1 00:00:04,400 --> 00:00:07,800 Speaker 1: Welcome to tech Stuff, a production from I Heart Radio. 2 00:00:11,760 --> 00:00:14,040 Speaker 1: Hey there, and welcome to tech Stuff. I'm your host 3 00:00:14,160 --> 00:00:16,720 Speaker 1: job in Strickland. I'm an executive producer with iHeart Radio 4 00:00:16,760 --> 00:00:19,119 Speaker 1: and how the tech are Yet it is time for 5 00:00:19,160 --> 00:00:23,599 Speaker 1: a classic episode. This episode, originally published on September seventh, 6 00:00:23,840 --> 00:00:29,560 Speaker 1: two thousand fifteen, is called Alphabetizing Google. It is, of course, 7 00:00:30,760 --> 00:00:34,680 Speaker 1: about the when Google created the company Alphabet to serve 8 00:00:34,760 --> 00:00:38,920 Speaker 1: as an umbrella company for all of Google's various divisions 9 00:00:38,960 --> 00:00:41,440 Speaker 1: that had spun off to become companies of their own. 10 00:00:42,400 --> 00:00:46,680 Speaker 1: It was an interesting process because, as I recall, Google 11 00:00:47,360 --> 00:00:49,559 Speaker 1: originally owned Alphabet, and then they had to do kind 12 00:00:49,560 --> 00:00:52,520 Speaker 1: of a weird little switcheroo on paper to make Alphabet 13 00:00:52,520 --> 00:00:56,920 Speaker 1: the official umbrella corporation. You start reading up about these 14 00:00:56,960 --> 00:00:58,880 Speaker 1: things and you begin to think, you know, all of 15 00:00:58,960 --> 00:01:01,520 Speaker 1: business is based off of a three card Monty game. 16 00:01:01,680 --> 00:01:04,080 Speaker 1: But I'm getting ahead of myself. Let's listen to this 17 00:01:04,240 --> 00:01:09,240 Speaker 1: classic episode. So on Monday August ten, two thousand fifteen, 18 00:01:09,720 --> 00:01:14,080 Speaker 1: Google CEO Larry Page posted in the official Google blog 19 00:01:14,680 --> 00:01:18,520 Speaker 1: that the massive company would undergo a restructuring and Google 20 00:01:18,520 --> 00:01:24,240 Speaker 1: would become a subsidiary under a parent company named Alphabet. Now, 21 00:01:24,240 --> 00:01:28,319 Speaker 1: obviously the tech news world went bonkers as a result 22 00:01:28,480 --> 00:01:32,080 Speaker 1: of this announcement, But what does it really mean and 23 00:01:32,280 --> 00:01:36,080 Speaker 1: why would Google ever want to do this. That's the 24 00:01:36,160 --> 00:01:39,640 Speaker 1: purpose of this episode. So I'm going to talk about 25 00:01:39,720 --> 00:01:42,959 Speaker 1: not just Google's decision, but what a parent company is, 26 00:01:43,000 --> 00:01:46,960 Speaker 1: what subsidiaries are, why those things exist, so that we 27 00:01:47,000 --> 00:01:50,200 Speaker 1: can actually have a better understanding. And one of the 28 00:01:50,200 --> 00:01:53,200 Speaker 1: reasons I'm doing this is because, even as a tech 29 00:01:53,280 --> 00:01:57,160 Speaker 1: guy with a kind of general understanding of corporate structure, 30 00:01:58,040 --> 00:02:00,360 Speaker 1: I was kind of confused too, and so I thought, 31 00:02:00,720 --> 00:02:03,880 Speaker 1: if I'm confused, I'm sure at least one other person 32 00:02:03,920 --> 00:02:07,880 Speaker 1: out there is confused. So that's why I want to 33 00:02:07,920 --> 00:02:10,800 Speaker 1: really dive into this and get a general understanding of 34 00:02:10,840 --> 00:02:15,320 Speaker 1: parent companies and subsidiaries so that we understand why those 35 00:02:15,360 --> 00:02:21,200 Speaker 1: exist across different companies, not just Google. So first, Alphabet 36 00:02:21,360 --> 00:02:24,040 Speaker 1: is the parent company that will oversee a collection of 37 00:02:24,120 --> 00:02:28,320 Speaker 1: other companies, the largest of which is Google. Larry Page 38 00:02:28,400 --> 00:02:31,960 Speaker 1: will be the CEO of this new company, so trans 39 00:02:32,000 --> 00:02:35,280 Speaker 1: transferring from Google to Alphabet. Sarah A. Brend will be 40 00:02:35,320 --> 00:02:38,799 Speaker 1: the president of Alphabet, and Paige and Brend are of 41 00:02:38,840 --> 00:02:42,560 Speaker 1: course co founders of Google. Now it might be helpful 42 00:02:42,639 --> 00:02:46,520 Speaker 1: to take this moment to explain what a parent company 43 00:02:46,560 --> 00:02:50,079 Speaker 1: is and how those subsidiaries work in general. So, a 44 00:02:50,160 --> 00:02:54,120 Speaker 1: parent company is a company that controls other companies. The 45 00:02:54,120 --> 00:02:56,720 Speaker 1: way it does that is it has to own enough 46 00:02:56,919 --> 00:03:03,440 Speaker 1: voting stock or control of those companies or more. Actually, now, 47 00:03:03,480 --> 00:03:06,840 Speaker 1: parent companies are not necessarily hands on with their control. 48 00:03:07,320 --> 00:03:09,720 Speaker 1: Sometimes you have a parent company that has all these 49 00:03:09,760 --> 00:03:14,040 Speaker 1: subsidiaries as a means of generating revenue, but they largely 50 00:03:14,080 --> 00:03:17,560 Speaker 1: remain hands off with those subsidiaries. But then there are 51 00:03:17,600 --> 00:03:21,160 Speaker 1: other parent companies that get really involved with what their 52 00:03:21,200 --> 00:03:26,239 Speaker 1: their subsidiaries are doing. It all depends upon the specific companies, 53 00:03:26,240 --> 00:03:31,760 Speaker 1: but subsidiaries have their own management levels. So while there 54 00:03:31,800 --> 00:03:34,880 Speaker 1: will be the CEO of Alphabet, there will also still 55 00:03:34,920 --> 00:03:39,120 Speaker 1: be a s CEO of Google. That might sound confusing, 56 00:03:39,240 --> 00:03:41,680 Speaker 1: but it's it makes sense when you look at how 57 00:03:42,400 --> 00:03:46,400 Speaker 1: subsidiaries have to manage themselves. So you can kind of 58 00:03:46,440 --> 00:03:50,240 Speaker 1: think of subsidiaries as the children of parent companies. It's 59 00:03:50,280 --> 00:03:52,880 Speaker 1: kind of stretches the analogy, but it works. So a 60 00:03:52,920 --> 00:03:56,840 Speaker 1: regular subsidiary, there is such a thing, is one that 61 00:03:56,960 --> 00:04:02,680 Speaker 1: is owned by a parent company, whereas a wholly owned 62 00:04:02,880 --> 00:04:07,520 Speaker 1: subsidiary is I bet you're going to guess it owned 63 00:04:07,560 --> 00:04:12,320 Speaker 1: by a parent company. Now, generally speaking, the most common 64 00:04:12,360 --> 00:04:17,599 Speaker 1: reason for creating a parent company and subsidiary relationship is 65 00:04:17,640 --> 00:04:21,880 Speaker 1: to distribute risk and liability, as well as to expand 66 00:04:21,960 --> 00:04:25,120 Speaker 1: into new businesses without taking the focus away from an 67 00:04:25,160 --> 00:04:28,760 Speaker 1: already existing line of business. In other words, if you 68 00:04:28,839 --> 00:04:31,719 Speaker 1: have a huge company that's really good at one thing, 69 00:04:32,000 --> 00:04:34,800 Speaker 1: and you want to pursue another line of business, it 70 00:04:34,920 --> 00:04:37,520 Speaker 1: might make more sense to create a parent company and 71 00:04:37,560 --> 00:04:42,279 Speaker 1: a subsidiary dedicated to that new business instead of lumping 72 00:04:42,279 --> 00:04:46,400 Speaker 1: it under the existing company. Google has been operating under 73 00:04:46,440 --> 00:04:49,800 Speaker 1: that second approach for quite some time. Google's just this 74 00:04:49,960 --> 00:04:54,200 Speaker 1: massive company that has acquired other businesses, most of which 75 00:04:54,240 --> 00:04:59,279 Speaker 1: are only tangentially aligned with Google's main business, and the 76 00:04:59,320 --> 00:05:02,440 Speaker 1: more Google does that, the harder it is to manage everything. 77 00:05:02,680 --> 00:05:06,120 Speaker 1: Going with a parent company makes that management much more 78 00:05:06,279 --> 00:05:09,400 Speaker 1: clear and the lines of command are much more clear. 79 00:05:10,640 --> 00:05:13,479 Speaker 1: So the parent company organizes the management teams of the 80 00:05:13,520 --> 00:05:18,200 Speaker 1: subsidiaries and establishes the company by laws. This creates the 81 00:05:18,279 --> 00:05:21,599 Speaker 1: governance structure for the subsidiary and makes it clear what 82 00:05:21,640 --> 00:05:23,760 Speaker 1: the chain of command will be and how it relates 83 00:05:23,800 --> 00:05:26,800 Speaker 1: to the parent company. So in other words, it removes 84 00:05:26,800 --> 00:05:28,800 Speaker 1: some of this confusion. If you work for one of 85 00:05:28,839 --> 00:05:32,279 Speaker 1: these divisions that's now a subsidiary, you should have a 86 00:05:32,279 --> 00:05:35,000 Speaker 1: pretty clear chain of command all the way up to 87 00:05:35,040 --> 00:05:38,800 Speaker 1: the parent company, and most of the time it's going 88 00:05:38,839 --> 00:05:41,800 Speaker 1: to be independent of the other subsidiaries, so you don't 89 00:05:41,839 --> 00:05:45,040 Speaker 1: necessarily have to worry about reporting to like five different 90 00:05:45,080 --> 00:05:49,880 Speaker 1: bosses across different divisions because those other companies will be independent. 91 00:05:50,760 --> 00:05:54,960 Speaker 1: So the structure also determines how the parent company and 92 00:05:55,000 --> 00:05:58,919 Speaker 1: subsidiaries are treated as legal entities. If the parent and 93 00:05:59,000 --> 00:06:04,280 Speaker 1: subsidiaries share employee benefit plans or insurance contracts, or they 94 00:06:04,320 --> 00:06:09,279 Speaker 1: commingle their funds or files, or they file consolidated income 95 00:06:09,320 --> 00:06:12,720 Speaker 1: tax returns, they can be seen as a single entity. 96 00:06:12,839 --> 00:06:15,200 Speaker 1: So in other words, there are some tax issues that 97 00:06:15,240 --> 00:06:19,360 Speaker 1: come into play. It's not all just organizational there's also 98 00:06:19,520 --> 00:06:25,200 Speaker 1: tax considerations. Uh. Now, in the United States, a parent 99 00:06:25,279 --> 00:06:29,560 Speaker 1: company can offset the profits and losses of subsidiaries against 100 00:06:29,560 --> 00:06:33,120 Speaker 1: each other for federal tax return purposes. So if you 101 00:06:33,160 --> 00:06:36,120 Speaker 1: have a big parent company and one subsidiary is doing 102 00:06:36,200 --> 00:06:40,080 Speaker 1: really well and another subsidiary is doing very poorly in 103 00:06:40,080 --> 00:06:44,200 Speaker 1: a given financial year, you can offset the losses of 104 00:06:44,279 --> 00:06:46,720 Speaker 1: one with the revenues of another, and that can lead 105 00:06:46,720 --> 00:06:49,600 Speaker 1: to huge savings in the big picture when it comes 106 00:06:49,640 --> 00:06:54,040 Speaker 1: time to file federal tax return. There's also some benefit 107 00:06:54,200 --> 00:06:57,159 Speaker 1: on a on a state level, depending upon what state 108 00:06:57,320 --> 00:07:00,400 Speaker 1: you are in. Some states only tax the income earned 109 00:07:00,480 --> 00:07:04,000 Speaker 1: within that state, and all income earned in other states 110 00:07:04,000 --> 00:07:09,040 Speaker 1: remains untaxed, so there's that as well. Now, a subsidiary 111 00:07:09,160 --> 00:07:12,200 Speaker 1: is a separate legal entity and has its own liability 112 00:07:12,240 --> 00:07:15,800 Speaker 1: that is separate from the parent companies. That means the 113 00:07:15,800 --> 00:07:18,920 Speaker 1: parent company can create a subsidiary that pursues businesses that 114 00:07:19,000 --> 00:07:21,160 Speaker 1: might be risky, meaning they could have a really low 115 00:07:21,200 --> 00:07:25,240 Speaker 1: return on investment, without putting the parent company itself at risk. 116 00:07:26,400 --> 00:07:30,240 Speaker 1: Parent companies are not normally held liable for the debts 117 00:07:30,320 --> 00:07:34,320 Speaker 1: or actions of individual subsidiaries. So if you are the 118 00:07:34,320 --> 00:07:37,000 Speaker 1: head of a massive parent company, you should invite me 119 00:07:37,040 --> 00:07:40,320 Speaker 1: over to dinner one day. Also, if one of your 120 00:07:40,440 --> 00:07:44,200 Speaker 1: smaller subsidiaries goes on some sort of quest for world 121 00:07:44,280 --> 00:07:47,880 Speaker 1: domination or something, it's not necessarily your butt that will 122 00:07:47,920 --> 00:07:51,120 Speaker 1: be held accountable, unless, of course, the courts do what 123 00:07:51,280 --> 00:07:54,960 Speaker 1: is called piercing the corporate veil to see if there 124 00:07:54,960 --> 00:07:57,920 Speaker 1: were any goings on of the hanky and or panky 125 00:07:58,040 --> 00:08:00,760 Speaker 1: variety behind the scenes at the parent and company level. 126 00:08:01,560 --> 00:08:03,960 Speaker 1: If that were the case, if it turns out that 127 00:08:04,360 --> 00:08:07,840 Speaker 1: this subsidiary was going on a quest for world domination 128 00:08:08,240 --> 00:08:12,640 Speaker 1: and was doing so under your direction or your encouragement, 129 00:08:13,320 --> 00:08:15,760 Speaker 1: you could find yourself in serious hot water. But if 130 00:08:15,760 --> 00:08:19,560 Speaker 1: there's no link found, then as a parent company, you 131 00:08:19,600 --> 00:08:23,840 Speaker 1: are somewhat protected from liability. The subsidiary is to blame, 132 00:08:23,920 --> 00:08:26,760 Speaker 1: not the parent company. So in other words, uh, the 133 00:08:27,800 --> 00:08:31,760 Speaker 1: if one branch goes bad, it doesn't poison all the 134 00:08:31,800 --> 00:08:35,800 Speaker 1: other branches, so it's a means of protection. Also, a 135 00:08:35,840 --> 00:08:38,760 Speaker 1: subsidiary is something that a company can sell off to 136 00:08:38,840 --> 00:08:41,719 Speaker 1: other companies more easily if it chooses to do so 137 00:08:41,760 --> 00:08:44,400 Speaker 1: in the future. It's much easier to sell off an 138 00:08:44,520 --> 00:08:47,360 Speaker 1: entire subsidiary than it is to sell off, say a 139 00:08:47,480 --> 00:08:51,440 Speaker 1: division of a company. We'll be back with more about 140 00:08:51,520 --> 00:09:04,720 Speaker 1: the alphabetizing of Google after this quick break. So let's 141 00:09:04,720 --> 00:09:08,280 Speaker 1: say Alphabet creates a subsidiary for a business that seems promising, 142 00:09:08,320 --> 00:09:10,280 Speaker 1: but it turns out it's just not a good fit 143 00:09:10,440 --> 00:09:13,360 Speaker 1: for the way Alphabet does business. It could then sell 144 00:09:13,440 --> 00:09:17,760 Speaker 1: that subsidiary off to another interested party. So, like I 145 00:09:17,760 --> 00:09:21,680 Speaker 1: said earlier, the largest company under the Alphabet parent company 146 00:09:21,720 --> 00:09:25,479 Speaker 1: is Google. Google will be a wholly owned subsidiary of Alphabet. 147 00:09:25,920 --> 00:09:28,760 Speaker 1: This is not a big surprise. Google's market cap as 148 00:09:28,760 --> 00:09:32,960 Speaker 1: of August twelfth, two thousand fifteen, was four hundred sixty 149 00:09:33,040 --> 00:09:37,440 Speaker 1: one point seven billion with a B dollars. That's nearly 150 00:09:37,559 --> 00:09:42,000 Speaker 1: half a trillion dollars. Now, in case you're wondering, Apple 151 00:09:42,120 --> 00:09:45,920 Speaker 1: is still well ahead of Google. Apple's market cap was 152 00:09:46,040 --> 00:09:49,880 Speaker 1: six hundred thirty two point eight billion dollars, so, you know, 153 00:09:50,200 --> 00:09:54,600 Speaker 1: nearly two hundred billion dollars more than Google. So we're 154 00:09:54,600 --> 00:09:58,600 Speaker 1: still talking. You know, it's still not anywhere close to 155 00:09:58,880 --> 00:10:03,560 Speaker 1: hitting a trillion before Apple does. Now. Market cap stands 156 00:10:03,600 --> 00:10:06,920 Speaker 1: for market capitalization, and that's the term that describes the 157 00:10:07,000 --> 00:10:09,760 Speaker 1: dollar value of the total number of shares for a 158 00:10:09,800 --> 00:10:13,440 Speaker 1: publicly traded company. So you figure that out by taking 159 00:10:13,480 --> 00:10:17,480 Speaker 1: the value of the traded shares at any given time 160 00:10:17,559 --> 00:10:20,320 Speaker 1: and multiply that times the number of shares that are 161 00:10:20,360 --> 00:10:23,760 Speaker 1: out there. That tells you the market cap for that company. 162 00:10:23,840 --> 00:10:27,280 Speaker 1: According to the SEC filing, which must be made public, 163 00:10:27,840 --> 00:10:33,400 Speaker 1: Google will also contain YouTube and Android under its umbrella. 164 00:10:33,480 --> 00:10:38,360 Speaker 1: In addition to search, ads, maps, and apps. But lots 165 00:10:38,360 --> 00:10:41,240 Speaker 1: of stuff that was previously organized under Google will now 166 00:10:41,320 --> 00:10:45,760 Speaker 1: be spun off as separate subsidiaries of Alphabet. So some 167 00:10:45,800 --> 00:10:48,480 Speaker 1: stuff is gonna stay Google. YouTube does not become its 168 00:10:48,520 --> 00:10:50,960 Speaker 1: own individual company that will still be part of Google, 169 00:10:51,000 --> 00:10:55,520 Speaker 1: but other stuff will. Like a group called Life Sciences, 170 00:10:56,080 --> 00:11:00,520 Speaker 1: which is a research and development division debty caated to 171 00:11:00,800 --> 00:11:03,920 Speaker 1: finding new technologies to help in the field of health. 172 00:11:04,200 --> 00:11:08,960 Speaker 1: Among its projects are the glucose sensing contact lenses that 173 00:11:09,000 --> 00:11:13,200 Speaker 1: are really interesting. Also, there's a division called Calico that 174 00:11:13,240 --> 00:11:16,520 Speaker 1: will become its own company UH that is a company 175 00:11:16,559 --> 00:11:19,640 Speaker 1: that researches aging and how to increase the length of 176 00:11:19,640 --> 00:11:23,360 Speaker 1: our lifespans. There's also Google Fiber that will become its 177 00:11:23,360 --> 00:11:28,680 Speaker 1: own entity. There's Nest, the intelligent thermostat that Google acquired 178 00:11:28,720 --> 00:11:31,800 Speaker 1: that will be its own entity. And also the Google 179 00:11:32,040 --> 00:11:35,680 Speaker 1: x Lab, which is the division that does experiments with 180 00:11:35,800 --> 00:11:39,240 Speaker 1: long shot projects and big ideas, the crazy R and 181 00:11:39,320 --> 00:11:42,480 Speaker 1: D stuff that leads to to things like the UH 182 00:11:42,520 --> 00:11:46,040 Speaker 1: the drone delivery system that Google wants to implement, the 183 00:11:46,160 --> 00:11:48,320 Speaker 1: driver list cars. That kind of stuff came out of 184 00:11:48,360 --> 00:11:53,120 Speaker 1: Google x Lab. Also, Google has a couple of investment arms, 185 00:11:53,400 --> 00:11:56,560 Speaker 1: once called Google Ventures and another one's called Google Capital. 186 00:11:56,920 --> 00:12:00,480 Speaker 1: Those will also operate independently of Google, and they will 187 00:12:00,480 --> 00:12:06,319 Speaker 1: be under the Alphabet umbrella. Now, as for the financial 188 00:12:06,679 --> 00:12:10,680 Speaker 1: situation of all these companies, Google's finances will remain separate 189 00:12:10,760 --> 00:12:14,800 Speaker 1: from all the other subsidiaries. Also, all shares of Google 190 00:12:14,880 --> 00:12:18,400 Speaker 1: the company will convert into the same number of shares 191 00:12:18,640 --> 00:12:22,520 Speaker 1: of Alphabet, So if you have shares in Google now, 192 00:12:22,559 --> 00:12:25,800 Speaker 1: you're going to have shares in Alphabet. The trading symbol 193 00:12:25,840 --> 00:12:30,680 Speaker 1: for Google will remain the same, so that's not changing now. 194 00:12:31,000 --> 00:12:34,440 Speaker 1: I mentioned that Larry Page was transitioning from CEO of 195 00:12:34,480 --> 00:12:37,640 Speaker 1: Google to be CEO of Alphabet, So that means who 196 00:12:38,559 --> 00:12:40,760 Speaker 1: gets to be the CEO of Google. There's gonna be 197 00:12:40,760 --> 00:12:43,520 Speaker 1: an opening there right well. The new CEO of Google 198 00:12:43,559 --> 00:12:47,920 Speaker 1: will be Sundar Pachai. Sundar is from India and has 199 00:12:47,960 --> 00:12:52,480 Speaker 1: a an MS degree from Stanford and Material Sciences and engineering. 200 00:12:52,520 --> 00:12:56,240 Speaker 1: He joined Google back in two thousand four and he 201 00:12:56,320 --> 00:12:59,800 Speaker 1: worked on projects like Google Chrome and Chrome OS and 202 00:13:00,160 --> 00:13:03,640 Speaker 1: also helped develop Gmail and Google Maps. So he was 203 00:13:03,679 --> 00:13:06,440 Speaker 1: one of those people rumored to be considered from Microsoft 204 00:13:06,600 --> 00:13:10,040 Speaker 1: CEO position when it was open. When Balmer was leaving, 205 00:13:10,559 --> 00:13:14,000 Speaker 1: so uh, someone who has been with Google quite sometime 206 00:13:14,120 --> 00:13:17,920 Speaker 1: and is well known for injecting a ton of life, 207 00:13:18,160 --> 00:13:22,280 Speaker 1: vitality and research into Google. In fact, Larry Page has 208 00:13:22,280 --> 00:13:25,840 Speaker 1: had nothing but wonderful things to say about him and 209 00:13:25,920 --> 00:13:29,800 Speaker 1: his contributions over the last few years. You also have 210 00:13:29,880 --> 00:13:32,720 Speaker 1: other executives who will be taking on new roles. Ruth 211 00:13:32,800 --> 00:13:36,000 Speaker 1: poor At, who is the current Chief Financial Officer of Google, 212 00:13:36,520 --> 00:13:39,760 Speaker 1: will still be CFO of Google, but also will become 213 00:13:39,800 --> 00:13:43,239 Speaker 1: the senior vice president and chief financial officer of Alphabet, 214 00:13:43,679 --> 00:13:46,880 Speaker 1: so she will serve as the CFO for both Alphabet 215 00:13:46,920 --> 00:13:50,400 Speaker 1: and Google at the same time. All the other subsidiaries 216 00:13:50,440 --> 00:13:53,520 Speaker 1: will have their own CEO. Suh, they haven't all been 217 00:13:53,559 --> 00:13:56,320 Speaker 1: announced yet. Page and Brent's job will be to make 218 00:13:56,360 --> 00:14:00,000 Speaker 1: sure that each subsidiary receives the resources and attention they 219 00:14:00,080 --> 00:14:04,000 Speaker 1: need for success. And the actual process for this transformation 220 00:14:04,880 --> 00:14:08,440 Speaker 1: is bizarre. You know, I said Google is going to 221 00:14:08,440 --> 00:14:11,160 Speaker 1: create a parent company called Alphabet. Google will become a 222 00:14:11,200 --> 00:14:14,400 Speaker 1: wholly owned subsidiary of Alphabet, and these other companies will 223 00:14:14,440 --> 00:14:19,280 Speaker 1: also be wholly owned subsidiaries of Alphabet. That's this simplification 224 00:14:19,360 --> 00:14:22,200 Speaker 1: for the process that's actually going to happen, and I'm 225 00:14:22,200 --> 00:14:25,840 Speaker 1: going to explain to you what the process is based 226 00:14:25,920 --> 00:14:31,840 Speaker 1: upon the SEC filing. And this really demonstrates how bizarre 227 00:14:32,520 --> 00:14:36,440 Speaker 1: corporate maneuvers have to be in order for them to 228 00:14:36,520 --> 00:14:41,000 Speaker 1: take effect. It is truly strange. So first Google will 229 00:14:41,040 --> 00:14:45,920 Speaker 1: create a direct wholly owned subsidiary called Alphabet, So, in 230 00:14:45,920 --> 00:14:48,200 Speaker 1: other words, Google will be a parent company to the 231 00:14:48,240 --> 00:14:51,120 Speaker 1: subsidiary Alphabet instead of the other way around. Now this 232 00:14:51,200 --> 00:14:54,800 Speaker 1: sounds bizarre because it's literally the opposite of what I 233 00:14:54,920 --> 00:14:57,640 Speaker 1: said was going to happen earlier, where Alphabet was going 234 00:14:57,640 --> 00:15:01,080 Speaker 1: to be the parent company. But just hold on because 235 00:15:01,120 --> 00:15:05,080 Speaker 1: it gets weirder from here. Alright, So at this phase, 236 00:15:05,520 --> 00:15:08,760 Speaker 1: Google is a parent company and Alphabet is its wholly 237 00:15:08,840 --> 00:15:13,800 Speaker 1: owned subsidiary. Alphabet then will form its own wholly owned 238 00:15:13,840 --> 00:15:19,840 Speaker 1: subsidiary called merger Sub. Really catchy name for a company. Right, 239 00:15:20,600 --> 00:15:24,320 Speaker 1: This is all in the SEC filings. So merger Sub 240 00:15:24,480 --> 00:15:29,560 Speaker 1: has one purpose only. Merger Sub is an indirect wholly 241 00:15:29,600 --> 00:15:33,120 Speaker 1: owned subsidiary of Google, or if you like it, if 242 00:15:33,120 --> 00:15:36,160 Speaker 1: you think of it in family terms, Google is is 243 00:15:36,200 --> 00:15:40,920 Speaker 1: the parent, Alphabet is the kid, and merger Sub is 244 00:15:40,960 --> 00:15:47,160 Speaker 1: the grand kid. Now, the next phase has Google undergoing 245 00:15:47,200 --> 00:15:52,120 Speaker 1: a corporate merger with Merger Sub. So, in other words, 246 00:15:52,720 --> 00:15:59,920 Speaker 1: Grandpa Google and grandkid merger Sub merged together to become 247 00:16:00,280 --> 00:16:04,880 Speaker 1: one entity. So Google will emerge with its own indirect, 248 00:16:04,960 --> 00:16:10,560 Speaker 1: wholly owned subsidiary. But because merger Sub is a subsidiary 249 00:16:10,560 --> 00:16:15,080 Speaker 1: of Alphabet, that makes Google a direct, wholly owned subsidiary 250 00:16:15,120 --> 00:16:20,320 Speaker 1: of Alphabet. So now Google is Alphabet's kid, not the 251 00:16:20,320 --> 00:16:24,800 Speaker 1: other way around. If this sounds at all like the 252 00:16:24,880 --> 00:16:30,000 Speaker 1: novelty song I'm My Own Grandpa, it totally is. And 253 00:16:30,040 --> 00:16:32,200 Speaker 1: if you don't know what that is, you should listen 254 00:16:32,240 --> 00:16:34,440 Speaker 1: to that song. First of all, I apologize. It is 255 00:16:34,480 --> 00:16:39,800 Speaker 1: an old joke song that involves a convoluted series of 256 00:16:40,040 --> 00:16:45,360 Speaker 1: marriages where the singer becomes his own grandfather. That's pretty 257 00:16:45,440 --> 00:16:48,480 Speaker 1: much what we're looking at here, alright. So to sum 258 00:16:48,560 --> 00:16:52,400 Speaker 1: up what I just said, Google creates a subsidiary called Alphabet. 259 00:16:52,720 --> 00:16:57,120 Speaker 1: Alphabet in turn creates its subsidiary called Merger Sub. Google 260 00:16:57,200 --> 00:17:01,640 Speaker 1: merges with Merger Sub and assumes the role of subsidiary 261 00:17:01,720 --> 00:17:05,920 Speaker 1: to Alphabet. And that's how we get to the the 262 00:17:06,520 --> 00:17:10,439 Speaker 1: world where Alphabet is the parent company. If you were 263 00:17:10,520 --> 00:17:13,919 Speaker 1: to ask me why does it work that way? I 264 00:17:13,960 --> 00:17:17,199 Speaker 1: would stare at you dumbfounded and say, there's got to 265 00:17:17,240 --> 00:17:19,880 Speaker 1: be someone out there who understands this better than I do. 266 00:17:20,640 --> 00:17:23,199 Speaker 1: There has to be otherwise it wouldn't exist. But I 267 00:17:23,280 --> 00:17:26,000 Speaker 1: am not that person. We've got a bit more to 268 00:17:26,040 --> 00:17:29,920 Speaker 1: say about Google forming its parent company, Alphabet after this 269 00:17:30,000 --> 00:17:42,879 Speaker 1: commercial break some other information. Google is conducting this in 270 00:17:42,920 --> 00:17:48,280 Speaker 1: the state of Delaware. Now that's pretty common here in 271 00:17:48,320 --> 00:17:51,920 Speaker 1: the United States. You see a lot of companies incorporating 272 00:17:51,920 --> 00:17:55,680 Speaker 1: in Delaware. Doing so means the company can restructure without 273 00:17:55,720 --> 00:17:59,200 Speaker 1: first holding a shareholder vote. That's a big deal. So 274 00:17:59,680 --> 00:18:03,960 Speaker 1: by conducting this business in Delaware, specifically, Google does not 275 00:18:04,080 --> 00:18:07,239 Speaker 1: have to ask permission from shareholders. Google can just go 276 00:18:07,280 --> 00:18:11,200 Speaker 1: ahead and do this. But you might wonder why so 277 00:18:11,240 --> 00:18:15,000 Speaker 1: many companies in the United States incorporate in Delaware. Even 278 00:18:15,280 --> 00:18:20,200 Speaker 1: if you you know, imagine like they're their actual operating 279 00:18:20,400 --> 00:18:23,920 Speaker 1: headquarters maybe in totally different states, they still incorporate in Delaware. 280 00:18:24,400 --> 00:18:30,240 Speaker 1: Here are the reasons why companies incorporate in Delaware. Uh, first, 281 00:18:30,280 --> 00:18:32,359 Speaker 1: I should give you some quick facts. If you're not 282 00:18:32,440 --> 00:18:34,960 Speaker 1: familiar with the United States and you're not familiar with Delaware, 283 00:18:35,560 --> 00:18:37,119 Speaker 1: you may wonder why this is a big deal. In 284 00:18:37,160 --> 00:18:39,720 Speaker 1: the first place. Well, Delaware is a tiny state, both 285 00:18:39,760 --> 00:18:44,040 Speaker 1: in geography and population. The population for the entire state 286 00:18:44,480 --> 00:18:47,720 Speaker 1: back in two thousand ten, when the last US census 287 00:18:47,760 --> 00:18:52,680 Speaker 1: was conducted, was just eight hundred seven thousand, nine thirty four, 288 00:18:52,800 --> 00:18:57,040 Speaker 1: so less than a million people. And yet more than 289 00:18:57,119 --> 00:19:01,280 Speaker 1: sevent of all new initial pub offerings in the United 290 00:19:01,320 --> 00:19:05,280 Speaker 1: States are done by companies incorporated in Delaware. More than 291 00:19:05,400 --> 00:19:10,760 Speaker 1: six of all Fortune five hundred companies are incorporated in Delaware. 292 00:19:10,800 --> 00:19:15,960 Speaker 1: So what is going on, Well, Delaware leads the way 293 00:19:16,040 --> 00:19:20,040 Speaker 1: when it comes to corporate law, and that's a big, 294 00:19:20,119 --> 00:19:23,159 Speaker 1: big reason you want if you're going to incorporate, you 295 00:19:23,200 --> 00:19:25,760 Speaker 1: want to be in a state that is up to 296 00:19:25,880 --> 00:19:29,760 Speaker 1: date on that law, that is defining that law, because 297 00:19:29,920 --> 00:19:32,280 Speaker 1: then you have a very clear set of rules of 298 00:19:32,280 --> 00:19:35,960 Speaker 1: what you can and cannot do. It makes it well defined, 299 00:19:36,200 --> 00:19:38,320 Speaker 1: and it makes it easy for companies to operate within 300 00:19:38,359 --> 00:19:41,720 Speaker 1: the boundaries of law, or if your cynical, it makes 301 00:19:41,720 --> 00:19:43,800 Speaker 1: it easier for companies to see how much they can 302 00:19:43,840 --> 00:19:46,639 Speaker 1: get away with. Now there's a great deal of case 303 00:19:46,760 --> 00:19:50,040 Speaker 1: history established in Delaware, which again makes it easy to 304 00:19:50,080 --> 00:19:53,000 Speaker 1: know what is and isn't within the rules. Plus it 305 00:19:53,040 --> 00:19:56,560 Speaker 1: makes litigation move more quickly due to the amount of 306 00:19:56,600 --> 00:19:59,600 Speaker 1: previous decisions that are likely to cover the same territory. 307 00:20:00,000 --> 00:20:03,040 Speaker 1: No one wants to get into litigation. No one wants 308 00:20:03,080 --> 00:20:06,520 Speaker 1: to get into lawsuits, corporate lawsuits. But if you're gonna 309 00:20:06,560 --> 00:20:08,760 Speaker 1: have it happen, you want it to be over with 310 00:20:08,800 --> 00:20:12,640 Speaker 1: as quickly as possible so you can get back to business. Now, 311 00:20:12,680 --> 00:20:16,240 Speaker 1: Delaware has a special court, and I love the name 312 00:20:16,320 --> 00:20:20,199 Speaker 1: of this court. It's called the Court of Chancery, and 313 00:20:20,280 --> 00:20:24,000 Speaker 1: that oversees corporate law disputes without the need for juries, 314 00:20:24,400 --> 00:20:28,200 Speaker 1: which speeds things up considerably. And it's its own line 315 00:20:28,240 --> 00:20:32,119 Speaker 1: of courts, so corporate cases have their own court. They 316 00:20:32,560 --> 00:20:36,760 Speaker 1: aren't required to wait in line behind other cases, and 317 00:20:36,800 --> 00:20:40,160 Speaker 1: they are decided upon by judges who specialize in corporate law. 318 00:20:41,119 --> 00:20:44,760 Speaker 1: So that that's why this is all taking place in Delaware. Now. 319 00:20:44,800 --> 00:20:48,399 Speaker 1: A couple of other details about Alphabet and Google. The 320 00:20:48,600 --> 00:20:52,440 Speaker 1: u r L for Alphabet isn't alphabet dot com because 321 00:20:52,520 --> 00:20:56,840 Speaker 1: Google doesn't own alphabet dot com. Instead, the u r 322 00:20:57,000 --> 00:21:01,920 Speaker 1: L is ABC dot X yse E if you go there. 323 00:21:01,920 --> 00:21:04,760 Speaker 1: There's very little as of the recording of this podcast 324 00:21:05,280 --> 00:21:07,520 Speaker 1: that's there right now. It's just a kind of almost 325 00:21:07,560 --> 00:21:09,800 Speaker 1: like a land holding page that links to the Google 326 00:21:09,840 --> 00:21:13,600 Speaker 1: blog that has the announcement. And you might wonder if 327 00:21:13,600 --> 00:21:17,280 Speaker 1: there are already any companies that have the name alphabet, 328 00:21:17,520 --> 00:21:20,160 Speaker 1: and as a matter of fact, there are. There are 329 00:21:20,200 --> 00:21:23,040 Speaker 1: lots of them, and the word has even been trademarked 330 00:21:23,040 --> 00:21:27,680 Speaker 1: by BMW, although Scott Benjamin, as he was leaving the 331 00:21:27,720 --> 00:21:31,679 Speaker 1: studio earlier, told me that BMW really shouldn't have a 332 00:21:31,720 --> 00:21:34,840 Speaker 1: strong claim on trademark for the alphabet because they only 333 00:21:34,960 --> 00:21:40,080 Speaker 1: use three of the letters. Scott makes the same sort 334 00:21:40,080 --> 00:21:44,359 Speaker 1: of jokes I do. Obviously, so other alphabet companies that 335 00:21:44,480 --> 00:21:49,560 Speaker 1: already exist. There's so many. They're just tons like Alphabet Funds, 336 00:21:50,600 --> 00:21:55,280 Speaker 1: Alphabet Energy, Alphabet Plumbing, Alphabet Record Company. There are tons 337 00:21:55,359 --> 00:21:58,960 Speaker 1: that are just called alphabet. So there's been a question 338 00:21:59,000 --> 00:22:01,840 Speaker 1: will these companies in up suing Google to prevent it 339 00:22:01,880 --> 00:22:05,640 Speaker 1: from assuming the name alphabet, And for most of them, 340 00:22:05,680 --> 00:22:07,919 Speaker 1: the answer already sounds like it's going to be no, 341 00:22:08,400 --> 00:22:11,720 Speaker 1: because Google is enormous, so going in against Google would 342 00:22:11,720 --> 00:22:17,400 Speaker 1: be a very expensive and probably futile activity. Also, if 343 00:22:17,440 --> 00:22:20,840 Speaker 1: you try to Google how to sue Google, it just 344 00:22:20,920 --> 00:22:26,120 Speaker 1: comes back saying don't do it. That's a joke. So 345 00:22:26,200 --> 00:22:30,359 Speaker 1: that is why Google is really looking at splitting this out. 346 00:22:30,480 --> 00:22:34,640 Speaker 1: The big reason being that now Google can organize so 347 00:22:34,760 --> 00:22:38,199 Speaker 1: that each division being its own company, can focus on 348 00:22:38,240 --> 00:22:41,199 Speaker 1: what it needs to do to achieve success and it 349 00:22:41,280 --> 00:22:44,520 Speaker 1: doesn't have to be tied directly back to Google. That 350 00:22:44,680 --> 00:22:46,439 Speaker 1: was one of those things that people were asking all 351 00:22:46,480 --> 00:22:49,240 Speaker 1: the time. Google was known as a search company and 352 00:22:49,720 --> 00:22:53,040 Speaker 1: by extension and ad company, so people would say, well, 353 00:22:53,040 --> 00:22:57,800 Speaker 1: why are you getting into autonomous cars or you know, 354 00:22:58,400 --> 00:23:01,080 Speaker 1: why are we were why are you getting to uh 355 00:23:01,760 --> 00:23:07,080 Speaker 1: smart thermostats? Why are you getting into this company that's 356 00:23:07,119 --> 00:23:12,320 Speaker 1: looking into how to stop aging or or to prolonged long, 357 00:23:12,640 --> 00:23:16,840 Speaker 1: prolonged lifespans indefinitely, what's the purpose of this? How does 358 00:23:16,880 --> 00:23:20,040 Speaker 1: that relate back to your main business? And by creating 359 00:23:20,040 --> 00:23:22,360 Speaker 1: this parent company, Google no longer has to answer those 360 00:23:22,440 --> 00:23:26,560 Speaker 1: questions because Google, the company can continue to focus on 361 00:23:26,600 --> 00:23:33,000 Speaker 1: things like Gmail and search and apps and Android and YouTube. Meanwhile, 362 00:23:33,680 --> 00:23:37,560 Speaker 1: the company Calico can focus on longevity, and the company 363 00:23:37,600 --> 00:23:41,240 Speaker 1: Life Sciences can focus on creating technology that benefits the 364 00:23:41,240 --> 00:23:44,560 Speaker 1: medical field. So each company can do what it needs 365 00:23:44,600 --> 00:23:48,640 Speaker 1: to do independent of Google and have a better chance 366 00:23:48,680 --> 00:23:52,440 Speaker 1: of success. This also really does clear things up from 367 00:23:52,480 --> 00:23:56,480 Speaker 1: a management and reporting status. I don't know how many 368 00:23:56,520 --> 00:23:58,800 Speaker 1: of you out there have been have worked for a 369 00:23:58,920 --> 00:24:01,159 Speaker 1: very large company, but for but if you work for 370 00:24:01,200 --> 00:24:05,520 Speaker 1: a big company that has acquired other companies, there usually 371 00:24:05,600 --> 00:24:09,080 Speaker 1: is a long process to figure out where those lines 372 00:24:09,119 --> 00:24:12,440 Speaker 1: of communication need to be drawn, where where is that 373 00:24:12,520 --> 00:24:15,840 Speaker 1: chain of command and how is it formed? And it 374 00:24:15,880 --> 00:24:18,840 Speaker 1: can take years for those questions to be answered, and 375 00:24:18,880 --> 00:24:20,840 Speaker 1: even when they're answered, they may not be the best 376 00:24:20,880 --> 00:24:24,320 Speaker 1: answer to the question. And you might have relationships that 377 00:24:24,480 --> 00:24:27,440 Speaker 1: on paper made sense but in reality don't make any 378 00:24:27,480 --> 00:24:30,040 Speaker 1: sense at all. So I think that's really the main 379 00:24:30,119 --> 00:24:33,280 Speaker 1: reason some people were getting very cynical about the purposes 380 00:24:33,320 --> 00:24:35,919 Speaker 1: of Google, like thinking that this might be some means 381 00:24:36,000 --> 00:24:41,680 Speaker 1: of escaping taxes, and it's certainly there are issues about 382 00:24:41,760 --> 00:24:44,520 Speaker 1: you know, there are there are ways that that apparent 383 00:24:44,560 --> 00:24:48,560 Speaker 1: company can leverage having subsidiaries to pay less tax and 384 00:24:48,640 --> 00:24:51,800 Speaker 1: I have no doubt that Google will or Alphabet rather 385 00:24:52,119 --> 00:24:56,080 Speaker 1: that Alphabet will pursue those But I really do think 386 00:24:56,480 --> 00:25:01,040 Speaker 1: the main reason here was to get a better handle 387 00:25:01,240 --> 00:25:03,640 Speaker 1: on what Google is all about and what these other 388 00:25:03,720 --> 00:25:06,560 Speaker 1: companies are all about, so that they can focus on 389 00:25:06,640 --> 00:25:09,760 Speaker 1: what they do without worrying about all the other elements 390 00:25:09,800 --> 00:25:15,080 Speaker 1: within the giant, sprawling company that is Google. So I 391 00:25:15,119 --> 00:25:18,280 Speaker 1: hope that answers all your questions about Alphabet. Obviously, this 392 00:25:18,359 --> 00:25:20,879 Speaker 1: is just the tip of the iceberg. We don't know 393 00:25:21,040 --> 00:25:24,879 Speaker 1: that much yet because it's only just been announced, but 394 00:25:25,400 --> 00:25:27,960 Speaker 1: I'm sure a lot more information will come out, especially 395 00:25:27,960 --> 00:25:30,119 Speaker 1: things like will they be able to actually use the 396 00:25:30,160 --> 00:25:33,320 Speaker 1: name alphabet or is that going to change? Uh? Does 397 00:25:33,359 --> 00:25:36,520 Speaker 1: seem a little premature to announce it before it actually 398 00:25:36,600 --> 00:25:39,720 Speaker 1: is legal, but you know, it's Google. They've got a 399 00:25:39,760 --> 00:25:42,600 Speaker 1: lot of weight to throw around. I hope you enjoyed 400 00:25:42,640 --> 00:25:46,399 Speaker 1: that classic episode of tech Stuff and the bit about 401 00:25:46,440 --> 00:25:50,440 Speaker 1: Google creating its parent company. Often these days, I still 402 00:25:50,480 --> 00:25:53,880 Speaker 1: find myself referring to the overall company as Google rather 403 00:25:53,960 --> 00:25:57,399 Speaker 1: than Alphabet. But you know, obviously, if you want to 404 00:25:57,400 --> 00:26:01,520 Speaker 1: be really accurate, you want to talk about Alphabet as 405 00:26:01,560 --> 00:26:05,280 Speaker 1: the company that owns all these other spinoffs, and or 406 00:26:05,280 --> 00:26:07,600 Speaker 1: at least as the company that's over all these other spinoffs, 407 00:26:07,640 --> 00:26:11,240 Speaker 1: and Google is just one of many. But yeah, old 408 00:26:11,240 --> 00:26:14,440 Speaker 1: habits die hard. Same thing is happening with meta slash Facebook. 409 00:26:14,480 --> 00:26:17,560 Speaker 1: I always have to say meta slash Facebook because I 410 00:26:17,600 --> 00:26:20,680 Speaker 1: want to just say Facebook, anyway, that's neither here nor there. 411 00:26:20,720 --> 00:26:22,680 Speaker 1: If you have suggestions for topics I should cover in 412 00:26:22,720 --> 00:26:25,040 Speaker 1: future episodes of tech Stuff, reach out to me. You 413 00:26:25,080 --> 00:26:27,800 Speaker 1: can do that through the I Heart Radio app. It's 414 00:26:27,800 --> 00:26:30,000 Speaker 1: free to download. You can just navigate over to tech 415 00:26:30,080 --> 00:26:32,159 Speaker 1: Stuff and use a little microphone icon to leave a 416 00:26:32,320 --> 00:26:35,400 Speaker 1: message up to thirty seconds in link, or you can 417 00:26:35,440 --> 00:26:37,560 Speaker 1: reach out on Twitter. The handle we use for the 418 00:26:37,560 --> 00:26:40,640 Speaker 1: show is text stuff H s W and I'll talk 419 00:26:40,640 --> 00:26:49,840 Speaker 1: to you again really soon. Tex Stuff is an I 420 00:26:49,960 --> 00:26:53,439 Speaker 1: Heart Radio production. For more podcasts from my Heart Radio, 421 00:26:53,800 --> 00:26:56,960 Speaker 1: visit the i Heart Radio app, Apple Podcasts, or wherever 422 00:26:57,040 --> 00:27:02,439 Speaker 1: you listen to your favorite shows. Th