1 00:00:04,360 --> 00:00:07,960 Speaker 1: Get in Text with Technology with tex staff from hosforks 2 00:00:07,960 --> 00:00:14,760 Speaker 1: dot com. Hey there, and welcome to Text Stuff. I'm 3 00:00:14,920 --> 00:00:19,040 Speaker 1: Jonathan Strickland, and today I want to talk about Google's 4 00:00:19,239 --> 00:00:24,160 Speaker 1: massive restructuring and the emergence of a new parent company 5 00:00:24,200 --> 00:00:28,800 Speaker 1: called Alphabet. And first an apology because I had intended 6 00:00:29,000 --> 00:00:32,440 Speaker 1: on periscoping this, sending it out live as I record, 7 00:00:33,040 --> 00:00:36,000 Speaker 1: but uh, I was currently having some network issues, so 8 00:00:36,360 --> 00:00:39,160 Speaker 1: the I'm being told my network connection is too slow 9 00:00:39,600 --> 00:00:43,240 Speaker 1: to actually periscope at the moment, So instead you're gonna 10 00:00:43,280 --> 00:00:46,840 Speaker 1: get this in just true podcast form. I will periscope 11 00:00:46,880 --> 00:00:49,559 Speaker 1: other events in the future. And most of you were 12 00:00:49,560 --> 00:00:51,600 Speaker 1: probably unaware that this was going to happen in the 13 00:00:51,600 --> 00:00:54,120 Speaker 1: first place, but do keep your ears out. Watch the 14 00:00:54,200 --> 00:00:58,560 Speaker 1: Twitter feed Tech Stuff hs W or my Twitter feed 15 00:00:58,840 --> 00:01:01,960 Speaker 1: John Strickland. That's j O N S T R I 16 00:01:02,000 --> 00:01:04,080 Speaker 1: C K L A N D. And I will be 17 00:01:04,120 --> 00:01:06,760 Speaker 1: talking about when I'll be periscoping in the future, so 18 00:01:06,800 --> 00:01:09,840 Speaker 1: you can watch what a real recording session happens to 19 00:01:09,880 --> 00:01:12,479 Speaker 1: look like in real time. All right, enough of that, 20 00:01:12,880 --> 00:01:17,440 Speaker 1: let's talk about Google and Alphabet. So on Monday August ten, 21 00:01:17,680 --> 00:01:22,160 Speaker 1: two thousand and fifteen, Google CEO Larry Page posted in 22 00:01:22,200 --> 00:01:26,480 Speaker 1: the official Google blog that the massive company would undergo 23 00:01:26,640 --> 00:01:30,760 Speaker 1: a restructuring and Google would become a subsidiary under a 24 00:01:30,880 --> 00:01:35,600 Speaker 1: parent company named Alphabet. Now, obviously the tech news world 25 00:01:35,680 --> 00:01:39,720 Speaker 1: went bonkers as a result of this announcement, But what 26 00:01:39,880 --> 00:01:44,240 Speaker 1: does it really mean and why would Google ever want 27 00:01:44,280 --> 00:01:47,760 Speaker 1: to do this? That's the purpose of this episode. So 28 00:01:48,000 --> 00:01:51,280 Speaker 1: I'm going to talk about not just Google's decision, but 29 00:01:51,400 --> 00:01:54,920 Speaker 1: what a parent company is, what subsidiaries are, why those 30 00:01:54,960 --> 00:01:58,880 Speaker 1: things exist, so that we can actually have a better understanding. 31 00:01:59,280 --> 00:02:01,680 Speaker 1: And one of the reasons I'm doing this is because, 32 00:02:02,000 --> 00:02:05,000 Speaker 1: even as a tech guy with a kind of general 33 00:02:05,080 --> 00:02:09,160 Speaker 1: understanding of corporate structure, I was kind of confused too, 34 00:02:09,200 --> 00:02:12,080 Speaker 1: and so I thought, if I'm confused, I'm sure at 35 00:02:12,160 --> 00:02:16,480 Speaker 1: least one other person out there is confused. So that's 36 00:02:16,520 --> 00:02:19,120 Speaker 1: why I want to really dive into this and get 37 00:02:19,160 --> 00:02:23,280 Speaker 1: a general understanding of parent companies and subsidiaries so that 38 00:02:23,360 --> 00:02:28,520 Speaker 1: we understand why those exist across different companies, not just Google. 39 00:02:29,160 --> 00:02:32,600 Speaker 1: So first, Alphabet is the parent company that will oversee 40 00:02:32,600 --> 00:02:36,720 Speaker 1: a collection of other companies, the largest of which is Google. 41 00:02:37,200 --> 00:02:40,359 Speaker 1: Larry Page will be the CEO of this new company, 42 00:02:40,400 --> 00:02:44,640 Speaker 1: So trans transferring from Google to Alphabet. Sarah A. Brend 43 00:02:44,680 --> 00:02:48,240 Speaker 1: will be the president of Alphabet, and Paige and Brend are, 44 00:02:48,320 --> 00:02:51,800 Speaker 1: of course co founders of Google. Now, it might be 45 00:02:51,880 --> 00:02:55,680 Speaker 1: helpful to take this moment to explain what a parent 46 00:02:55,760 --> 00:02:59,600 Speaker 1: company is and how those subsidiaries work in general. So 47 00:02:59,680 --> 00:03:03,760 Speaker 1: apparent company is a company that controls other companies. The 48 00:03:03,800 --> 00:03:06,360 Speaker 1: way it does that is it has to own enough 49 00:03:06,600 --> 00:03:13,120 Speaker 1: voting stock or control of those companies or more. Actually, now, 50 00:03:13,160 --> 00:03:16,480 Speaker 1: parent companies are not necessarily hands on with their control. 51 00:03:17,000 --> 00:03:19,399 Speaker 1: Sometimes you have a parent company that has all these 52 00:03:19,440 --> 00:03:23,680 Speaker 1: subsidiaries as a means of generating revenue, but they largely 53 00:03:23,760 --> 00:03:27,280 Speaker 1: remain hands off with those subsidiaries. But then there are 54 00:03:27,280 --> 00:03:30,840 Speaker 1: other parent companies that get really involved with what their 55 00:03:30,880 --> 00:03:35,880 Speaker 1: their subsidiaries are doing. It all depends upon the specific companies, 56 00:03:35,920 --> 00:03:41,440 Speaker 1: but subsidiaries have their own management levels. So while there 57 00:03:41,440 --> 00:03:44,560 Speaker 1: will be the CEO of Alphabet, there will also still 58 00:03:44,560 --> 00:03:49,080 Speaker 1: be a CEO of Google. That might sound confusing, but 59 00:03:49,200 --> 00:03:52,840 Speaker 1: it's it makes sense when you look at how subsidiaries 60 00:03:52,840 --> 00:03:56,280 Speaker 1: have to manage themselves. So you can kind of think 61 00:03:56,280 --> 00:04:01,200 Speaker 1: of subsidiaries as the children of parent companies. Stretches the analogy, 62 00:04:01,240 --> 00:04:04,760 Speaker 1: but it works. So a regular subsidiary, there is such 63 00:04:04,760 --> 00:04:10,640 Speaker 1: a thing, is one that is owned by a parent company, 64 00:04:10,680 --> 00:04:14,680 Speaker 1: whereas a wholly owned subsidiary is I bet you're going 65 00:04:14,720 --> 00:04:20,279 Speaker 1: to guess it owned by a parent company. Now, generally speaking, 66 00:04:21,000 --> 00:04:25,159 Speaker 1: the most common reason for creating a parent company and 67 00:04:25,240 --> 00:04:30,600 Speaker 1: subsidiary relationship is to distribute risk and liability, as well 68 00:04:30,640 --> 00:04:34,080 Speaker 1: as to expand into new businesses without taking the focus 69 00:04:34,120 --> 00:04:38,040 Speaker 1: away from an already existing line of business. In other words, 70 00:04:38,200 --> 00:04:40,880 Speaker 1: if you have a huge company that's really good at 71 00:04:40,920 --> 00:04:44,120 Speaker 1: one thing, and you want to pursue another line of business, 72 00:04:44,400 --> 00:04:47,039 Speaker 1: it might make more sense to create a parent company 73 00:04:47,080 --> 00:04:51,440 Speaker 1: and a subsidiary dedicated to that new business instead of 74 00:04:51,560 --> 00:04:55,680 Speaker 1: lumping it under the existing company. Google has been operating 75 00:04:55,800 --> 00:04:59,279 Speaker 1: under that second approach for quite some time. Google's just 76 00:04:59,360 --> 00:05:03,520 Speaker 1: this massive company that has acquired other businesses, most of 77 00:05:03,560 --> 00:05:08,800 Speaker 1: which are only tangentially aligned with Google's main business, and 78 00:05:08,880 --> 00:05:11,120 Speaker 1: the more Google does that, the harder it is to 79 00:05:11,240 --> 00:05:15,320 Speaker 1: manage everything. Going with a parent company makes that management 80 00:05:15,440 --> 00:05:18,520 Speaker 1: much more clear, and the lines of command are much 81 00:05:18,560 --> 00:05:22,920 Speaker 1: more clear. So the parent company organizes the management teams 82 00:05:22,920 --> 00:05:27,200 Speaker 1: of the subsidiaries and establishes the company by laws. This 83 00:05:27,279 --> 00:05:30,839 Speaker 1: creates the governance structure for the subsidiary and makes it 84 00:05:30,880 --> 00:05:32,880 Speaker 1: clear what the chain of command will be and how 85 00:05:32,920 --> 00:05:35,960 Speaker 1: it relates to the parent company. So, in other words, 86 00:05:36,000 --> 00:05:38,159 Speaker 1: it removes some of this confusion. If you work for 87 00:05:38,200 --> 00:05:41,680 Speaker 1: one of these divisions that's now a subsidiary, you should 88 00:05:41,760 --> 00:05:44,400 Speaker 1: have a pretty clear chain of command all the way 89 00:05:44,480 --> 00:05:47,799 Speaker 1: up to the parent company, and most of the time 90 00:05:48,040 --> 00:05:51,080 Speaker 1: it's going to be independent of the other subsidiaries, so 91 00:05:51,160 --> 00:05:53,800 Speaker 1: you don't necessarily have to worry about reporting to like 92 00:05:54,040 --> 00:05:58,200 Speaker 1: five different bosses across different divisions because those other companies 93 00:05:58,240 --> 00:06:03,800 Speaker 1: will be independent. So the structure also determines how the 94 00:06:03,839 --> 00:06:08,000 Speaker 1: parent company and subsidiaries are treated as legal entities. If 95 00:06:08,040 --> 00:06:13,600 Speaker 1: the parent and subsidiaries share employee benefit plans or insurance contracts, 96 00:06:13,720 --> 00:06:17,679 Speaker 1: or they commingle their funds or files, or they file 97 00:06:17,720 --> 00:06:20,960 Speaker 1: consolidated income tax returns, they can be seen as a 98 00:06:21,040 --> 00:06:24,239 Speaker 1: single entity. So in other words, there are some tax 99 00:06:24,320 --> 00:06:28,280 Speaker 1: issues that come into play. It's not all just organizational 100 00:06:28,520 --> 00:06:34,480 Speaker 1: there's also tax considerations. Uh. Now, in the United States, 101 00:06:34,480 --> 00:06:37,680 Speaker 1: a parent company can offset the profits and losses of 102 00:06:37,720 --> 00:06:42,240 Speaker 1: subsidiaries against each other for federal tax return purposes. So 103 00:06:42,520 --> 00:06:45,440 Speaker 1: if you have a big parent company and one subsidiary 104 00:06:45,480 --> 00:06:49,560 Speaker 1: is doing really well and another subsidiary is doing very poorly. 105 00:06:49,640 --> 00:06:53,760 Speaker 1: In a given financial year, you can offset the losses 106 00:06:53,800 --> 00:06:56,080 Speaker 1: of one with the revenues of another, and that can 107 00:06:56,160 --> 00:06:58,960 Speaker 1: lead to huge savings in the big picture when it 108 00:06:59,000 --> 00:07:03,160 Speaker 1: comes time to file federal tax return. There's also some 109 00:07:03,240 --> 00:07:06,320 Speaker 1: benefit on a on a state level, depending upon what 110 00:07:06,520 --> 00:07:09,640 Speaker 1: state you are in. Some states only tax the income 111 00:07:09,720 --> 00:07:13,240 Speaker 1: earned within that state, and all income earned in other 112 00:07:13,320 --> 00:07:17,960 Speaker 1: states remains untaxed, so there's that as well. Now, a 113 00:07:18,000 --> 00:07:21,000 Speaker 1: subsidiary is a separate legal entity and has its own 114 00:07:21,040 --> 00:07:25,360 Speaker 1: liability that is separate from the parent companies. That means 115 00:07:25,400 --> 00:07:28,520 Speaker 1: the parent company can create a subsidiary that pursues businesses 116 00:07:28,520 --> 00:07:30,560 Speaker 1: that might be risky, meaning they could have a really 117 00:07:30,600 --> 00:07:34,360 Speaker 1: low return on investment without putting the parent company itself 118 00:07:34,400 --> 00:07:39,160 Speaker 1: at risk. And parent companies are not normally held liable 119 00:07:39,280 --> 00:07:43,600 Speaker 1: for the debts or actions of individual subsidiaries. So if 120 00:07:43,600 --> 00:07:45,920 Speaker 1: you are the head of a massive parent company, you 121 00:07:45,920 --> 00:07:49,440 Speaker 1: should invite me over to dinner one day. Also, if 122 00:07:49,480 --> 00:07:52,360 Speaker 1: one of your smaller subsidiaries goes on some sort of 123 00:07:53,120 --> 00:07:56,880 Speaker 1: quest for world domination or something, it's not necessarily your 124 00:07:56,920 --> 00:08:00,160 Speaker 1: butt that will be held accountable, unless, of course, the 125 00:08:00,160 --> 00:08:04,080 Speaker 1: courts do what is called piercing the corporate veil to 126 00:08:04,120 --> 00:08:06,520 Speaker 1: see if there were any goings on of the hanky 127 00:08:06,680 --> 00:08:09,720 Speaker 1: and or panky variety behind the scenes at the parent 128 00:08:09,760 --> 00:08:13,080 Speaker 1: company level. If that were the case, if it turns 129 00:08:13,080 --> 00:08:16,640 Speaker 1: out that this subsidiary was going on a quest for 130 00:08:16,680 --> 00:08:21,120 Speaker 1: world domination and was doing so under your direction or 131 00:08:21,200 --> 00:08:24,880 Speaker 1: your encouragement, you could find yourself in serious hot water. 132 00:08:25,160 --> 00:08:29,080 Speaker 1: But if there's no link found, then as a parent company, 133 00:08:29,120 --> 00:08:33,520 Speaker 1: you are somewhat protected from liability. The subsidiary is to blame, 134 00:08:33,559 --> 00:08:36,440 Speaker 1: not the parent company. So in other words, uh, the 135 00:08:37,480 --> 00:08:41,440 Speaker 1: if one branch goes bad, it doesn't poison all the 136 00:08:41,480 --> 00:08:46,120 Speaker 1: other branches, so it's a means of protection. Also, subsidiary 137 00:08:46,240 --> 00:08:48,720 Speaker 1: is something that a company can sell off to other 138 00:08:48,800 --> 00:08:51,520 Speaker 1: companies more easily if it chooses to do so in 139 00:08:51,559 --> 00:08:54,400 Speaker 1: the future. It's much easier to sell off an entire 140 00:08:54,440 --> 00:08:57,679 Speaker 1: subsidiary than it is to sell off, say a division 141 00:08:57,760 --> 00:09:00,520 Speaker 1: of a company. So let's say Alpha that creates a 142 00:09:00,559 --> 00:09:03,559 Speaker 1: subsidiary for a business that seems promising, but it turns 143 00:09:03,559 --> 00:09:05,560 Speaker 1: out it's just not a good fit for the way 144 00:09:05,600 --> 00:09:09,280 Speaker 1: Alphabet does business. It could then sell that subsidiary off 145 00:09:09,320 --> 00:09:13,360 Speaker 1: to another interested party. So, like I said earlier, the 146 00:09:13,440 --> 00:09:17,360 Speaker 1: largest company under the Alphabet parent company is Google. Google 147 00:09:17,400 --> 00:09:20,960 Speaker 1: will be a wholly owned subsidiary of Alphabet. This is 148 00:09:20,960 --> 00:09:24,400 Speaker 1: not a big surprise. Google's market cap as of August twelfth, 149 00:09:24,520 --> 00:09:29,000 Speaker 1: two thousand fifteen, was four hundred sixty one point seven 150 00:09:29,320 --> 00:09:34,840 Speaker 1: billion with a B dollars. That's nearly half a trillion dollars. Now, 151 00:09:34,920 --> 00:09:38,920 Speaker 1: in case you're wondering, Apple is still well ahead of Google. 152 00:09:39,240 --> 00:09:42,560 Speaker 1: Apple's market cap was six hundred thirty two point eight 153 00:09:42,600 --> 00:09:46,600 Speaker 1: billion dollars, so, you know, nearly two hundred billion dollars 154 00:09:46,720 --> 00:09:51,120 Speaker 1: more than Google. So we're still talking. You know, it's 155 00:09:51,120 --> 00:09:57,240 Speaker 1: still not anywhere close to hitting a trillion before Apple does. Now, 156 00:09:57,320 --> 00:10:00,840 Speaker 1: market cap stands for market capitalization, and that's the term 157 00:10:00,880 --> 00:10:03,679 Speaker 1: that describes the dollar value of the total number of 158 00:10:03,760 --> 00:10:07,280 Speaker 1: shares for a publicly traded company. So you figure that 159 00:10:07,320 --> 00:10:11,360 Speaker 1: out by taking the value of the traded shares at 160 00:10:11,400 --> 00:10:14,320 Speaker 1: any given time and multiply that times the number of 161 00:10:14,360 --> 00:10:17,120 Speaker 1: shares that are out there. That tells you the market 162 00:10:17,160 --> 00:10:20,760 Speaker 1: cap for that company. According to the SEC filing, which 163 00:10:20,920 --> 00:10:25,600 Speaker 1: must be made public, Google will also contain YouTube and 164 00:10:25,600 --> 00:10:30,880 Speaker 1: Android under its umbrella, in addition to search, ads, maps, 165 00:10:31,000 --> 00:10:34,760 Speaker 1: and apps. But lots of stuff that was previously organized 166 00:10:34,800 --> 00:10:38,720 Speaker 1: under Google will now be spun off as separate subsidiaries 167 00:10:38,800 --> 00:10:42,240 Speaker 1: of Alphabet. So some stuff is gonna stay Google YouTube 168 00:10:42,280 --> 00:10:45,000 Speaker 1: does not become its own individual company that will still 169 00:10:45,000 --> 00:10:48,760 Speaker 1: be part of Google, but other stuff will, Like a 170 00:10:48,800 --> 00:10:53,319 Speaker 1: group called Life Sciences, which is a research and development 171 00:10:53,800 --> 00:10:57,880 Speaker 1: division dedicated to finding new technologies to help in the 172 00:10:57,920 --> 00:11:02,360 Speaker 1: field of health. Among its projects are the glucose sensing 173 00:11:02,440 --> 00:11:07,000 Speaker 1: contact lenses that are really interesting. Also, there's a division 174 00:11:07,040 --> 00:11:10,480 Speaker 1: called Calico that will become its own company UH that 175 00:11:10,720 --> 00:11:13,760 Speaker 1: is a company that researches aging and how to increase 176 00:11:13,800 --> 00:11:17,360 Speaker 1: the length of our lifespans. There's also Google Fiber that 177 00:11:17,400 --> 00:11:22,319 Speaker 1: will become its own entity. There's Nest, the intelligent thermostat 178 00:11:22,400 --> 00:11:25,360 Speaker 1: that Google acquired that will be its own entity. And 179 00:11:25,400 --> 00:11:28,960 Speaker 1: also the Google x Lab, which is the division that 180 00:11:29,080 --> 00:11:33,040 Speaker 1: does experiments with long shot projects and big ideas, the 181 00:11:33,160 --> 00:11:36,160 Speaker 1: crazy R and D stuff that leads to things like 182 00:11:36,240 --> 00:11:40,600 Speaker 1: the UH the drone delivery system that Google wants to implement, 183 00:11:40,720 --> 00:11:43,040 Speaker 1: the driverless cars. That kind of stuff came out of 184 00:11:43,080 --> 00:11:47,840 Speaker 1: Google x Lab. Also Google has a couple of investment arms, 185 00:11:48,120 --> 00:11:51,280 Speaker 1: once called Google Ventures and another one's called Google Capital. 186 00:11:51,640 --> 00:11:55,160 Speaker 1: Those will also operate independently of Google, and they will 187 00:11:55,200 --> 00:12:01,040 Speaker 1: be under the Alphabet umbrella. Now, as for the financial 188 00:12:01,400 --> 00:12:05,400 Speaker 1: situation of all these companies, Google's finances will remain separate 189 00:12:05,480 --> 00:12:09,520 Speaker 1: from all the other subsidiaries. Also, all shares of Google 190 00:12:09,600 --> 00:12:13,120 Speaker 1: the company will convert into the same number of shares 191 00:12:13,360 --> 00:12:17,240 Speaker 1: of Alphabet, So if you have shares in Google, now 192 00:12:17,280 --> 00:12:20,520 Speaker 1: you're going to have shares in Alphabet. The trading symbol 193 00:12:20,559 --> 00:12:25,480 Speaker 1: for Google will remain the same, so that's not changing. Now. 194 00:12:25,720 --> 00:12:29,160 Speaker 1: I mentioned that Larry Page was transitioning from CEO of 195 00:12:29,200 --> 00:12:32,360 Speaker 1: Google to be CEO of Alphabet, So that means who 196 00:12:33,280 --> 00:12:35,480 Speaker 1: gets to be the CEO of Google. There's gonna be 197 00:12:35,480 --> 00:12:38,240 Speaker 1: an opening there right well. The new CEO of Google 198 00:12:38,280 --> 00:12:42,640 Speaker 1: will be Sundar Pachai. Sundar is from India and has 199 00:12:42,679 --> 00:12:47,200 Speaker 1: a an MS degree from Stanford and material sciences and engineering. 200 00:12:47,240 --> 00:12:50,960 Speaker 1: He joined Google back in two thousand four and he 201 00:12:51,040 --> 00:12:54,600 Speaker 1: worked on projects like Google Chrome and Chrome OS, and 202 00:12:54,640 --> 00:12:58,240 Speaker 1: he also helped develop Gmail and Google Maps. So he 203 00:12:58,320 --> 00:13:00,360 Speaker 1: was one of those people rumored to be con centered 204 00:13:00,360 --> 00:13:04,040 Speaker 1: from Microsoft CEO position when it was open when Balmer 205 00:13:04,200 --> 00:13:07,920 Speaker 1: was leaving. So uh, someone who has been with Google 206 00:13:08,000 --> 00:13:11,760 Speaker 1: quite sometime and is well known for injecting a ton 207 00:13:12,000 --> 00:13:16,559 Speaker 1: of life, vitality and research into Google. In fact, Larry 208 00:13:16,559 --> 00:13:20,160 Speaker 1: Page has had nothing but wonderful things to say about 209 00:13:20,240 --> 00:13:24,040 Speaker 1: him and his contributions over the last few years. You 210 00:13:24,120 --> 00:13:26,840 Speaker 1: also have other executives who will be taking on new roles. 211 00:13:27,200 --> 00:13:30,120 Speaker 1: Ruth poor At, who is the current Chief financial officer 212 00:13:30,160 --> 00:13:33,920 Speaker 1: of Google, will still be CFO of Google, but also 213 00:13:33,960 --> 00:13:37,160 Speaker 1: will become the senior vice president and chief financial officer 214 00:13:37,280 --> 00:13:40,680 Speaker 1: of Alphabet, so she will serve as the CFO for 215 00:13:40,800 --> 00:13:44,160 Speaker 1: both Alphabet and Google at the same time. All the 216 00:13:44,200 --> 00:13:47,960 Speaker 1: other subsidiaries will have their own CEO sh they haven't 217 00:13:47,960 --> 00:13:50,520 Speaker 1: all been announced yet. Page and Brent's job will be 218 00:13:50,600 --> 00:13:54,080 Speaker 1: to make sure that each subsidiary receives the resources and 219 00:13:54,120 --> 00:13:57,720 Speaker 1: attention they need for success. And the actual process for 220 00:13:57,760 --> 00:14:02,760 Speaker 1: this transformation is bus Czar. You know, I said Google 221 00:14:02,840 --> 00:14:05,360 Speaker 1: is going to create a parent company called Alphabet. Google 222 00:14:05,400 --> 00:14:08,280 Speaker 1: will become a wholly owned subsidiary of Alphabet, and these 223 00:14:08,280 --> 00:14:11,560 Speaker 1: other companies will also be wholly owned subsidiaries of Alphabet. 224 00:14:12,440 --> 00:14:16,280 Speaker 1: That's this simplification for the process that's actually going to happen, 225 00:14:16,640 --> 00:14:20,040 Speaker 1: and I'm going to explain to you what the process 226 00:14:20,160 --> 00:14:25,640 Speaker 1: is based upon the SEC filing. And this really demonstrates 227 00:14:25,640 --> 00:14:30,800 Speaker 1: how bizarre corporate maneuvers have to be in order for 228 00:14:30,840 --> 00:14:34,480 Speaker 1: them to take effect. It is truly strange. So first, 229 00:14:35,080 --> 00:14:40,480 Speaker 1: Google will create a direct, wholly owned subsidiary called Alphabet, So, 230 00:14:40,520 --> 00:14:42,800 Speaker 1: in other words, Google will be a parent company to 231 00:14:42,880 --> 00:14:45,680 Speaker 1: the subsidiary Alphabet instead of the other way around. Now 232 00:14:45,720 --> 00:14:49,360 Speaker 1: this sounds bizarre because it's literally the opposite of what 233 00:14:49,440 --> 00:14:52,240 Speaker 1: I said was going to happen earlier, where Alphabet was 234 00:14:52,240 --> 00:14:54,880 Speaker 1: going to be the parent company. But just hold on 235 00:14:55,440 --> 00:14:59,760 Speaker 1: because it gets weirder from here. Alright, So at this phase, 236 00:15:00,240 --> 00:15:03,480 Speaker 1: Google is a parent company and Alphabet is its wholly 237 00:15:03,560 --> 00:15:08,480 Speaker 1: owned subsidiary. Alphabet then will form its own wholly owned 238 00:15:08,560 --> 00:15:14,560 Speaker 1: subsidiary called merger Sub. Really catchy name for a company. Right, 239 00:15:15,320 --> 00:15:19,040 Speaker 1: This is all in the SEC filings. So merger Sub 240 00:15:19,200 --> 00:15:24,280 Speaker 1: has one purpose only. Merger Sub is an indirect wholly 241 00:15:24,320 --> 00:15:27,840 Speaker 1: owned subsidiary of Google, or if you like it, if 242 00:15:27,840 --> 00:15:30,880 Speaker 1: you think of it in family terms, Google is is 243 00:15:30,920 --> 00:15:35,640 Speaker 1: the parent, Alphabet is the kid, and merger Sub is 244 00:15:35,680 --> 00:15:41,880 Speaker 1: the grand kid. Now, the next phase has Google undergoing 245 00:15:41,920 --> 00:15:46,840 Speaker 1: a corporate merger with Merger Sub. So, in other words, 246 00:15:47,440 --> 00:15:54,720 Speaker 1: Grandpa Google and grandkid merger Sub merged together to become 247 00:15:55,000 --> 00:15:59,520 Speaker 1: one entity. So Google will merge with its own indirect, 248 00:15:59,640 --> 00:16:05,280 Speaker 1: holy own subsidiary. But because merger Sub is a subsidiary 249 00:16:05,280 --> 00:16:09,800 Speaker 1: of Alphabet, that makes Google a direct, wholly owned subsidiary 250 00:16:09,840 --> 00:16:15,000 Speaker 1: of Alphabet. So now Google is Alphabet's kid, not the 251 00:16:15,040 --> 00:16:19,520 Speaker 1: other way around. If this sounds at all like the 252 00:16:19,560 --> 00:16:24,720 Speaker 1: novelty song I'm My Own Grandpa, it totally is. And 253 00:16:24,760 --> 00:16:26,920 Speaker 1: if you don't know what that is, you should listen 254 00:16:26,960 --> 00:16:29,160 Speaker 1: to that song. First of all, I apologize. It is 255 00:16:29,200 --> 00:16:34,520 Speaker 1: an old joke song that involves a convoluted series of 256 00:16:34,760 --> 00:16:40,080 Speaker 1: marriages where the singer becomes his own grandfather. That's pretty 257 00:16:40,160 --> 00:16:43,200 Speaker 1: much what we're looking at here, alright. So to sum 258 00:16:43,280 --> 00:16:47,119 Speaker 1: up what I just said, Google creates a subsidiary called Alphabet. 259 00:16:47,440 --> 00:16:51,840 Speaker 1: Alphabet in turn creates its subsidiary called Merger Sub. Google 260 00:16:51,920 --> 00:16:56,360 Speaker 1: merges with Merger Sub and assumes the role of subsidiary 261 00:16:56,440 --> 00:17:00,280 Speaker 1: to Alphabet. And that's how we get to the the 262 00:17:01,240 --> 00:17:05,200 Speaker 1: world where Alphabet is the parent company. If you were 263 00:17:05,240 --> 00:17:08,639 Speaker 1: to ask me, why does it work that way, I 264 00:17:08,680 --> 00:17:11,919 Speaker 1: would stare at you dumbfounded and say, there's got to 265 00:17:11,920 --> 00:17:14,600 Speaker 1: be someone out there who understands this better than I do. 266 00:17:15,359 --> 00:17:17,959 Speaker 1: There has to be otherwise it wouldn't exist. But I 267 00:17:18,000 --> 00:17:21,800 Speaker 1: am not that person. Some other information, Google is conducting 268 00:17:21,840 --> 00:17:26,960 Speaker 1: this in the state of Delaware. Now that's pretty common 269 00:17:27,080 --> 00:17:29,960 Speaker 1: here in the United States. You see a lot of 270 00:17:29,960 --> 00:17:34,080 Speaker 1: companies incorporating in Delaware. Doing so means the company can 271 00:17:34,119 --> 00:17:38,160 Speaker 1: restructure without first holding a shareholder vote. That's a big deal. 272 00:17:38,280 --> 00:17:43,160 Speaker 1: So by conducting this business in Delaware, specifically, Google does 273 00:17:43,200 --> 00:17:46,320 Speaker 1: not have to ask permission from shareholders. Google can just 274 00:17:46,400 --> 00:17:50,280 Speaker 1: go ahead and do this. But you might wonder why 275 00:17:50,359 --> 00:17:53,600 Speaker 1: so many companies in the United States incorporate in Delaware. 276 00:17:54,040 --> 00:17:57,880 Speaker 1: Even if you you know, imagine like they're they're actual 277 00:17:58,840 --> 00:18:02,040 Speaker 1: operating head quarters maybe in totally different states, they still 278 00:18:02,080 --> 00:18:06,840 Speaker 1: incorporate in Delaware. Here are the reasons why companies incorporated 279 00:18:06,840 --> 00:18:10,960 Speaker 1: in Delaware. Uh, first, I should give you some quick facts. 280 00:18:11,240 --> 00:18:13,160 Speaker 1: If you're not familiar with the United States and you're 281 00:18:13,160 --> 00:18:16,000 Speaker 1: not familiar with Delaware, you may wonder why this is 282 00:18:16,000 --> 00:18:17,720 Speaker 1: a big deal in the first place. Well, Delaware is 283 00:18:17,760 --> 00:18:21,399 Speaker 1: a tiny state, both in geography and in population. The 284 00:18:21,440 --> 00:18:25,240 Speaker 1: population for the entire state back in two thousand ten, 285 00:18:25,320 --> 00:18:29,040 Speaker 1: when the last US census was conducted, was just eight 286 00:18:29,119 --> 00:18:32,920 Speaker 1: hundred nine seven thousand, nine thirty four, so less than 287 00:18:32,960 --> 00:18:38,040 Speaker 1: a million people. And yet more than seventy of all 288 00:18:38,200 --> 00:18:41,320 Speaker 1: new initial public offerings in the United States are done 289 00:18:41,359 --> 00:18:46,200 Speaker 1: by companies incorporated in Delaware. More than six of all 290 00:18:46,359 --> 00:18:50,399 Speaker 1: Fortune five hundred companies are incorporated in Delaware. So what 291 00:18:50,600 --> 00:18:55,679 Speaker 1: is going on? Well, Delaware leads the way when it 292 00:18:55,760 --> 00:19:00,240 Speaker 1: comes to corporate law, and that's a big, big reason 293 00:19:00,480 --> 00:19:02,840 Speaker 1: you want if you're going to incorporate, you want to 294 00:19:02,880 --> 00:19:05,800 Speaker 1: be in a state that is up to date on 295 00:19:05,840 --> 00:19:09,560 Speaker 1: that law, that is defining that law, because then you 296 00:19:09,640 --> 00:19:11,919 Speaker 1: have a very clear set of rules of what you 297 00:19:12,000 --> 00:19:15,600 Speaker 1: can and cannot do. It makes it well defined, and 298 00:19:15,640 --> 00:19:17,720 Speaker 1: it makes it easy for companies to operate within the 299 00:19:17,760 --> 00:19:21,159 Speaker 1: boundaries of law, or if your cynical, it makes it 300 00:19:21,200 --> 00:19:23,320 Speaker 1: easier for companies to see how much they can get 301 00:19:23,320 --> 00:19:26,439 Speaker 1: away with. Now there's a great deal of case history 302 00:19:26,640 --> 00:19:29,560 Speaker 1: established in Delaware, which again makes it easy to know 303 00:19:29,640 --> 00:19:32,600 Speaker 1: what is and isn't within the rules. Plus it makes 304 00:19:32,720 --> 00:19:36,320 Speaker 1: litigation move more quickly due to the amount of previous 305 00:19:36,400 --> 00:19:39,520 Speaker 1: decisions that are likely to cover the same territory. Now, 306 00:19:39,520 --> 00:19:42,359 Speaker 1: no one wants to get into litigation. No one wants 307 00:19:42,400 --> 00:19:45,800 Speaker 1: to get into lawsuits, corporate lawsuits. But if you're gonna 308 00:19:45,880 --> 00:19:48,000 Speaker 1: have it happen, you want it to be over with 309 00:19:48,080 --> 00:19:51,960 Speaker 1: as quickly as possible so you can get back to business. Now, 310 00:19:52,000 --> 00:19:55,520 Speaker 1: Delaware has a special court, and I love the name 311 00:19:55,600 --> 00:19:59,479 Speaker 1: of this court. It's called the Court of Chancery, and 312 00:19:59,560 --> 00:20:03,320 Speaker 1: that or sees corporate law disputes without the need for juries, 313 00:20:03,720 --> 00:20:07,520 Speaker 1: which speeds things up considerably. And it's its own line 314 00:20:07,520 --> 00:20:11,439 Speaker 1: of courts, so corporate cases have their own court. They 315 00:20:11,840 --> 00:20:16,040 Speaker 1: aren't required to wait in line behind other cases, and 316 00:20:16,119 --> 00:20:19,480 Speaker 1: they are decided upon by judges who specialize in corporate law. 317 00:20:20,400 --> 00:20:24,080 Speaker 1: So that that's why this is all taking place in Delaware. Now, 318 00:20:24,119 --> 00:20:27,720 Speaker 1: a couple of other details about Alphabet and Google. The 319 00:20:27,920 --> 00:20:31,760 Speaker 1: u r L for Alphabet isn't alphabet dot com because 320 00:20:31,800 --> 00:20:36,119 Speaker 1: Google doesn't own alphabet dot com. Instead, the u r 321 00:20:36,280 --> 00:20:41,240 Speaker 1: L is ABC dot X y Z if you go there. 322 00:20:41,240 --> 00:20:44,080 Speaker 1: There's very little as of the recording of this podcast 323 00:20:44,560 --> 00:20:46,880 Speaker 1: that's there right now. It's just a kind of almost 324 00:20:46,880 --> 00:20:49,119 Speaker 1: like a land holding page that links to the Google 325 00:20:49,119 --> 00:20:52,920 Speaker 1: blog that has the announcement, and you might wonder if 326 00:20:52,920 --> 00:20:56,600 Speaker 1: there are already any companies that have the name alphabet, 327 00:20:56,840 --> 00:20:59,480 Speaker 1: and as a matter of fact, there are. There are 328 00:20:59,520 --> 00:21:02,320 Speaker 1: lots of them, and the word has even been trademarked 329 00:21:02,359 --> 00:21:07,000 Speaker 1: by BMW, although Scott Benjamin, as he was leaving the 330 00:21:07,040 --> 00:21:11,000 Speaker 1: studio earlier, told me that BMW really shouldn't have a 331 00:21:11,000 --> 00:21:14,160 Speaker 1: strong claim on trademark for the alphabet because they only 332 00:21:14,280 --> 00:21:19,400 Speaker 1: used three of the letters. Scott makes the same sort 333 00:21:19,400 --> 00:21:23,639 Speaker 1: of jokes I do, obviously, so other alphabet companies that 334 00:21:23,760 --> 00:21:28,880 Speaker 1: already exist. There's so many. They're just tons like Alphabet Funds, 335 00:21:29,920 --> 00:21:34,639 Speaker 1: Alphabet Energy, Alphabet Plumbing, Alphabet Record Company. There are tons 336 00:21:34,640 --> 00:21:38,280 Speaker 1: that are just called alphabet. So there's been a question 337 00:21:38,320 --> 00:21:41,159 Speaker 1: will these companies end up suing Google to prevent it 338 00:21:41,200 --> 00:21:44,960 Speaker 1: from assuming the name alphabet, And for most of them, 339 00:21:45,000 --> 00:21:47,240 Speaker 1: the answer already sounds like it's going to be no, 340 00:21:47,720 --> 00:21:51,000 Speaker 1: because Google is enormous, so going in against Google would 341 00:21:51,040 --> 00:21:56,720 Speaker 1: be a very expensive and probably futile activity. Also, if 342 00:21:56,760 --> 00:22:00,440 Speaker 1: you try to Google how to sue, Google just comes 343 00:22:00,480 --> 00:22:05,560 Speaker 1: back saying don't do it. That's a joke. So that 344 00:22:05,760 --> 00:22:09,680 Speaker 1: is why Google is really looking at splitting this out, 345 00:22:09,760 --> 00:22:14,000 Speaker 1: the big reason being that now Google can organize so 346 00:22:14,080 --> 00:22:17,520 Speaker 1: that each division being its own company, can focus on 347 00:22:17,560 --> 00:22:20,520 Speaker 1: what it needs to do to achieve success, and it 348 00:22:20,600 --> 00:22:23,920 Speaker 1: doesn't have to be tied directly back to Google. That 349 00:22:24,000 --> 00:22:25,760 Speaker 1: was one of those things that people were asking all 350 00:22:25,760 --> 00:22:28,520 Speaker 1: the time. Google was known as a search company and 351 00:22:29,040 --> 00:22:32,359 Speaker 1: by extension and ad company, so people would say, well, 352 00:22:32,359 --> 00:22:37,080 Speaker 1: why are you getting into autonomous cars or you know, 353 00:22:37,720 --> 00:22:40,399 Speaker 1: why are we were why are you getting into uh 354 00:22:41,080 --> 00:22:46,400 Speaker 1: smart thermostats? Why are you getting into this company that's 355 00:22:46,440 --> 00:22:51,440 Speaker 1: looking into how to stop aging or or to prolonged 356 00:22:51,440 --> 00:22:55,959 Speaker 1: long prolonged lifespans indefinitely, what's the purpose of this? How 357 00:22:56,000 --> 00:22:58,960 Speaker 1: does that relate back to your main business? And by 358 00:22:59,000 --> 00:23:01,159 Speaker 1: creating this parent come any Google no longer has to 359 00:23:01,200 --> 00:23:05,040 Speaker 1: answer those questions because Google the company can continue to 360 00:23:05,280 --> 00:23:09,119 Speaker 1: focus on things like Gmail and search and apps and 361 00:23:09,440 --> 00:23:16,240 Speaker 1: Android and YouTube. Meanwhile, the company Calico can focus on longevity, 362 00:23:16,280 --> 00:23:19,720 Speaker 1: and the company Life Sciences can focus on creating technology 363 00:23:19,760 --> 00:23:23,240 Speaker 1: that benefits the medical field. So each company can do 364 00:23:23,320 --> 00:23:27,159 Speaker 1: what it needs to do independent of Google and have 365 00:23:27,280 --> 00:23:30,520 Speaker 1: a better chance of success. This also really does clear 366 00:23:30,600 --> 00:23:35,040 Speaker 1: things up from a management and reporting status. I don't 367 00:23:35,080 --> 00:23:37,520 Speaker 1: know how many of you out there have been have 368 00:23:37,640 --> 00:23:40,159 Speaker 1: worked for a very large company before. But if you 369 00:23:40,200 --> 00:23:43,119 Speaker 1: work for a big company that has acquired other companies, 370 00:23:43,840 --> 00:23:47,800 Speaker 1: there usually is a long process to figure out where 371 00:23:47,840 --> 00:23:51,240 Speaker 1: those lines of communication need to be drawn, where where 372 00:23:51,440 --> 00:23:53,560 Speaker 1: is that chain of command and how is it formed? 373 00:23:54,400 --> 00:23:58,000 Speaker 1: And it can take years for those questions to be answered, 374 00:23:58,040 --> 00:23:59,840 Speaker 1: and even when they're answered, they may not be the 375 00:24:00,000 --> 00:24:03,440 Speaker 1: asked answer to the question. And you might have relationships 376 00:24:03,480 --> 00:24:06,480 Speaker 1: that on paper made sense but in reality don't make 377 00:24:06,520 --> 00:24:09,159 Speaker 1: any sense at all. So I think that's really the 378 00:24:09,200 --> 00:24:12,000 Speaker 1: main reason. Some people were getting very cynical about the 379 00:24:12,040 --> 00:24:14,800 Speaker 1: purposes of Google, like thinking that this might be some 380 00:24:14,920 --> 00:24:20,480 Speaker 1: means of escaping taxes, and it's certainly there are issues 381 00:24:20,560 --> 00:24:23,199 Speaker 1: about you know, there are there are ways that that 382 00:24:23,320 --> 00:24:26,960 Speaker 1: a parent company can leverage having subsidiaries to pay less 383 00:24:26,960 --> 00:24:30,160 Speaker 1: tax and I have no doubt that Google will or 384 00:24:30,240 --> 00:24:34,840 Speaker 1: Alphabet rather that Alphabet will pursue those But I really 385 00:24:34,880 --> 00:24:39,480 Speaker 1: do think the main reason here was to get a 386 00:24:39,520 --> 00:24:42,359 Speaker 1: better handle on what Google is all about and what 387 00:24:42,520 --> 00:24:45,360 Speaker 1: these other companies are all about, so that they can 388 00:24:45,400 --> 00:24:48,080 Speaker 1: focus on what they do without worrying about all the 389 00:24:48,119 --> 00:24:53,480 Speaker 1: other elements within the giant sprawling company that is Google. 390 00:24:54,160 --> 00:24:57,359 Speaker 1: So I hope that answers all your questions about Alphabet. Obviously, 391 00:24:57,440 --> 00:24:59,920 Speaker 1: this is just the tip of the iceberg. We don't 392 00:25:00,080 --> 00:25:03,480 Speaker 1: know that much yet because it's only just been announced, 393 00:25:04,119 --> 00:25:06,600 Speaker 1: but I'm sure a lot more information will come out, 394 00:25:06,720 --> 00:25:09,320 Speaker 1: especially things like will they be able to actually use 395 00:25:09,359 --> 00:25:12,320 Speaker 1: the name alphabet or is that going to change? Uh. 396 00:25:12,480 --> 00:25:15,240 Speaker 1: Does seem a little premature to announce it before it 397 00:25:15,440 --> 00:25:19,000 Speaker 1: actually is legal, but you know, it's Google. They've got 398 00:25:19,000 --> 00:25:22,399 Speaker 1: a lot of weight to throw around. So I hope 399 00:25:22,440 --> 00:25:25,720 Speaker 1: that this was a useful podcast and it explained to 400 00:25:25,760 --> 00:25:28,560 Speaker 1: you what's going on. I realized that this is a 401 00:25:28,600 --> 00:25:32,399 Speaker 1: little different version of a tech podcast because I didn't 402 00:25:32,400 --> 00:25:35,960 Speaker 1: really go into technology so much as the corporate side 403 00:25:35,960 --> 00:25:38,880 Speaker 1: of things to explain how a tech company is working 404 00:25:38,880 --> 00:25:41,159 Speaker 1: behind the scenes. But it was still a lot of 405 00:25:41,160 --> 00:25:43,880 Speaker 1: fun and it taught me a lot about parent companies 406 00:25:43,880 --> 00:25:47,000 Speaker 1: and subsidiaries, and also about incorporating in Delaware. I had 407 00:25:47,000 --> 00:25:49,280 Speaker 1: always heard about it, but I never really understood why 408 00:25:49,359 --> 00:25:52,320 Speaker 1: until I did this research. If you guys have any 409 00:25:52,359 --> 00:25:55,719 Speaker 1: suggestions for future topics of tech stuff, whether it's on 410 00:25:55,800 --> 00:25:59,959 Speaker 1: a specific technology, maybe you're you just want to know uh, 411 00:26:00,440 --> 00:26:04,199 Speaker 1: tell me how siege engines in the Middle Ages worked. 412 00:26:05,080 --> 00:26:08,240 Speaker 1: If you asked that question, I will do a podcast 413 00:26:08,280 --> 00:26:11,040 Speaker 1: and answer it. Or maybe you want to know about 414 00:26:11,040 --> 00:26:14,520 Speaker 1: a cutting edge technology or a company or a personality, 415 00:26:15,240 --> 00:26:18,640 Speaker 1: or just how certain tech has affected our lives. Send 416 00:26:18,640 --> 00:26:20,600 Speaker 1: me a message let me know what you want to hear, 417 00:26:20,920 --> 00:26:22,800 Speaker 1: or even if you just want me to interview someone 418 00:26:22,880 --> 00:26:25,120 Speaker 1: or have someone on as a guest co host, tell 419 00:26:25,160 --> 00:26:28,240 Speaker 1: me that too. The email addresses tech stuff at how 420 00:26:28,320 --> 00:26:30,919 Speaker 1: stuff works dot com, or you can drop me a 421 00:26:30,960 --> 00:26:35,000 Speaker 1: line on Twitter or Facebook use the handle text stuff 422 00:26:35,359 --> 00:26:39,600 Speaker 1: h s W and I'll talk to you again really soon. 423 00:26:45,000 --> 00:26:57,600 Speaker 1: For more on this and bassens, another topic works dot com,