATE STRUCTURE IMPACT GOOGLE?

The restructuringof Google has raised worldwide discussion and speculations.

From an operational perspective, Harvard Business Review pointed out that the adjustment would improve the transparency of Google’s business performance, which has been unclear for the shareholders because Google’s different businesses were all under one roof. After the restructuring, all the subsidiaries will be able to provide performance reports individually, which will also decrease other businesses’ negative impactson its main web services business(e.g. deficit or lawsuit from its automotive business sector). As a result,Google’s shares surged by 7% on the day of the announcement.

Alphabet helps Google to break free from redundancy, resumingvitality and entrepreneurship. Google could unleash its creativity and revolutionary spirit as a monumental technology company that was once a successful startup.

US analyst Roger Kay indicated that the new infrastructure would bring Google more freedom and flexibility. For example, if a unit is doing well or badly they can dial it up or down, they can form partnerships or different companies.

BRAND ARCHITECCTURE TRANSFORMATION

As an explorer of brand building, we hope to share our insights from a branding perspective. This decision of Google/Alphabet is in fact a typical brand architecture development, which in this case is a transformation from Branded House to House of Brands (see below).
 


The previous Branded House architecture has helped Google to grow from a startup to the fifth-largest technology company in the world. ‘Initiating innovative ways to significantly improve the quality of life’has been Google’s motto since the very beginning.Google started out focusing on one core business, web search, and made it unparalleled. At the same time, Google has always beena pioneer inemerging markets, encouraging an innovative company culture and a dynamic market, in order to continuously launch new products that respond to consumer needs. With Information set as its core, Google has launched extensive innovative services, including Google Books, Google Maps, Google Translate, Google+ and more. These diversified service offerings were clearly demonstrated through its Branded House brand architecture, which allows Google as the master brand to enrich its brand assets, enhancing its brand extensiveness and impact. This is a demonstration of the key advantage of a Branded House architecture – when a brand is at its initiation or accumulation stage, thisframework will help to reduce marketing budget for new product launches, and more importantly, it willbe beneficial in establishing a consistent corporate culture andemployer brand as well as in stabilizing the key leadership team.

It is clear that success usually leads to the expansion of a company’s size and the complication of its structure, especially for Google who has been fast expanding and acquiring many new businesses in recent years.It seems that Google is experiencing its heyday, but the founder foresees the potential challenge– ‘Under the current circumstance, no matter how successful we (Google) are, still being seen as a purely searching engine corporate will be our biggest obstacle to develop.’ On one hand, with the constant expansion of company scale and business scope, Google’sidentity is blurring. People become confused about who Google is and what it does. Everyone sees a different Google. Investors see a profitable technology company; consumers seea search engine; while tech enthusiasts see innovations. On the other hand, Larry only stated one side of the story.Our takeawayis that the business of search engine is becoming the same old advertising business. It’s no longer perceived as innovative, pulling Google away from its innovative roots.This is the very moment that Google needs to adopt an effectivewell-defined brand architecture.

The existence of Alphabet complies with these needs, and without doubt, it helps Google to become ‘lean’. The transformed brand architecture not only actively respondsto some existing problems (e.g. tax, capital market, innovation etc), but also redefinesits mission and valueswe are not a company with one sole business, but aninnovative technology company that is meaningful to people’s life. The transformed Google, now Alphabet,is present in a variety of fields, from media to self-driving car, life science to smart home automation.

The transformation from Branded House to House of Brands primarily brings higher freedom to all of its sub-brands. It is a transformation from a centralized system to a more flexible one. After detaching from the old Google brand, all subsidiaries will be able to operate independently, reposition or redefine their value chain. Theywill be much less affected by Google’s resources and brand image. The creativity and vitality of the brands in emerging industries will be stimulated. Correspondingly, the new Google, stripped to its core business,will become more focused. Because it already has comprehensive understanding of the existing market, it could further developand innovate.

Of course, it is inevitable that such transformation wouldcreate certain challenges. Each sub-brand will need to rebuild its image and impact. They will also have to competewithin its own field all by themselves as Google is no longer their endorser.

CHOOSING A BRAND ARCHITECTURE

There is no good or bad brand architecture, just a suitable oneor not. Over time, brand architecture also should not be static. As a brand owner, we should pay extra attention to themotivations behindchoosing one brand architecture framework. This decisionshould be prompted by understanding the market, forecastingfuture development or answering a simple yet profound question of Who am I?

Last but not least, we should acknowledge that the founding of Alphabet indeedhelps Google to solve many practicalissues. Not only did it comfort the investors, allow operational transparencyand create opportunities for talents, but also increased its market valuation. Although we believe it is only one of the solutions for Google, it is an important demonstration of the significant impact of brand architecture on a company’s operations and development.

 

 

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