WEBVTT - TechStuff Classic: Alphabetizing Google 0:00:04.400 --> 0:00:07.800 Welcome to tech Stuff, a production from I Heart Radio. 0:00:11.760 --> 0:00:14.040 Hey there, and welcome to tech Stuff. I'm your host 0:00:14.160 --> 0:00:16.720 job in Strickland. I'm an executive producer with iHeart Radio 0:00:16.760 --> 0:00:19.119 and how the tech are Yet it is time for 0:00:19.160 --> 0:00:23.599 a classic episode. This episode, originally published on September seventh, 0:00:23.840 --> 0:00:29.560 two thousand fifteen, is called Alphabetizing Google. It is, of course, 0:00:30.760 --> 0:00:34.680 about the when Google created the company Alphabet to serve 0:00:34.760 --> 0:00:38.920 as an umbrella company for all of Google's various divisions 0:00:38.960 --> 0:00:41.440 that had spun off to become companies of their own. 0:00:42.400 --> 0:00:46.680 It was an interesting process because, as I recall, Google 0:00:47.360 --> 0:00:49.559 originally owned Alphabet, and then they had to do kind 0:00:49.560 --> 0:00:52.520 of a weird little switcheroo on paper to make Alphabet 0:00:52.520 --> 0:00:56.920 the official umbrella corporation. You start reading up about these 0:00:56.960 --> 0:00:58.880 things and you begin to think, you know, all of 0:00:58.960 --> 0:01:01.520 business is based off of a three card Monty game. 0:01:01.680 --> 0:01:04.080 But I'm getting ahead of myself. Let's listen to this 0:01:04.240 --> 0:01:09.240 classic episode. So on Monday August ten, two thousand fifteen, 0:01:09.720 --> 0:01:14.080 Google CEO Larry Page posted in the official Google blog 0:01:14.680 --> 0:01:18.520 that the massive company would undergo a restructuring and Google 0:01:18.520 --> 0:01:24.240 would become a subsidiary under a parent company named Alphabet. Now, 0:01:24.240 --> 0:01:28.319 obviously the tech news world went bonkers as a result 0:01:28.480 --> 0:01:32.080 of this announcement, But what does it really mean and 0:01:32.280 --> 0:01:36.080 why would Google ever want to do this. That's the 0:01:36.160 --> 0:01:39.640 purpose of this episode. So I'm going to talk about 0:01:39.720 --> 0:01:42.959 not just Google's decision, but what a parent company is, 0:01:43.000 --> 0:01:46.960 what subsidiaries are, why those things exist, so that we 0:01:47.000 --> 0:01:50.200 can actually have a better understanding. And one of the 0:01:50.200 --> 0:01:53.200 reasons I'm doing this is because, even as a tech 0:01:53.280 --> 0:01:57.160 guy with a kind of general understanding of corporate structure, 0:01:58.040 --> 0:02:00.360 I was kind of confused too, and so I thought, 0:02:00.720 --> 0:02:03.880 if I'm confused, I'm sure at least one other person 0:02:03.920 --> 0:02:07.880 out there is confused. So that's why I want to 0:02:07.920 --> 0:02:10.800 really dive into this and get a general understanding of 0:02:10.840 --> 0:02:15.320 parent companies and subsidiaries so that we understand why those 0:02:15.360 --> 0:02:21.200 exist across different companies, not just Google. So first, Alphabet 0:02:21.360 --> 0:02:24.040 is the parent company that will oversee a collection of 0:02:24.120 --> 0:02:28.320 other companies, the largest of which is Google. Larry Page 0:02:28.400 --> 0:02:31.960 will be the CEO of this new company, so trans 0:02:32.000 --> 0:02:35.280 transferring from Google to Alphabet. Sarah A. Brend will be 0:02:35.320 --> 0:02:38.799 the president of Alphabet, and Paige and Brend are of 0:02:38.840 --> 0:02:42.560 course co founders of Google. Now it might be helpful 0:02:42.639 --> 0:02:46.520 to take this moment to explain what a parent company 0:02:46.560 --> 0:02:50.079 is and how those subsidiaries work in general. So, a 0:02:50.160 --> 0:02:54.120 parent company is a company that controls other companies. The 0:02:54.120 --> 0:02:56.720 way it does that is it has to own enough 0:02:56.919 --> 0:03:03.440 voting stock or control of those companies or more. Actually, now, 0:03:03.480 --> 0:03:06.840 parent companies are not necessarily hands on with their control. 0:03:07.320 --> 0:03:09.720 Sometimes you have a parent company that has all these 0:03:09.760 --> 0:03:14.040 subsidiaries as a means of generating revenue, but they largely 0:03:14.080 --> 0:03:17.560 remain hands off with those subsidiaries. But then there are 0:03:17.600 --> 0:03:21.160 other parent companies that get really involved with what their 0:03:21.200 --> 0:03:26.239 their subsidiaries are doing. It all depends upon the specific companies, 0:03:26.240 --> 0:03:31.760 but subsidiaries have their own management levels. So while there 0:03:31.800 --> 0:03:34.880 will be the CEO of Alphabet, there will also still 0:03:34.920 --> 0:03:39.120 be a s CEO of Google. That might sound confusing, 0:03:39.240 --> 0:03:41.680 but it's it makes sense when you look at how 0:03:42.400 --> 0:03:46.400 subsidiaries have to manage themselves. So you can kind of 0:03:46.440 --> 0:03:50.240 think of subsidiaries as the children of parent companies. It's 0:03:50.280 --> 0:03:52.880 kind of stretches the analogy, but it works. So a 0:03:52.920 --> 0:03:56.840 regular subsidiary, there is such a thing, is one that 0:03:56.960 --> 0:04:02.680 is owned by a parent company, whereas a wholly owned 0:04:02.880 --> 0:04:07.520 subsidiary is I bet you're going to guess it owned 0:04:07.560 --> 0:04:12.320 by a parent company. Now, generally speaking, the most common 0:04:12.360 --> 0:04:17.599 reason for creating a parent company and subsidiary relationship is 0:04:17.640 --> 0:04:21.880 to distribute risk and liability, as well as to expand 0:04:21.960 --> 0:04:25.120 into new businesses without taking the focus away from an 0:04:25.160 --> 0:04:28.760 already existing line of business. In other words, if you 0:04:28.839 --> 0:04:31.719 have a huge company that's really good at one thing, 0:04:32.000 --> 0:04:34.800 and you want to pursue another line of business, it 0:04:34.920 --> 0:04:37.520 might make more sense to create a parent company and 0:04:37.560 --> 0:04:42.279 a subsidiary dedicated to that new business instead of lumping 0:04:42.279 --> 0:04:46.400 it under the existing company. Google has been operating under 0:04:46.440 --> 0:04:49.800 that second approach for quite some time. Google's just this 0:04:49.960 --> 0:04:54.200 massive company that has acquired other businesses, most of which 0:04:54.240 --> 0:04:59.279 are only tangentially aligned with Google's main business, and the 0:04:59.320 --> 0:05:02.440 more Google does that, the harder it is to manage everything. 0:05:02.680 --> 0:05:06.120 Going with a parent company makes that management much more 0:05:06.279 --> 0:05:09.400 clear and the lines of command are much more clear. 0:05:10.640 --> 0:05:13.479 So the parent company organizes the management teams of the 0:05:13.520 --> 0:05:18.200 subsidiaries and establishes the company by laws. This creates the 0:05:18.279 --> 0:05:21.599 governance structure for the subsidiary and makes it clear what 0:05:21.640 --> 0:05:23.760 the chain of command will be and how it relates 0:05:23.800 --> 0:05:26.800 to the parent company. So in other words, it removes 0:05:26.800 --> 0:05:28.800 some of this confusion. If you work for one of 0:05:28.839 --> 0:05:32.279 these divisions that's now a subsidiary, you should have a 0:05:32.279 --> 0:05:35.000 pretty clear chain of command all the way up to 0:05:35.040 --> 0:05:38.800 the parent company, and most of the time it's going 0:05:38.839 --> 0:05:41.800 to be independent of the other subsidiaries, so you don't 0:05:41.839 --> 0:05:45.040 necessarily have to worry about reporting to like five different 0:05:45.080 --> 0:05:49.880 bosses across different divisions because those other companies will be independent. 0:05:50.760 --> 0:05:54.960 So the structure also determines how the parent company and 0:05:55.000 --> 0:05:58.919 subsidiaries are treated as legal entities. If the parent and 0:05:59.000 --> 0:06:04.280 subsidiaries share employee benefit plans or insurance contracts, or they 0:06:04.320 --> 0:06:09.279 commingle their funds or files, or they file consolidated income 0:06:09.320 --> 0:06:12.720 tax returns, they can be seen as a single entity. 0:06:12.839 --> 0:06:15.200 So in other words, there are some tax issues that 0:06:15.240 --> 0:06:19.360 come into play. It's not all just organizational there's also 0:06:19.520 --> 0:06:25.200 tax considerations. Uh. Now, in the United States, a parent 0:06:25.279 --> 0:06:29.560 company can offset the profits and losses of subsidiaries against 0:06:29.560 --> 0:06:33.120 each other for federal tax return purposes. So if you 0:06:33.160 --> 0:06:36.120 have a big parent company and one subsidiary is doing 0:06:36.200 --> 0:06:40.080 really well and another subsidiary is doing very poorly in 0:06:40.080 --> 0:06:44.200 a given financial year, you can offset the losses of 0:06:44.279 --> 0:06:46.720 one with the revenues of another, and that can lead 0:06:46.720 --> 0:06:49.600 to huge savings in the big picture when it comes 0:06:49.640 --> 0:06:54.040 time to file federal tax return. There's also some benefit 0:06:54.200 --> 0:06:57.159 on a on a state level, depending upon what state 0:06:57.320 --> 0:07:00.400 you are in. Some states only tax the income earned 0:07:00.480 --> 0:07:04.000 within that state, and all income earned in other states 0:07:04.000 --> 0:07:09.040 remains untaxed, so there's that as well. Now, a subsidiary 0:07:09.160 --> 0:07:12.200 is a separate legal entity and has its own liability 0:07:12.240 --> 0:07:15.800 that is separate from the parent companies. That means the 0:07:15.800 --> 0:07:18.920 parent company can create a subsidiary that pursues businesses that 0:07:19.000 --> 0:07:21.160 might be risky, meaning they could have a really low 0:07:21.200 --> 0:07:25.240 return on investment, without putting the parent company itself at risk. 0:07:26.400 --> 0:07:30.240 Parent companies are not normally held liable for the debts 0:07:30.320 --> 0:07:34.320 or actions of individual subsidiaries. So if you are the 0:07:34.320 --> 0:07:37.000 head of a massive parent company, you should invite me 0:07:37.040 --> 0:07:40.320 over to dinner one day. Also, if one of your 0:07:40.440 --> 0:07:44.200 smaller subsidiaries goes on some sort of quest for world 0:07:44.280 --> 0:07:47.880 domination or something, it's not necessarily your butt that will 0:07:47.920 --> 0:07:51.120 be held accountable, unless, of course, the courts do what 0:07:51.280 --> 0:07:54.960 is called piercing the corporate veil to see if there 0:07:54.960 --> 0:07:57.920 were any goings on of the hanky and or panky 0:07:58.040 --> 0:08:00.760 variety behind the scenes at the parent and company level. 0:08:01.560 --> 0:08:03.960 If that were the case, if it turns out that 0:08:04.360 --> 0:08:07.840 this subsidiary was going on a quest for world domination 0:08:08.240 --> 0:08:12.640 and was doing so under your direction or your encouragement, 0:08:13.320 --> 0:08:15.760 you could find yourself in serious hot water. But if 0:08:15.760 --> 0:08:19.560 there's no link found, then as a parent company, you 0:08:19.600 --> 0:08:23.840 are somewhat protected from liability. The subsidiary is to blame, 0:08:23.920 --> 0:08:26.760 not the parent company. So in other words, uh, the 0:08:27.800 --> 0:08:31.760 if one branch goes bad, it doesn't poison all the 0:08:31.800 --> 0:08:35.800 other branches, so it's a means of protection. Also, a 0:08:35.840 --> 0:08:38.760 subsidiary is something that a company can sell off to 0:08:38.840 --> 0:08:41.719 other companies more easily if it chooses to do so 0:08:41.760 --> 0:08:44.400 in the future. It's much easier to sell off an 0:08:44.520 --> 0:08:47.360 entire subsidiary than it is to sell off, say a 0:08:47.480 --> 0:08:51.440 division of a company. We'll be back with more about 0:08:51.520 --> 0:09:04.720 the alphabetizing of Google after this quick break. So let's 0:09:04.720 --> 0:09:08.280 say Alphabet creates a subsidiary for a business that seems promising, 0:09:08.320 --> 0:09:10.280 but it turns out it's just not a good fit 0:09:10.440 --> 0:09:13.360 for the way Alphabet does business. It could then sell 0:09:13.440 --> 0:09:17.760 that subsidiary off to another interested party. So, like I 0:09:17.760 --> 0:09:21.680 said earlier, the largest company under the Alphabet parent company 0:09:21.720 --> 0:09:25.479 is Google. Google will be a wholly owned subsidiary of Alphabet. 0:09:25.920 --> 0:09:28.760 This is not a big surprise. Google's market cap as 0:09:28.760 --> 0:09:32.960 of August twelfth, two thousand fifteen, was four hundred sixty 0:09:33.040 --> 0:09:37.440 one point seven billion with a B dollars. That's nearly 0:09:37.559 --> 0:09:42.000 half a trillion dollars. Now, in case you're wondering, Apple 0:09:42.120 --> 0:09:45.920 is still well ahead of Google. Apple's market cap was 0:09:46.040 --> 0:09:49.880 six hundred thirty two point eight billion dollars, so, you know, 0:09:50.200 --> 0:09:54.600 nearly two hundred billion dollars more than Google. So we're 0:09:54.600 --> 0:09:58.600 still talking. You know, it's still not anywhere close to 0:09:58.880 --> 0:10:03.560 hitting a trillion before Apple does. Now. Market cap stands 0:10:03.600 --> 0:10:06.920 for market capitalization, and that's the term that describes the 0:10:07.000 --> 0:10:09.760 dollar value of the total number of shares for a 0:10:09.800 --> 0:10:13.440 publicly traded company. So you figure that out by taking 0:10:13.480 --> 0:10:17.480 the value of the traded shares at any given time 0:10:17.559 --> 0:10:20.320 and multiply that times the number of shares that are 0:10:20.360 --> 0:10:23.760 out there. That tells you the market cap for that company. 0:10:23.840 --> 0:10:27.280 According to the SEC filing, which must be made public, 0:10:27.840 --> 0:10:33.400 Google will also contain YouTube and Android under its umbrella. 0:10:33.480 --> 0:10:38.360 In addition to search, ads, maps, and apps. But lots 0:10:38.360 --> 0:10:41.240 of stuff that was previously organized under Google will now 0:10:41.320 --> 0:10:45.760 be spun off as separate subsidiaries of Alphabet. So some 0:10:45.800 --> 0:10:48.480 stuff is gonna stay Google. YouTube does not become its 0:10:48.520 --> 0:10:50.960 own individual company that will still be part of Google, 0:10:51.000 --> 0:10:55.520 but other stuff will. Like a group called Life Sciences, 0:10:56.080 --> 0:11:00.520 which is a research and development division debty caated to 0:11:00.800 --> 0:11:03.920 finding new technologies to help in the field of health. 0:11:04.200 --> 0:11:08.960 Among its projects are the glucose sensing contact lenses that 0:11:09.000 --> 0:11:13.200 are really interesting. Also, there's a division called Calico that 0:11:13.240 --> 0:11:16.520 will become its own company UH that is a company 0:11:16.559 --> 0:11:19.640 that researches aging and how to increase the length of 0:11:19.640 --> 0:11:23.360 our lifespans. There's also Google Fiber that will become its 0:11:23.360 --> 0:11:28.680 own entity. There's Nest, the intelligent thermostat that Google acquired 0:11:28.720 --> 0:11:31.800 that will be its own entity. And also the Google 0:11:32.040 --> 0:11:35.680 x Lab, which is the division that does experiments with 0:11:35.800 --> 0:11:39.240 long shot projects and big ideas, the crazy R and 0:11:39.320 --> 0:11:42.480 D stuff that leads to to things like the UH 0:11:42.520 --> 0:11:46.040 the drone delivery system that Google wants to implement, the 0:11:46.160 --> 0:11:48.320 driver list cars. That kind of stuff came out of 0:11:48.360 --> 0:11:53.120 Google x Lab. Also, Google has a couple of investment arms, 0:11:53.400 --> 0:11:56.560 once called Google Ventures and another one's called Google Capital. 0:11:56.920 --> 0:12:00.480 Those will also operate independently of Google, and they will 0:12:00.480 --> 0:12:06.319 be under the Alphabet umbrella. Now, as for the financial 0:12:06.679 --> 0:12:10.680 situation of all these companies, Google's finances will remain separate 0:12:10.760 --> 0:12:14.800 from all the other subsidiaries. Also, all shares of Google 0:12:14.880 --> 0:12:18.400 the company will convert into the same number of shares 0:12:18.640 --> 0:12:22.520 of Alphabet, So if you have shares in Google now, 0:12:22.559 --> 0:12:25.800 you're going to have shares in Alphabet. The trading symbol 0:12:25.840 --> 0:12:30.680 for Google will remain the same, so that's not changing now. 0:12:31.000 --> 0:12:34.440 I mentioned that Larry Page was transitioning from CEO of 0:12:34.480 --> 0:12:37.640 Google to be CEO of Alphabet, So that means who 0:12:38.559 --> 0:12:40.760 gets to be the CEO of Google. There's gonna be 0:12:40.760 --> 0:12:43.520 an opening there right well. The new CEO of Google 0:12:43.559 --> 0:12:47.920 will be Sundar Pachai. Sundar is from India and has 0:12:47.960 --> 0:12:52.480 a an MS degree from Stanford and Material Sciences and engineering. 0:12:52.520 --> 0:12:56.240 He joined Google back in two thousand four and he 0:12:56.320 --> 0:12:59.800 worked on projects like Google Chrome and Chrome OS and 0:13:00.160 --> 0:13:03.640 also helped develop Gmail and Google Maps. So he was 0:13:03.679 --> 0:13:06.440 one of those people rumored to be considered from Microsoft 0:13:06.600 --> 0:13:10.040 CEO position when it was open. When Balmer was leaving, 0:13:10.559 --> 0:13:14.000 so uh, someone who has been with Google quite sometime 0:13:14.120 --> 0:13:17.920 and is well known for injecting a ton of life, 0:13:18.160 --> 0:13:22.280 vitality and research into Google. In fact, Larry Page has 0:13:22.280 --> 0:13:25.840 had nothing but wonderful things to say about him and 0:13:25.920 --> 0:13:29.800 his contributions over the last few years. You also have 0:13:29.880 --> 0:13:32.720 other executives who will be taking on new roles. Ruth 0:13:32.800 --> 0:13:36.000 poor At, who is the current Chief Financial Officer of Google, 0:13:36.520 --> 0:13:39.760 will still be CFO of Google, but also will become 0:13:39.800 --> 0:13:43.239 the senior vice president and chief financial officer of Alphabet, 0:13:43.679 --> 0:13:46.880 so she will serve as the CFO for both Alphabet 0:13:46.920 --> 0:13:50.400 and Google at the same time. All the other subsidiaries 0:13:50.440 --> 0:13:53.520 will have their own CEO. Suh, they haven't all been 0:13:53.559 --> 0:13:56.320 announced yet. Page and Brent's job will be to make 0:13:56.360 --> 0:14:00.000 sure that each subsidiary receives the resources and attention they 0:14:00.080 --> 0:14:04.000 need for success. And the actual process for this transformation 0:14:04.880 --> 0:14:08.440 is bizarre. You know, I said Google is going to 0:14:08.440 --> 0:14:11.160 create a parent company called Alphabet. Google will become a 0:14:11.200 --> 0:14:14.400 wholly owned subsidiary of Alphabet, and these other companies will 0:14:14.440 --> 0:14:19.280 also be wholly owned subsidiaries of Alphabet. That's this simplification 0:14:19.360 --> 0:14:22.200 for the process that's actually going to happen, and I'm 0:14:22.200 --> 0:14:25.840 going to explain to you what the process is based 0:14:25.920 --> 0:14:31.840 upon the SEC filing. And this really demonstrates how bizarre 0:14:32.520 --> 0:14:36.440 corporate maneuvers have to be in order for them to 0:14:36.520 --> 0:14:41.000 take effect. It is truly strange. So first Google will 0:14:41.040 --> 0:14:45.920 create a direct wholly owned subsidiary called Alphabet, So, in 0:14:45.920 --> 0:14:48.200 other words, Google will be a parent company to the 0:14:48.240 --> 0:14:51.120 subsidiary Alphabet instead of the other way around. Now this 0:14:51.200 --> 0:14:54.800 sounds bizarre because it's literally the opposite of what I 0:14:54.920 --> 0:14:57.640 said was going to happen earlier, where Alphabet was going 0:14:57.640 --> 0:15:01.080 to be the parent company. But just hold on because 0:15:01.120 --> 0:15:05.080 it gets weirder from here. Alright, So at this phase, 0:15:05.520 --> 0:15:08.760 Google is a parent company and Alphabet is its wholly 0:15:08.840 --> 0:15:13.800 owned subsidiary. Alphabet then will form its own wholly owned 0:15:13.840 --> 0:15:19.840 subsidiary called merger Sub. Really catchy name for a company. Right, 0:15:20.600 --> 0:15:24.320 This is all in the SEC filings. So merger Sub 0:15:24.480 --> 0:15:29.560 has one purpose only. Merger Sub is an indirect wholly 0:15:29.600 --> 0:15:33.120 owned subsidiary of Google, or if you like it, if 0:15:33.120 --> 0:15:36.160 you think of it in family terms, Google is is 0:15:36.200 --> 0:15:40.920 the parent, Alphabet is the kid, and merger Sub is 0:15:40.960 --> 0:15:47.160 the grand kid. Now, the next phase has Google undergoing 0:15:47.200 --> 0:15:52.120 a corporate merger with Merger Sub. So, in other words, 0:15:52.720 --> 0:15:59.920 Grandpa Google and grandkid merger Sub merged together to become 0:16:00.280 --> 0:16:04.880 one entity. So Google will emerge with its own indirect, 0:16:04.960 --> 0:16:10.560 wholly owned subsidiary. But because merger Sub is a subsidiary 0:16:10.560 --> 0:16:15.080 of Alphabet, that makes Google a direct, wholly owned subsidiary 0:16:15.120 --> 0:16:20.320 of Alphabet. So now Google is Alphabet's kid, not the 0:16:20.320 --> 0:16:24.800 other way around. If this sounds at all like the 0:16:24.880 --> 0:16:30.000 novelty song I'm My Own Grandpa, it totally is. And 0:16:30.040 --> 0:16:32.200 if you don't know what that is, you should listen 0:16:32.240 --> 0:16:34.440 to that song. First of all, I apologize. It is 0:16:34.480 --> 0:16:39.800 an old joke song that involves a convoluted series of 0:16:40.040 --> 0:16:45.360 marriages where the singer becomes his own grandfather. That's pretty 0:16:45.440 --> 0:16:48.480 much what we're looking at here, alright. So to sum 0:16:48.560 --> 0:16:52.400 up what I just said, Google creates a subsidiary called Alphabet. 0:16:52.720 --> 0:16:57.120 Alphabet in turn creates its subsidiary called Merger Sub. Google 0:16:57.200 --> 0:17:01.640 merges with Merger Sub and assumes the role of subsidiary 0:17:01.720 --> 0:17:05.920 to Alphabet. And that's how we get to the the 0:17:06.520 --> 0:17:10.439 world where Alphabet is the parent company. If you were 0:17:10.520 --> 0:17:13.919 to ask me why does it work that way? I 0:17:13.960 --> 0:17:17.199 would stare at you dumbfounded and say, there's got to 0:17:17.240 --> 0:17:19.880 be someone out there who understands this better than I do. 0:17:20.640 --> 0:17:23.199 There has to be otherwise it wouldn't exist. But I 0:17:23.280 --> 0:17:26.000 am not that person. We've got a bit more to 0:17:26.040 --> 0:17:29.920 say about Google forming its parent company, Alphabet after this 0:17:30.000 --> 0:17:42.879 commercial break some other information. Google is conducting this in 0:17:42.920 --> 0:17:48.280 the state of Delaware. Now that's pretty common here in 0:17:48.320 --> 0:17:51.920 the United States. You see a lot of companies incorporating 0:17:51.920 --> 0:17:55.680 in Delaware. Doing so means the company can restructure without 0:17:55.720 --> 0:17:59.200 first holding a shareholder vote. That's a big deal. So 0:17:59.680 --> 0:18:03.960 by conducting this business in Delaware, specifically, Google does not 0:18:04.080 --> 0:18:07.239 have to ask permission from shareholders. Google can just go 0:18:07.280 --> 0:18:11.200 ahead and do this. But you might wonder why so 0:18:11.240 --> 0:18:15.000 many companies in the United States incorporate in Delaware. Even 0:18:15.280 --> 0:18:20.200 if you you know, imagine like they're their actual operating 0:18:20.400 --> 0:18:23.920 headquarters maybe in totally different states, they still incorporate in Delaware. 0:18:24.400 --> 0:18:30.240 Here are the reasons why companies incorporate in Delaware. Uh, first, 0:18:30.280 --> 0:18:32.359 I should give you some quick facts. If you're not 0:18:32.440 --> 0:18:34.960 familiar with the United States and you're not familiar with Delaware, 0:18:35.560 --> 0:18:37.119 you may wonder why this is a big deal. In 0:18:37.160 --> 0:18:39.720 the first place. Well, Delaware is a tiny state, both 0:18:39.760 --> 0:18:44.040 in geography and population. The population for the entire state 0:18:44.480 --> 0:18:47.720 back in two thousand ten, when the last US census 0:18:47.760 --> 0:18:52.680 was conducted, was just eight hundred seven thousand, nine thirty four, 0:18:52.800 --> 0:18:57.040 so less than a million people. And yet more than 0:18:57.119 --> 0:19:01.280 sevent of all new initial pub offerings in the United 0:19:01.320 --> 0:19:05.280 States are done by companies incorporated in Delaware. More than 0:19:05.400 --> 0:19:10.760 six of all Fortune five hundred companies are incorporated in Delaware. 0:19:10.800 --> 0:19:15.960 So what is going on, Well, Delaware leads the way 0:19:16.040 --> 0:19:20.040 when it comes to corporate law, and that's a big, 0:19:20.119 --> 0:19:23.159 big reason you want if you're going to incorporate, you 0:19:23.200 --> 0:19:25.760 want to be in a state that is up to 0:19:25.880 --> 0:19:29.760 date on that law, that is defining that law, because 0:19:29.920 --> 0:19:32.280 then you have a very clear set of rules of 0:19:32.280 --> 0:19:35.960 what you can and cannot do. It makes it well defined, 0:19:36.200 --> 0:19:38.320 and it makes it easy for companies to operate within 0:19:38.359 --> 0:19:41.720 the boundaries of law, or if your cynical, it makes 0:19:41.720 --> 0:19:43.800 it easier for companies to see how much they can 0:19:43.840 --> 0:19:46.639 get away with. Now there's a great deal of case 0:19:46.760 --> 0:19:50.040 history established in Delaware, which again makes it easy to 0:19:50.080 --> 0:19:53.000 know what is and isn't within the rules. Plus it 0:19:53.040 --> 0:19:56.560 makes litigation move more quickly due to the amount of 0:19:56.600 --> 0:19:59.600 previous decisions that are likely to cover the same territory. 0:20:00.000 --> 0:20:03.040 No one wants to get into litigation. No one wants 0:20:03.080 --> 0:20:06.520 to get into lawsuits, corporate lawsuits. But if you're gonna 0:20:06.560 --> 0:20:08.760 have it happen, you want it to be over with 0:20:08.800 --> 0:20:12.640 as quickly as possible so you can get back to business. Now, 0:20:12.680 --> 0:20:16.240 Delaware has a special court, and I love the name 0:20:16.320 --> 0:20:20.199 of this court. It's called the Court of Chancery, and 0:20:20.280 --> 0:20:24.000 that oversees corporate law disputes without the need for juries, 0:20:24.400 --> 0:20:28.200 which speeds things up considerably. And it's its own line 0:20:28.240 --> 0:20:32.119 of courts, so corporate cases have their own court. They 0:20:32.560 --> 0:20:36.760 aren't required to wait in line behind other cases, and 0:20:36.800 --> 0:20:40.160 they are decided upon by judges who specialize in corporate law. 0:20:41.119 --> 0:20:44.760 So that that's why this is all taking place in Delaware. Now. 0:20:44.800 --> 0:20:48.399 A couple of other details about Alphabet and Google. The 0:20:48.600 --> 0:20:52.440 u r L for Alphabet isn't alphabet dot com because 0:20:52.520 --> 0:20:56.840 Google doesn't own alphabet dot com. Instead, the u r 0:20:57.000 --> 0:21:01.920 L is ABC dot X yse E if you go there. 0:21:01.920 --> 0:21:04.760 There's very little as of the recording of this podcast 0:21:05.280 --> 0:21:07.520 that's there right now. It's just a kind of almost 0:21:07.560 --> 0:21:09.800 like a land holding page that links to the Google 0:21:09.840 --> 0:21:13.600 blog that has the announcement. And you might wonder if 0:21:13.600 --> 0:21:17.280 there are already any companies that have the name alphabet, 0:21:17.520 --> 0:21:20.160 and as a matter of fact, there are. There are 0:21:20.200 --> 0:21:23.040 lots of them, and the word has even been trademarked 0:21:23.040 --> 0:21:27.680 by BMW, although Scott Benjamin, as he was leaving the 0:21:27.720 --> 0:21:31.679 studio earlier, told me that BMW really shouldn't have a 0:21:31.720 --> 0:21:34.840 strong claim on trademark for the alphabet because they only 0:21:34.960 --> 0:21:40.080 use three of the letters. Scott makes the same sort 0:21:40.080 --> 0:21:44.359 of jokes I do. Obviously, so other alphabet companies that 0:21:44.480 --> 0:21:49.560 already exist. There's so many. They're just tons like Alphabet Funds, 0:21:50.600 --> 0:21:55.280 Alphabet Energy, Alphabet Plumbing, Alphabet Record Company. There are tons 0:21:55.359 --> 0:21:58.960 that are just called alphabet. So there's been a question 0:21:59.000 --> 0:22:01.840 will these companies in up suing Google to prevent it 0:22:01.880 --> 0:22:05.640 from assuming the name alphabet, And for most of them, 0:22:05.680 --> 0:22:07.919 the answer already sounds like it's going to be no, 0:22:08.400 --> 0:22:11.720 because Google is enormous, so going in against Google would 0:22:11.720 --> 0:22:17.400 be a very expensive and probably futile activity. Also, if 0:22:17.440 --> 0:22:20.840 you try to Google how to sue Google, it just 0:22:20.920 --> 0:22:26.120 comes back saying don't do it. That's a joke. So 0:22:26.200 --> 0:22:30.359 that is why Google is really looking at splitting this out. 0:22:30.480 --> 0:22:34.640 The big reason being that now Google can organize so 0:22:34.760 --> 0:22:38.199 that each division being its own company, can focus on 0:22:38.240 --> 0:22:41.199 what it needs to do to achieve success and it 0:22:41.280 --> 0:22:44.520 doesn't have to be tied directly back to Google. That 0:22:44.680 --> 0:22:46.439 was one of those things that people were asking all 0:22:46.480 --> 0:22:49.240 the time. Google was known as a search company and 0:22:49.720 --> 0:22:53.040 by extension and ad company, so people would say, well, 0:22:53.040 --> 0:22:57.800 why are you getting into autonomous cars or you know, 0:22:58.400 --> 0:23:01.080 why are we were why are you getting to uh 0:23:01.760 --> 0:23:07.080 smart thermostats? Why are you getting into this company that's 0:23:07.119 --> 0:23:12.320 looking into how to stop aging or or to prolonged long, 0:23:12.640 --> 0:23:16.840 prolonged lifespans indefinitely, what's the purpose of this? How does 0:23:16.880 --> 0:23:20.040 that relate back to your main business? And by creating 0:23:20.040 --> 0:23:22.360 this parent company, Google no longer has to answer those 0:23:22.440 --> 0:23:26.560 questions because Google, the company can continue to focus on 0:23:26.600 --> 0:23:33.000 things like Gmail and search and apps and Android and YouTube. Meanwhile, 0:23:33.680 --> 0:23:37.560 the company Calico can focus on longevity, and the company 0:23:37.600 --> 0:23:41.240 Life Sciences can focus on creating technology that benefits the 0:23:41.240 --> 0:23:44.560 medical field. So each company can do what it needs 0:23:44.600 --> 0:23:48.640 to do independent of Google and have a better chance 0:23:48.680 --> 0:23:52.440 of success. This also really does clear things up from 0:23:52.480 --> 0:23:56.480 a management and reporting status. I don't know how many 0:23:56.520 --> 0:23:58.800 of you out there have been have worked for a 0:23:58.920 --> 0:24:01.159 very large company, but for but if you work for 0:24:01.200 --> 0:24:05.520 a big company that has acquired other companies, there usually 0:24:05.600 --> 0:24:09.080 is a long process to figure out where those lines 0:24:09.119 --> 0:24:12.440 of communication need to be drawn, where where is that 0:24:12.520 --> 0:24:15.840 chain of command and how is it formed? And it 0:24:15.880 --> 0:24:18.840 can take years for those questions to be answered, and 0:24:18.880 --> 0:24:20.840 even when they're answered, they may not be the best 0:24:20.880 --> 0:24:24.320 answer to the question. And you might have relationships that 0:24:24.480 --> 0:24:27.440 on paper made sense but in reality don't make any 0:24:27.480 --> 0:24:30.040 sense at all. So I think that's really the main 0:24:30.119 --> 0:24:33.280 reason some people were getting very cynical about the purposes 0:24:33.320 --> 0:24:35.919 of Google, like thinking that this might be some means 0:24:36.000 --> 0:24:41.680 of escaping taxes, and it's certainly there are issues about 0:24:41.760 --> 0:24:44.520 you know, there are there are ways that that apparent 0:24:44.560 --> 0:24:48.560 company can leverage having subsidiaries to pay less tax and 0:24:48.640 --> 0:24:51.800 I have no doubt that Google will or Alphabet rather 0:24:52.119 --> 0:24:56.080 that Alphabet will pursue those But I really do think 0:24:56.480 --> 0:25:01.040 the main reason here was to get a better handle 0:25:01.240 --> 0:25:03.640 on what Google is all about and what these other 0:25:03.720 --> 0:25:06.560 companies are all about, so that they can focus on 0:25:06.640 --> 0:25:09.760 what they do without worrying about all the other elements 0:25:09.800 --> 0:25:15.080 within the giant, sprawling company that is Google. So I 0:25:15.119 --> 0:25:18.280 hope that answers all your questions about Alphabet. Obviously, this 0:25:18.359 --> 0:25:20.879 is just the tip of the iceberg. We don't know 0:25:21.040 --> 0:25:24.879 that much yet because it's only just been announced, but 0:25:25.400 --> 0:25:27.960 I'm sure a lot more information will come out, especially 0:25:27.960 --> 0:25:30.119 things like will they be able to actually use the 0:25:30.160 --> 0:25:33.320 name alphabet or is that going to change? Uh? Does 0:25:33.359 --> 0:25:36.520 seem a little premature to announce it before it actually 0:25:36.600 --> 0:25:39.720 is legal, but you know, it's Google. They've got a 0:25:39.760 --> 0:25:42.600 lot of weight to throw around. I hope you enjoyed 0:25:42.640 --> 0:25:46.399 that classic episode of tech Stuff and the bit about 0:25:46.440 --> 0:25:50.440