Google Inc. is adopting a new structure that makes it more of a holding company, giving the main Web businesses more independence while providing more transparency into executives' ambitious investments and spending on research.
Alphabet Inc. will be the name of what will effectively be a new holding company. Google Inc. will be part of that and include YouTube, Android mobile software and other Web-based products. Alphabet will also include Calico, Google Ventures, Google Capital, Google X and other subsidiaries, the Web company said in a blog post Monday.
The new structure will give greater clarity into how Google invests in various ventures, including driverless cars, high- speed Internet service and health-related technologies. That helped to boost shares by as much as 5.8 per cent in extended trading.
"There's been a lot of speculation about how much money they put into these other ventures," said Colin Gillis, an analyst at BGC Financial. "That will come to an end. This also gives them the structure to add in another business line if they were to acquire something. The mechanism is in place."
Larry Page, co-founder and current chief executive officer, will hold that title at Alphabet, while co-founder Sergey Brin will be president. Ruth Porat will remain chief financial officer of the holding company. Sundar Pichai, Mr. Page's deputy, will be promoted to become CEO of Google Inc., which generates the bulk of the company's $60-billion (U.S.) in annual revenue.
"It is clear to us and our board that it is time for Sundar to be CEO of Google. I feel very fortunate to have someone as talented as he is to run the slightly slimmed down Google and this frees up time for me to continue to scale our aspirations."
In a 2013 interview with Wired Magazine Mr. Page said, "A big part of my job is to get people focused on things that are not just incremental … I'd like to see us do more stuff – not just do what somebody else has done, but something new."
The goal isn't to make Alphabet a consumer brand, Mr. Page said.
"We've long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes," Mr. Page wrote in the post. "Our company is operating well today, but we think we can make it cleaner and more accountable."
Shares of Google rose to $701.74 in extended trading. The stock is up 25 per cent this year, with much of the gains coming after the company reported quarterly results last month.
The new structure will be introduced in phases in the coming months. Alphabet will report its results under this new structure starting with the fourth-quarter earnings report, which is usually released in January. With this move, investors will get more details on how the businesses are operating, a longstanding request from Wall Street.
New companies expected to have separate leadership under the new Alphabet also include biotech focused Calico, Nest home automation, urban living company Sidewalk Labs, the startup investing arm Google Ventures, growth equity fund Google Capital and also X, the moonshot factory that birthed self-driving cars and Internet balloons.
Shareholders won't see huge changes to their stock holdings. Alphabet will replace Google as the publicly traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with the same rights. The two classes of shares will continue to trade on Nasdaq.
The move, which gives Wall Street more insight into Google's operations, comes months after Ms. Porat joined Google in May after a five-year stint as Morgan Stanley's CFO. She has said Google can maintain growth even as it manages the pace of expenses, a key concern for investors in recent years.
In a regulatory filing, the company said upon completion of the Alphabet structure, Omid Kordestani will transition from his role as chief business officer to become an adviser to Alphabet and Google.
"We liked the name Alphabet because it means a collection of letters that represent language, one of humanity's most important innovations, and is the core of how we index with Google search!" Mr. Page said. "We also like that it means alpha- bet (Alpha is investment return above benchmark), which we strive for!"
Buried inside the code of the abc.xyz microsite Mr. Page used to announce the corporate changes was a hidden link to a site named Hooli.XYZ. Hooli is the fictional tech company that resembles Google in the HBO series Silicon Valley. Google seems to have created a microsite as a sort of in-joke about its real-life ambitions. It describes HooliXYZ as "Hooli's experimental division. The dream kitchen. The moonshot factory. The laboratory of possibility. The midwife of magic. The womb of wonders."
With files from Globe and Mail reporter Shane Dingman