CASE 21
Google Is Now Alphabet—But What’s
the Corporate Strategy?
TEACHING NOTE
■ SYNOPSIS ■
Google’s decision in August 2015 to rename itself Alphabet was an acknowledgement by its founders,
Sergei Brin and Larry Page, that the company had expanded well beyond the realm of internet search. It
also created a structure—that of a holding company—that was typically associated with highly diversified
companies. The move was welcomed by investors on the basis that the new structure would increase the
company’s financial transparency and create pressures for Google’s newer businesses to transition
towards profitability.
However, the creation of Alphabet did little to clarify the corporate strategy of the company. By 2012,
Google had expanded from its core search business into a bewildering variety of technology-based
The first challenge of the case is to discern what objectives are driving Google’s strategy—clearly its
range of recent initiatives take it well beyond organizing and (making?) accessible the world’s
information. To what extent is Google amassing information with the goal of maximizing its potential for
generating advertising revenue? Or is the goal? to dominate the new era of information technology based
■ TEACHING OBJECTIVES ■
The Google case is concerned with corporate strategy in a technology-intensive, fast-moving setting. The
primary focus is product diversification. Google has been expanding at a hectic rate into a vast array of
products, many of which seem to have tenuous links to its core business of organizing and supplying
information. The key learning in this case, as with all cases on diversification strategy, is the analysis of
the value-creating potential of diversification, through the potential for economies of scope in shared
resources and capabilities, to create competitive advantage.
provided by diversification initiatives may be options rather than cash flows.
This emphasis on Google’s multimarket presence among closely linked business sectors extends our
analysis of diversification beyond the emphasis of Chapter 13 (Diversification Strategy) on value creation
through exploiting economies of scope in resources and capabilities. Where industries have
complementary relationships they may be viewed as an “ecosystem”, where a multimarket presence can
enhance bargaining power and allow a presence in one market to create value in another. The case
therefore allows the application of the concepts of “value migration” and “architectural advantage”
developed by Michael Jacobides.
■ POSITION IN THE COURSE ■
I use this case to address issues of diversification in the corporate strategy section of my strategy course.
The case can also be used as a case in technology strategy.
■ ASSIGNMENT QUESTIONS ■
1. What is Google’s corporate strategy? Does Google have a clear vision of what it wants to
become?
4. Does Google need to refocus? How should Google delineate its corporate boundaries and
which businesses or products would you recommend abandoning or selling (if any)?
■ READING ■
R. M. Grant Contemporary Strategy Analysis (9th edn.), Wiley, 2016, Chapter 13 “Diversification
Strategy” (especially the section on “Competitive Advantage from Diversification”).
■ ANALYSIS ■
What is Google’s Strategy?
Where is Google competing? I begin by asking “What is Google’s strategy?”. The responses tend to
create a confused picture. In particular, the basic questions that I typically use to describe a firm’s
strategy—Where and how is the firm competing? —can bog us down in the details of Google’s many
How is Google competing? Despite the diversity of customer needs being served with a vast array of
products, there are commonalities in the way that Google competes:
Its products combining technological sophistication (e.g. advanced algorithms) with simplicity of
Google’s business model. The next question is then: “Can this detail be synthesized into a single
statement of what Google’s strategy is?” Referring to Google’s mission statement— “to organize the
world ’s information and make it universally accessible and useful”—doesn’t get us very far. But the
question typically leads on to the observation that the mission statement relates to just one component of
What are Google’s goals? If Google’s formal mission statement does not accurately describe the firm’s
ultimate goals, what does? Possible drivers behind Google’s strategy are:
The quest for advertising revenue. Google provides its products free in order to create revenue
from advertising. Maximizing advertising revenue requires maximizing the amount of time that
The quest to dominate the information technology sector. In the era of desktop computing,
Microsoft was the world’s dominant IT company. In the world of online computing, Google is
positioning itself for that role. The transition to mobile internet access has made this goal more
complex—thereby creating additional pressures for Google to expand its empire in order to
contain the empires being created by Apple, Facebook, and Amazon
The slide below summarizes the key points.
Evaluate Google’s diversification into new products and businesses.
To assess whether diversification creates value for a firm, we can use Porter’s “three essential tests”:
Attractiveness of the market being entered. Most of Google’s diversifications fail this test—at
least in the short and medium term. Most of Google’s new products are provided free, hence the
profit potential depends upon their ability to carry advertising. Most generate weak streams of
advertising revenue, if any
However, sharing resources and capabilities is only one set of considerations in Google’s diversification.
There are two others:
Product complementarities. Although several products have little to do with “organizing
information and making it accessible”, or with Google’s capabilities in information search and
delivery, they play a key role in accessing and protecting Google’s search products. These
Multimarket rivalry. As the Economist article, “Technology Giants at War,” outlines, Google,
other’s primary market.
Thus, in relation to Google’s specific initiatives:
(a) Browsers
Google’s launch of its Chrome browser into a market dominated by Microsoft’s Internet Explorer
reflected Google’s concern over the dependence of its Google search engine upon MS’s browser in the
(b) Mobile phone operating systems (Android)
Google’s launch of a software platform for mobile phones was another blockbuster announcement by
Google. Again, the links to Google’s core search products seem distant at first sight. Moreover, Android
(c) Mobile devices
Google’s acquisition of Motorola was the most controversial of Google’s diversifying initiatives. The two
main rationales relate, first, to Google’s ability to integrate software and hardware if it is to challenge
Apple more effectively and, secondly to the bargaining power it obtains from Motorola’s portfolio of
patents relating to wireless communication. On the first of these issues, key considerations are
Whether Google receives any coordination advantages from making its own handsets, given that
and tablet computers.
(d) Driverless cars
Google’s research into autonomous driving systems has been one of the most widely publicized
of Google’s recent initiatives—despite the fact that the activity is purely experimental and there
What threats does Google face?
1. Size and complexity threaten Google’s agility and innovation. Google’s management system is
characterized by decentralization and informality. As Google grows in size and complexity, so
2. Competition. Twenty years ago. Google’s competitors were Lycos, AltaVista, Yahoo, and several
3. Regulation. Google faces legal and regulatory threats from governments (and from private
parties) in relation to anti-trust and privacy. On both fronts, Europe rather than the US seems to
offer the greater threat.
Should Google refocus? If so, which businesses/products would you recommend
abandoning or selling?
The problem for Google is this: each one of its new products and new business initiatives can be justified
by one or other of the rationales we have proposed. The problem is the totality: Google is expanding in so
many directions and into so many products that there is a severe risk to its cohesion—especially given its
informal, freewheeling management style.
If Google is to limit its scope, then this will require some tough decisions. In terms of the products that
are most peripheral to its core business, then many of the software applications could probably be spun
off with few repercussions for Google’s other businesses. Candidates include a number of Google’s
■ KEY TAKE-AWAYS FROM THE CASE DISCUSSION ■
I sum up the case discussion with the following slides.