When a company the size of Google makes a massive change in their structure and the way that they do business, it’s big news. Today, Google announced the formation of Alphabet, a holding company that will stable the portfolio of companies formerly known as “Google” – giving the organisation potentially a new lease on life and a new direction – or series of directions.

Constellation Research’s R ‘Ray’ Wang provides a laser sharp analysis of what the announcement means in the following video.

Given that so many organisations grow to a size which prohibits innovation, this restructuring offers an amazing live case study of an attempt to avoid the “Kodak moment”. The new, low carb version of Google – which generates the vast majority of revenues – will look vastly different and more tightly focused on digital and internet properties:

  • Search
  • Advertising
  • Maps
  • Apps
  • YouTube
  • Android

This structure effectively hives off the “business as usual”, high velocity, transactional revenue streams into a separate unit which will continue to be called “Google”. The new CEO, Sundar Pichai will be able to keep that digital focus while continuing the optimisation and incremental improvements that keep Google at the centre of our online lives.

The high potential, future-oriented remaining businesses will become separate businesses under Alphabet. Taking a portfolio investment approach to innovation, Alphabet’s stable features near and far term innovation ventures that are:

  • Inside us: Life sciences – biotech research through new company, Calico
  • Around us: Consumer home technology – internet of things hardware for the smart home through Nest
  • Connecting us: High speed internet service through Fiber
  • Moving us: X-lab – the incubator charged with developing self-driving cars and drone technology

And Google Ventures will continue its investments in early and growth stage ventures.

While the business implications for this restructure are significant – the most interesting impact is likely to be felt at the level of culture. Creating a culture of innovation – and maintaining it over the long term is extremely difficult. This is a bold move that brings Google back into the garage from where it came from. It sets a new model for tech sector innovation and has the potential to re-invigorate Google’s innovation agenda.

Who will be the fast follower – or copycat – to Google’s lead? Time will tell.