The company started out as a specialist in Internet searches, but it has since diversified into a slew of activities both on and off the Net.
In the past year, investors in Google stock had complained of lack of returns, as the new startups ran up costs that detracted from the company's profitable core business.
To address this issue, Google is to become Alphabet, a holding company which will own a number of separate divisions. The name Alphabet will replace the name Google as the name for the entire group. But the name Google will not disappear, it will become a subsidiary of Alphabet.
Google shares jumped 6 percent on Monday on the news. They held at that higher level on Tuesday in Asia and Europe.
Aproval of the move by Analysts
"Overall, we think that this new corporate structure is a positive for Google investors, as we’ll get more transparency and a better understanding of various key drivers. One near-term concern is that this new structure looks likely to also lead to more resources going toward non-core initiatives (though we think this is a positive for the long term)," wrote analysts at Australian investment bank Macquarie in a note on Monday.
Former Google CEO Larry Page will become the head of Alphabet, with Sergey Brin, who co-founded the Google in 1998, as co-chief.
"Alphabet Inc. will replace Google Inc. as the publicly-traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. Google will become a wholly-owned subsidiary of Alphabet. Our two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG," Page wrote in his blog on Monday.
Sundar Pinchai, former Google chief of products, will now become chief executive officer of Google. "A key part of this is Sundar Pichai. Sundar has been saying the things I would have said (and sometimes better!) for quite some time now, and I’ve been tremendously enjoying our work together. He has really stepped up since October of last year, when he took on product and engineering responsibility for our internet businesses. Sergey and I have been super excited about his progress and dedication to the company," Page said about him in his blog.
The Google portfolio will now include all the Internet-related entities like YouTube and Gmail. Other subsidiaries like Nest, which makes thermostats, and the healthcare and automobile operations will all be part of the Alphabet portfolio.
"Sergey and I are seriously in the business of starting new things. Alphabet will also include our X lab, which incubates new efforts like Wing, our drone delivery effort. We are also stoked about growing our investment arms, Ventures and Capital, as part of this new structure," Page added.
But why the name Alphabet?
Page said: “We liked the name Alphabet because it means a collection of letters that represent language, one of humanity’s most important innovations, and is the core of how we index with Google search”.
