WEBVTT - Alphabetizing Google 0:00:04.360 --> 0:00:07.960 Get in Text with Technology with tex staff from hosforks 0:00:07.960 --> 0:00:14.760 dot com. Hey there, and welcome to Text Stuff. I'm 0:00:14.920 --> 0:00:19.040 Jonathan Strickland, and today I want to talk about Google's 0:00:19.239 --> 0:00:24.160 massive restructuring and the emergence of a new parent company 0:00:24.200 --> 0:00:28.800 called Alphabet. And first an apology because I had intended 0:00:29.000 --> 0:00:32.440 on periscoping this, sending it out live as I record, 0:00:33.040 --> 0:00:36.000 but uh, I was currently having some network issues, so 0:00:36.360 --> 0:00:39.160 the I'm being told my network connection is too slow 0:00:39.600 --> 0:00:43.240 to actually periscope at the moment, So instead you're gonna 0:00:43.280 --> 0:00:46.840 get this in just true podcast form. I will periscope 0:00:46.880 --> 0:00:49.559 other events in the future. And most of you were 0:00:49.560 --> 0:00:51.600 probably unaware that this was going to happen in the 0:00:51.600 --> 0:00:54.120 first place, but do keep your ears out. Watch the 0:00:54.200 --> 0:00:58.560 Twitter feed Tech Stuff hs W or my Twitter feed 0:00:58.840 --> 0:01:01.960 John Strickland. That's j O N S T R I 0:01:02.000 --> 0:01:04.080 C K L A N D. And I will be 0:01:04.120 --> 0:01:06.760 talking about when I'll be periscoping in the future, so 0:01:06.800 --> 0:01:09.840 you can watch what a real recording session happens to 0:01:09.880 --> 0:01:12.479 look like in real time. All right, enough of that, 0:01:12.880 --> 0:01:17.440 let's talk about Google and Alphabet. So on Monday August ten, 0:01:17.680 --> 0:01:22.160 two thousand and fifteen, Google CEO Larry Page posted in 0:01:22.200 --> 0:01:26.480 the official Google blog that the massive company would undergo 0:01:26.640 --> 0:01:30.760 a restructuring and Google would become a subsidiary under a 0:01:30.880 --> 0:01:35.600 parent company named Alphabet. Now, obviously the tech news world 0:01:35.680 --> 0:01:39.720 went bonkers as a result of this announcement, But what 0:01:39.880 --> 0:01:44.240 does it really mean and why would Google ever want 0:01:44.280 --> 0:01:47.760 to do this? That's the purpose of this episode. So 0:01:48.000 --> 0:01:51.280 I'm going to talk about not just Google's decision, but 0:01:51.400 --> 0:01:54.920 what a parent company is, what subsidiaries are, why those 0:01:54.960 --> 0:01:58.880 things exist, so that we can actually have a better understanding. 0:01:59.280 --> 0:02:01.680 And one of the reasons I'm doing this is because, 0:02:02.000 --> 0:02:05.000 even as a tech guy with a kind of general 0:02:05.080 --> 0:02:09.160 understanding of corporate structure, I was kind of confused too, 0:02:09.200 --> 0:02:12.080 and so I thought, if I'm confused, I'm sure at 0:02:12.160 --> 0:02:16.480 least one other person out there is confused. So that's 0:02:16.520 --> 0:02:19.120 why I want to really dive into this and get 0:02:19.160 --> 0:02:23.280 a general understanding of parent companies and subsidiaries so that 0:02:23.360 --> 0:02:28.520 we understand why those exist across different companies, not just Google. 0:02:29.160 --> 0:02:32.600 So first, Alphabet is the parent company that will oversee 0:02:32.600 --> 0:02:36.720 a collection of other companies, the largest of which is Google. 0:02:37.200 --> 0:02:40.359 Larry Page will be the CEO of this new company, 0:02:40.400 --> 0:02:44.640 So trans transferring from Google to Alphabet. Sarah A. Brend 0:02:44.680 --> 0:02:48.240 will be the president of Alphabet, and Paige and Brend are, 0:02:48.320 --> 0:02:51.800 of course co founders of Google. Now, it might be 0:02:51.880 --> 0:02:55.680 helpful to take this moment to explain what a parent 0:02:55.760 --> 0:02:59.600 company is and how those subsidiaries work in general. So 0:02:59.680 --> 0:03:03.760 apparent company is a company that controls other companies. The 0:03:03.800 --> 0:03:06.360 way it does that is it has to own enough 0:03:06.600 --> 0:03:13.120 voting stock or control of those companies or more. Actually, now, 0:03:13.160 --> 0:03:16.480 parent companies are not necessarily hands on with their control. 0:03:17.000 --> 0:03:19.399 Sometimes you have a parent company that has all these 0:03:19.440 --> 0:03:23.680 subsidiaries as a means of generating revenue, but they largely 0:03:23.760 --> 0:03:27.280 remain hands off with those subsidiaries. But then there are 0:03:27.280 --> 0:03:30.840 other parent companies that get really involved with what their 0:03:30.880 --> 0:03:35.880 their subsidiaries are doing. It all depends upon the specific companies, 0:03:35.920 --> 0:03:41.440 but subsidiaries have their own management levels. So while there 0:03:41.440 --> 0:03:44.560 will be the CEO of Alphabet, there will also still 0:03:44.560 --> 0:03:49.080 be a CEO of Google. That might sound confusing, but 0:03:49.200 --> 0:03:52.840 it's it makes sense when you look at how subsidiaries 0:03:52.840 --> 0:03:56.280 have to manage themselves. So you can kind of think 0:03:56.280 --> 0:04:01.200 of subsidiaries as the children of parent companies. Stretches the analogy, 0:04:01.240 --> 0:04:04.760 but it works. So a regular subsidiary, there is such 0:04:04.760 --> 0:04:10.640 a thing, is one that is owned by a parent company, 0:04:10.680 --> 0:04:14.680 whereas a wholly owned subsidiary is I bet you're going 0:04:14.720 --> 0:04:20.279 to guess it owned by a parent company. Now, generally speaking, 0:04:21.000 --> 0:04:25.159 the most common reason for creating a parent company and 0:04:25.240 --> 0:04:30.600 subsidiary relationship is to distribute risk and liability, as well 0:04:30.640 --> 0:04:34.080 as to expand into new businesses without taking the focus 0:04:34.120 --> 0:04:38.040 away from an already existing line of business. In other words, 0:04:38.200 --> 0:04:40.880 if you have a huge company that's really good at 0:04:40.920 --> 0:04:44.120 one thing, and you want to pursue another line of business, 0:04:44.400 --> 0:04:47.039 it might make more sense to create a parent company 0:04:47.080 --> 0:04:51.440 and a subsidiary dedicated to that new business instead of 0:04:51.560 --> 0:04:55.680 lumping it under the existing company. Google has been operating 0:04:55.800 --> 0:04:59.279 under that second approach for quite some time. Google's just 0:04:59.360 --> 0:05:03.520 this massive company that has acquired other businesses, most of 0:05:03.560 --> 0:05:08.800 which are only tangentially aligned with Google's main business, and 0:05:08.880 --> 0:05:11.120 the more Google does that, the harder it is to 0:05:11.240 --> 0:05:15.320 manage everything. Going with a parent company makes that management 0:05:15.440 --> 0:05:18.520 much more clear, and the lines of command are much 0:05:18.560 --> 0:05:22.920 more clear. So the parent company organizes the management teams 0:05:22.920 --> 0:05:27.200 of the subsidiaries and establishes the company by laws. This 0:05:27.279 --> 0:05:30.839 creates the governance structure for the subsidiary and makes it 0:05:30.880 --> 0:05:32.880 clear what the chain of command will be and how 0:05:32.920 --> 0:05:35.960 it relates to the parent company. So, in other words, 0:05:36.000 --> 0:05:38.159 it removes some of this confusion. If you work for 0:05:38.200 --> 0:05:41.680 one of these divisions that's now a subsidiary, you should 0:05:41.760 --> 0:05:44.400 have a pretty clear chain of command all the way 0:05:44.480 --> 0:05:47.799 up to the parent company, and most of the time 0:05:48.040 --> 0:05:51.080 it's going to be independent of the other subsidiaries, so 0:05:51.160 --> 0:05:53.800 you don't necessarily have to worry about reporting to like 0:05:54.040 --> 0:05:58.200 five different bosses across different divisions because those other companies 0:05:58.240 --> 0:06:03.800 will be independent. So the structure also determines how the 0:06:03.839 --> 0:06:08.000 parent company and subsidiaries are treated as legal entities. If 0:06:08.040 --> 0:06:13.600 the parent and subsidiaries share employee benefit plans or insurance contracts, 0:06:13.720 --> 0:06:17.679 or they commingle their funds or files, or they file 0:06:17.720 --> 0:06:20.960 consolidated income tax returns, they can be seen as a 0:06:21.040 --> 0:06:24.239 single entity. So in other words, there are some tax 0:06:24.320 --> 0:06:28.280 issues that come into play. It's not all just organizational 0:06:28.520 --> 0:06:34.480 there's also tax considerations. Uh. Now, in the United States, 0:06:34.480 --> 0:06:37.680 a parent company can offset the profits and losses of 0:06:37.720 --> 0:06:42.240 subsidiaries against each other for federal tax return purposes. So 0:06:42.520 --> 0:06:45.440 if you have a big parent company and one subsidiary 0:06:45.480 --> 0:06:49.560 is doing really well and another subsidiary is doing very poorly. 0:06:49.640 --> 0:06:53.760 In a given financial year, you can offset the losses 0:06:53.800 --> 0:06:56.080 of one with the revenues of another, and that can 0:06:56.160 --> 0:06:58.960 lead to huge savings in the big picture when it 0:06:59.000 --> 0:07:03.160 comes time to file federal tax return. There's also some 0:07:03.240 --> 0:07:06.320 benefit on a on a state level, depending upon what 0:07:06.520 --> 0:07:09.640 state you are in. Some states only tax the income 0:07:09.720 --> 0:07:13.240 earned within that state, and all income earned in other 0:07:13.320 --> 0:07:17.960 states remains untaxed, so there's that as well. Now, a 0:07:18.000 --> 0:07:21.000 subsidiary is a separate legal entity and has its own 0:07:21.040 --> 0:07:25.360 liability that is separate from the parent companies. That means 0:07:25.400 --> 0:07:28.520 the parent company can create a subsidiary that pursues businesses 0:07:28.520 --> 0:07:30.560 that might be risky, meaning they could have a really 0:07:30.600 --> 0:07:34.360 low return on investment without putting the parent company itself 0:07:34.400 --> 0:07:39.160 at risk. And parent companies are not normally held liable 0:07:39.280 --> 0:07:43.600 for the debts or actions of individual subsidiaries. So if 0:07:43.600 --> 0:07:45.920 you are the head of a massive parent company, you 0:07:45.920 --> 0:07:49.440 should invite me over to dinner one day. Also, if 0:07:49.480 --> 0:07:52.360 one of your smaller subsidiaries goes on some sort of 0:07:53.120 --> 0:07:56.880 quest for world domination or something, it's not necessarily your 0:07:56.920 --> 0:08:00.160 butt that will be held accountable, unless, of course, the 0:08:00.160 --> 0:08:04.080 courts do what is called piercing the corporate veil to 0:08:04.120 --> 0:08:06.520 see if there were any goings on of the hanky 0:08:06.680 --> 0:08:09.720 and or panky variety behind the scenes at the parent 0:08:09.760 --> 0:08:13.080 company level. If that were the case, if it turns 0:08:13.080 --> 0:08:16.640 out that this subsidiary was going on a quest for 0:08:16.680 --> 0:08:21.120 world domination and was doing so under your direction or 0:08:21.200 --> 0:08:24.880 your encouragement, you could find yourself in serious hot water. 0:08:25.160 --> 0:08:29.080 But if there's no link found, then as a parent company, 0:08:29.120 --> 0:08:33.520 you are somewhat protected from liability. The subsidiary is to blame, 0:08:33.559 --> 0:08:36.440 not the parent company. So in other words, uh, the 0:08:37.480 --> 0:08:41.440 if one branch goes bad, it doesn't poison all the 0:08:41.480 --> 0:08:46.120 other branches, so it's a means of protection. Also, subsidiary 0:08:46.240 --> 0:08:48.720 is something that a company can sell off to other 0:08:48.800 --> 0:08:51.520 companies more easily if it chooses to do so in 0:08:51.559 --> 0:08:54.400 the future. It's much easier to sell off an entire 0:08:54.440 --> 0:08:57.679 subsidiary than it is to sell off, say a division 0:08:57.760 --> 0:09:00.520 of a company. So let's say Alpha that creates a 0:09:00.559 --> 0:09:03.559 subsidiary for a business that seems promising, but it turns 0:09:03.559 --> 0:09:05.560 out it's just not a good fit for the way 0:09:05.600 --> 0:09:09.280 Alphabet does business. It could then sell that subsidiary off 0:09:09.320 --> 0:09:13.360 to another interested party. So, like I said earlier, the 0:09:13.440 --> 0:09:17.360 largest company under the Alphabet parent company is Google. Google 0:09:17.400 --> 0:09:20.960 will be a wholly owned subsidiary of Alphabet. This is 0:09:20.960 --> 0:09:24.400 not a big surprise. Google's market cap as of August twelfth, 0:09:24.520 --> 0:09:29.000 two thousand fifteen, was four hundred sixty one point seven 0:09:29.320 --> 0:09:34.840 billion with a B dollars. That's nearly half a trillion dollars. Now, 0:09:34.920 --> 0:09:38.920 in case you're wondering, Apple is still well ahead of Google. 0:09:39.240 --> 0:09:42.560 Apple's market cap was six hundred thirty two point eight 0:09:42.600 --> 0:09:46.600 billion dollars, so, you know, nearly two hundred billion dollars 0:09:46.720 --> 0:09:51.120 more than Google. So we're still talking. You know, it's 0:09:51.120 --> 0:09:57.240 still not anywhere close to hitting a trillion before Apple does. Now, 0:09:57.320 --> 0:10:00.840 market cap stands for market capitalization, and that's the term 0:10:00.880 --> 0:10:03.679 that describes the dollar value of the total number of 0:10:03.760 --> 0:10:07.280 shares for a publicly traded company. So you figure that 0:10:07.320 --> 0:10:11.360 out by taking the value of the traded shares at 0:10:11.400 --> 0:10:14.320 any given time and multiply that times the number of 0:10:14.360 --> 0:10:17.120 shares that are out there. That tells you the market 0:10:17.160 --> 0:10:20.760 cap for that company. According to the SEC filing, which 0:10:20.920 --> 0:10:25.600 must be made public, Google will also contain YouTube and 0:10:25.600 --> 0:10:30.880 Android under its umbrella, in addition to search, ads, maps, 0:10:31.000 --> 0:10:34.760 and apps. But lots of stuff that was previously organized 0:10:34.800 --> 0:10:38.720 under Google will now be spun off as separate subsidiaries 0:10:38.800 --> 0:10:42.240 of Alphabet. So some stuff is gonna stay Google YouTube 0:10:42.280 --> 0:10:45.000 does not become its own individual company that will still 0:10:45.000 --> 0:10:48.760 be part of Google, but other stuff will, Like a 0:10:48.800 --> 0:10:53.319 group called Life Sciences, which is a research and development 0:10:53.800 --> 0:10:57.880 division dedicated to finding new technologies to help in the 0:10:57.920 --> 0:11:02.360 field of health. Among its projects are the glucose sensing 0:11:02.440 --> 0:11:07.000 contact lenses that are really interesting. Also, there's a division 0:11:07.040 --> 0:11:10.480 called Calico that will become its own company UH that 0:11:10.720 --> 0:11:13.760 is a company that researches aging and how to increase 0:11:13.800 --> 0:11:17.360 the length of our lifespans. There's also Google Fiber that 0:11:17.400 --> 0:11:22.319 will become its own entity. There's Nest, the intelligent thermostat 0:11:22.400 --> 0:11:25.360 that Google acquired that will be its own entity. And 0:11:25.400 --> 0:11:28.960 also the Google x Lab, which is the division that 0:11:29.080 --> 0:11:33.040 does experiments with long shot projects and big ideas, the 0:11:33.160 --> 0:11:36.160 crazy R and D stuff that leads to things like 0:11:36.240 --> 0:11:40.600 the UH the drone delivery system that Google wants to implement, 0:11:40.720 --> 0:11:43.040 the driverless cars. That kind of stuff came out of 0:11:43.080 --> 0:11:47.840 Google x Lab. Also Google has a couple of investment arms, 0:11:48.120 --> 0:11:51.280 once called Google Ventures and another one's called Google Capital. 0:11:51.640 --> 0:11:55.160 Those will also operate independently of Google, and they will 0:11:55.200 --> 0:12:01.040 be under the Alphabet umbrella. Now, as for the financial 0:12:01.400 --> 0:12:05.400 situation of all these companies, Google's finances will remain separate 0:12:05.480 --> 0:12:09.520 from all the other subsidiaries. Also, all shares of Google 0:12:09.600 --> 0:12:13.120 the company will convert into the same number of shares 0:12:13.360 --> 0:12:17.240 of Alphabet, So if you have shares in Google, now 0:12:17.280 --> 0:12:20.520 you're going to have shares in Alphabet. The trading symbol 0:12:20.559 --> 0:12:25.480 for Google will remain the same, so that's not changing. Now. 0:12:25.720 --> 0:12:29.160 I mentioned that Larry Page was transitioning from CEO of 0:12:29.200 --> 0:12:32.360 Google to be CEO of Alphabet, So that means who 0:12:33.280 --> 0:12:35.480 gets to be the CEO of Google. There's gonna be 0:12:35.480 --> 0:12:38.240 an opening there right well. The new CEO of Google 0:12:38.280 --> 0:12:42.640 will be Sundar Pachai. Sundar is from India and has 0:12:42.679 --> 0:12:47.200 a an MS degree from Stanford and material sciences and engineering. 0:12:47.240 --> 0:12:50.960 He joined Google back in two thousand four and he 0:12:51.040 --> 0:12:54.600 worked on projects like Google Chrome and Chrome OS, and 0:12:54.640 --> 0:12:58.240 he also helped develop Gmail and Google Maps. So he 0:12:58.320 --> 0:13:00.360 was one of those people rumored to be con centered 0:13:00.360 --> 0:13:04.040 from Microsoft CEO position when it was open when Balmer 0:13:04.200 --> 0:13:07.920 was leaving. So uh, someone who has been with Google 0:13:08.000 --> 0:13:11.760 quite sometime and is well known for injecting a ton 0:13:12.000 --> 0:13:16.559 of life, vitality and research into Google. In fact, Larry 0:13:16.559 --> 0:13:20.160 Page has had nothing but wonderful things to say about 0:13:20.240 --> 0:13:24.040 him and his contributions over the last few years. You 0:13:24.120 --> 0:13:26.840 also have other executives who will be taking on new roles. 0:13:27.200 --> 0:13:30.120 Ruth poor At, who is the current Chief financial officer 0:13:30.160 --> 0:13:33.920 of Google, will still be CFO of Google, but also 0:13:33.960 --> 0:13:37.160 will become the senior vice president and chief financial officer 0:13:37.280 --> 0:13:40.680 of Alphabet, so she will serve as the CFO for 0:13:40.800 --> 0:13:44.160 both Alphabet and Google at the same time. All the 0:13:44.200 --> 0:13:47.960 other subsidiaries will have their own CEO sh they haven't 0:13:47.960 --> 0:13:50.520 all been announced yet. Page and Brent's job will be 0:13:50.600 --> 0:13:54.080 to make sure that each subsidiary receives the resources and 0:13:54.120 --> 0:13:57.720 attention they need for success. And the actual process for 0:13:57.760 --> 0:14:02.760 this transformation is bus Czar. You know, I said Google 0:14:02.840 --> 0:14:05.360 is going to create a parent company called Alphabet. Google 0:14:05.400 --> 0:14:08.280 will become a wholly owned subsidiary of Alphabet, and these 0:14:08.280 --> 0:14:11.560 other companies will also be wholly owned subsidiaries of Alphabet. 0:14:12.440 --> 0:14:16.280 That's this simplification for the process that's actually going to happen, 0:14:16.640 --> 0:14:20.040 and I'm going to explain to you what the process 0:14:20.160 --> 0:14:25.640 is based upon the SEC filing. And this really demonstrates 0:14:25.640 --> 0:14:30.800 how bizarre corporate maneuvers have to be in order for 0:14:30.840 --> 0:14:34.480 them to take effect. It is truly strange. So first, 0:14:35.080 --> 0:14:40.480 Google will create a direct, wholly owned subsidiary called Alphabet, So, 0:14:40.520 --> 0:14:42.800 in other words, Google will be a parent company to 0:14:42.880 --> 0:14:45.680 the subsidiary Alphabet instead of the other way around. Now 0:14:45.720 --> 0:14:49.360 this sounds bizarre because it's literally the opposite of what 0:14:49.440 --> 0:14:52.240 I said was going to happen earlier, where Alphabet was 0:14:52.240 --> 0:14:54.880 going to be the parent company. But just hold on 0:14:55.440 --> 0:14:59.760 because it gets weirder from here. Alright, So at this phase, 0:15:00.240 --> 0:15:03.480 Google is a parent company and Alphabet is its wholly 0:15:03.560 --> 0:15:08.480 owned subsidiary. Alphabet then will form its own wholly owned 0:15:08.560 --> 0:15:14.560 subsidiary called merger Sub. Really catchy name for a company. Right, 0:15:15.320 --> 0:15:19.040 This is all in the SEC filings. So merger Sub 0:15:19.200 --> 0:15:24.280 has one purpose only. Merger Sub is an indirect wholly 0:15:24.320 --> 0:15:27.840 owned subsidiary of Google, or if you like it, if 0:15:27.840 --> 0:15:30.880 you think of it in family terms, Google is is 0:15:30.920 --> 0:15:35.640 the parent, Alphabet is the kid, and merger Sub is 0:15:35.680 --> 0:15:41.880 the grand kid. Now, the next phase has Google undergoing 0:15:41.920 --> 0:15:46.840 a corporate merger with Merger Sub. So, in other words, 0:15:47.440 --> 0:15:54.720 Grandpa Google and grandkid merger Sub merged together to become 0:15:55.000 --> 0:15:59.520 one entity. So Google will merge with its own indirect, 0:15:59.640 --> 0:16:05.280 holy own subsidiary. But because merger Sub is a subsidiary 0:16:05.280 --> 0:16:09.800 of Alphabet, that makes Google a direct, wholly owned subsidiary 0:16:09.840 --> 0:16:15.000 of Alphabet. So now Google is Alphabet's kid, not the 0:16:15.040 --> 0:16:19.520 other way around. If this sounds at all like the 0:16:19.560 --> 0:16:24.720 novelty song I'm My Own Grandpa, it totally is. And 0:16:24.760 --> 0:16:26.920 if you don't know what that is, you should listen 0:16:26.960 --> 0:16:29.160 to that song. First of all, I apologize. It is 0:16:29.200 --> 0:16:34.520 an old joke song that involves a convoluted series of 0:16:34.760 --> 0:16:40.080 marriages where the singer becomes his own grandfather. That's pretty 0:16:40.160 --> 0:16:43.200 much what we're looking at here, alright. So to sum 0:16:43.280 --> 0:16:47.119 up what I just said, Google creates a subsidiary called Alphabet. 0:16:47.440 --> 0:16:51.840 Alphabet in turn creates its subsidiary called Merger Sub. Google 0:16:51.920 --> 0:16:56.360 merges with Merger Sub and assumes the role of subsidiary 0:16:56.440 --> 0:17:00.280 to Alphabet. And that's how we get to the the 0:17:01.240 --> 0:17:05.200 world where Alphabet is the parent company. If you were 0:17:05.240 --> 0:17:08.639 to ask me, why does it work that way, I 0:17:08.680 --> 0:17:11.919 would stare at you dumbfounded and say, there's got to 0:17:11.920 --> 0:17:14.600 be someone out there who understands this better than I do. 0:17:15.359 --> 0:17:17.959 There has to be otherwise it wouldn't exist. But I 0:17:18.000 --> 0:17:21.800 am not that person. Some other information, Google is conducting 0:17:21.840 --> 0:17:26.960 this in the state of Delaware. Now that's pretty common 0:17:27.080 --> 0:17:29.960 here in the United States. You see a lot of 0:17:29.960 --> 0:17:34.080 companies incorporating in Delaware. Doing so means the company can 0:17:34.119 --> 0:17:38.160 restructure without first holding a shareholder vote. That's a big deal. 0:17:38.280 --> 0:17:43.160 So by conducting this business in Delaware, specifically, Google does 0:17:43.200 --> 0:17:46.320 not have to ask permission from shareholders. Google can just 0:17:46.400 --> 0:17:50.280 go ahead and do this. But you might wonder why 0:17:50.359 --> 0:17:53.600 so many companies in the United States incorporate in Delaware. 0:17:54.040 --> 0:17:57.880 Even if you you know, imagine like they're they're actual 0:17:58.840 --> 0:18:02.040 operating head quarters maybe in totally different states, they still 0:18:02.080 --> 0:18:06.840 incorporate in Delaware. Here are the reasons why companies incorporated 0:18:06.840 --> 0:18:10.960 in Delaware. Uh, first, I should give you some quick facts. 0:18:11.240 --> 0:18:13.160 If you're not familiar with the United States and you're 0:18:13.160 --> 0:18:16.000 not familiar with Delaware, you may wonder why this is 0:18:16.000 --> 0:18:17.720 a big deal in the first place. Well, Delaware is 0:18:17.760 --> 0:18:21.399 a tiny state, both in geography and in population. The 0:18:21.440 --> 0:18:25.240 population for the entire state back in two thousand ten, 0:18:25.320 --> 0:18:29.040 when the last US census was conducted, was just eight 0:18:29.119 --> 0:18:32.920 hundred nine seven thousand, nine thirty four, so less than 0:18:32.960 --> 0:18:38.040 a million people. And yet more than seventy of all 0:18:38.200 --> 0:18:41.320 new initial public offerings in the United States are done 0:18:41.359 --> 0:18:46.200 by companies incorporated in Delaware. More than six of all 0:18:46.359 --> 0:18:50.399 Fortune five hundred companies are incorporated in Delaware. So what 0:18:50.600 --> 0:18:55.679 is going on? Well, Delaware leads the way when it 0:18:55.760 --> 0:19:00.240 comes to corporate law, and that's a big, big reason 0:19:00.480 --> 0:19:02.840 you want if you're going to incorporate, you want to 0:19:02.880 --> 0:19:05.800 be in a state that is up to date on 0:19:05.840 --> 0:19:09.560 that law, that is defining that law, because then you 0:19:09.640 --> 0:19:11.919 have a very clear set of rules of what you 0:19:12.000 --> 0:19:15.600 can and cannot do. It makes it well defined, and 0:19:15.640 --> 0:19:17.720 it makes it easy for companies to operate within the 0:19:17.760 --> 0:19:21.159 boundaries of law, or if your cynical, it makes it 0:19:21.200 --> 0:19:23.320 easier for companies to see how much they can get 0:19:23.320 --> 0:19:26.439 away with. Now there's a great deal of case history 0:19:26.640 --> 0:19:29.560 established in Delaware, which again makes it easy to know 0:19:29.640 --> 0:19:32.600 what is and isn't within the rules. Plus it makes 0:19:32.720 --> 0:19:36.320 litigation move more quickly due to the amount of previous 0:19:36.400 --> 0:19:39.520 decisions that are likely to cover the same territory. Now, 0:19:39.520 --> 0:19:42.359 no one wants to get into litigation. No one wants 0:19:42.400 --> 0:19:45.800 to get into lawsuits, corporate lawsuits. But if you're gonna 0:19:45.880 --> 0:19:48.000 have it happen, you want it to be over with 0:19:48.080 --> 0:19:51.960 as quickly as possible so you can get back to business. Now, 0:19:52.000 --> 0:19:55.520 Delaware has a special court, and I love the name 0:19:55.600 --> 0:19:59.479 of this court. It's called the Court of Chancery, and 0:19:59.560 --> 0:20:03.320 that or sees corporate law disputes without the need for juries, 0:20:03.720 --> 0:20:07.520 which speeds things up considerably. And it's its own line 0:20:07.520 --> 0:20:11.439 of courts, so corporate cases have their own court. They 0:20:11.840 --> 0:20:16.040 aren't required to wait in line behind other cases, and 0:20:16.119 --> 0:20:19.480 they are decided upon by judges who specialize in corporate law. 0:20:20.400 --> 0:20:24.080 So that that's why this is all taking place in Delaware. Now, 0:20:24.119 --> 0:20:27.720 a couple of other details about Alphabet and Google. The 0:20:27.920 --> 0:20:31.760 u r L for Alphabet isn't alphabet dot com because 0:20:31.800 --> 0:20:36.119 Google doesn't own alphabet dot com. Instead, the u r 0:20:36.280 --> 0:20:41.240 L is ABC dot X y Z if you go there. 0:20:41.240 --> 0:20:44.080 There's very little as of the recording of this podcast 0:20:44.560 --> 0:20:46.880 that's there right now. It's just a kind of almost 0:20:46.880 --> 0:20:49.119 like a land holding page that links to the Google 0:20:49.119 --> 0:20:52.920 blog that has the announcement, and you might wonder if 0:20:52.920 --> 0:20:56.600 there are already any companies that have the name alphabet, 0:20:56.840 --> 0:20:59.480 and as a matter of fact, there are. There are 0:20:59.520 --> 0:21:02.320 lots of them, and the word has even been trademarked 0:21:02.359 --> 0:21:07.000 by BMW, although Scott Benjamin, as he was leaving the 0:21:07.040 --> 0:21:11.000 studio earlier, told me that BMW really shouldn't have a 0:21:11.000 --> 0:21:14.160 strong claim on trademark for the alphabet because they only 0:21:14.280 --> 0:21:19.400 used three of the letters. Scott makes the same sort 0:21:19.400 --> 0:21:23.639 of jokes I do, obviously, so other alphabet companies that 0:21:23.760 --> 0:21:28.880 already exist. There's so many. They're just tons like Alphabet Funds, 0:21:29.920 --> 0:21:34.639 Alphabet Energy, Alphabet Plumbing, Alphabet Record Company. There are tons 0:21:34.640 --> 0:21:38.280 that are just called alphabet. So there's been a question 0:21:38.320 --> 0:21:41.159 will these companies end up suing Google to prevent it 0:21:41.200 --> 0:21:44.960 from assuming the name alphabet, And for most of them, 0:21:45.000 --> 0:21:47.240 the answer already sounds like it's going to be no, 0:21:47.720 --> 0:21:51.000 because Google is enormous, so going in against Google would 0:21:51.040 --> 0:21:56.720 be a very expensive and probably futile activity. Also, if 0:21:56.760 --> 0:22:00.440 you try to Google how to sue, Google just comes 0:22:00.480 --> 0:22:05.560 back saying don't do it. That's a joke. So that 0:22:05.760 --> 0:22:09.680 is why Google is really looking at splitting this out, 0:22:09.760 --> 0:22:14.000 the big reason being that now Google can organize so 0:22:14.080 --> 0:22:17.520 that each division being its own company, can focus on 0:22:17.560 --> 0:22:20.520 what it needs to do to achieve success, and it 0:22:20.600 --> 0:22:23.920 doesn't have to be tied directly back to Google. That 0:22:24.000 --> 0:22:25.760 was one of those things that people were asking all 0:22:25.760 --> 0:22:28.520 the time. Google was known as a search company and 0:22:29.040 --> 0:22:32.359 by extension and ad company, so people would say, well, 0:22:32.359 --> 0:22:37.080 why are you getting into autonomous cars or you know, 0:22:37.720 --> 0:22:40.399 why are we were why are you getting into uh 0:22:41.080 --> 0:22:46.400 smart thermostats? Why are you getting into this company that's 0:22:46.440 --> 0:22:51.440 looking into how to stop aging or or to prolonged 0:22:51.440 --> 0:22:55.959 long prolonged lifespans indefinitely, what's the purpose of this? How 0:22:56.000 --> 0:22:58.960 does that relate back to your main business? And by 0:22:59.000 --> 0:23:01.159 creating this parent come any Google no longer has to 0:23:01.200 --> 0:23:05.040 answer those questions because Google the company can continue to 0:23:05.280 --> 0:23:09.119 focus on things like Gmail and search and apps and 0:23:09.440 --> 0:23:16.240 Android and YouTube. Meanwhile, the company Calico can focus on longevity, 0:23:16.280 --> 0:23:19.720 and the company Life Sciences can focus on creating technology 0:23:19.760 --> 0:23:23.240 that benefits the medical field. So each company can do 0:23:23.320 --> 0:23:27.159 what it needs to do independent of Google and have 0:23:27.280 --> 0:23:30.520 a better chance of success. This also really does clear 0:23:30.600 --> 0:23:35.040 things up from a management and reporting status. I don't 0:23:35.080 --> 0:23:37.520 know how many of you out there have been have 0:23:37.640 --> 0:23:40.159 worked for a very large company before. But if you 0:23:40.200 --> 0:23:43.119 work for a big company that has acquired other companies, 0:23:43.840 --> 0:23:47.800 there usually is a long process to figure out where 0:23:47.840 --> 0:23:51.240 those lines of communication need to be drawn, where where 0:23:51.440 --> 0:23:53.560 is that chain of command and how is it formed? 0:23:54.400 --> 0:23:58.000 And it can take years for those questions to be answered, 0:23:58.040 --> 0:23:59.840 and even when they're answered, they may not be the 0:24:00.000 --> 0:24:03.440 asked answer to the question. And you might have relationships 0:24:03.480 --> 0:24:06.480 that on paper made sense but in reality don't make 0:24:06.520 --> 0:24:09.159 any sense at all. So I think that's really the 0:24:09.200 --> 0:24:12.000 main reason. Some people were getting very cynical about the 0:24:12.040 --> 0:24:14.800 purposes of Google, like thinking that this might be some 0:24:14.920 --> 0:24:20.480 means of escaping taxes, and it's certainly there are issues 0:24:20.560 --> 0:24:23.199 about you know, there are there are ways that that 0:24:23.320 --> 0:24:26.960 a parent company can leverage having subsidiaries to pay less 0:24:26.960 --> 0:24:30.160 tax and I have no doubt that Google will or 0:24:30.240 --> 0:24:34.840 Alphabet rather that Alphabet will pursue those But I really 0:24:34.880 --> 0:24:39.480 do think the main reason here was to get a 0:24:39.520 --> 0:24:42.359 better handle on what Google is all about and what 0:24:42.520 --> 0:24:45.360 these other companies are all about, so that they can 0:24:45.400 --> 0:24:48.080 focus on what they do without worrying about all the 0:24:48.119 --> 0:24:53.480 other elements within the giant sprawling company that is Google. 0:24:54.160 --> 0:24:57.359 So I hope that answers all your questions about Alphabet. Obviously, 0:24:57.440 --> 0:24:59.920 this is just the tip of the iceberg. We don't 0:25:00.080 --> 0:25:03.480 know that much yet because it's only just been announced, 0:25:04.119 --> 0:25:06.600 but I'm sure a lot more information will come out, 0:25:06.720 --> 0:25:09.320 especially things like will they be able to actually use 0:25:09.359 --> 0:25:12.320 the name alphabet or is that going to change? Uh. 0:25:12.480 --> 0:25:15.240 Does seem a little premature to announce it before it 0:25:15.440 --> 0:25:19.000 actually is legal, but you know, it's Google. They've got 0:25:19.000 --> 0:25:22.399 a lot of weight to throw around. So I hope 0:25:22.440 --> 0:25:25.720 that this was a useful podcast and it explained to 0:25:25.760 --> 0:25:28.560 you what's going on. I realized that this is a 0:25:28.600 --> 0:25:32.399