2. Alphabet Inc.

Revenues 2018: $ 136.819 billion (€ 115.850 billion)

Overview

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Sergey Brin and Larry Page developed the world’s fastest search engine as students. Thanks to contextual web advertising, Google (renamed and reorganized as Alphabet Inc. in 2015) has become the top-selling media and online technology company in 17 years. With its now huge pool of user information, the company is walking a fine line between user-friendliness and spying and processing private data. Today, Alphabet generates 98 percent of its revenues with advertising.

General Information

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Headquarters:
1600 Amphitheatre Parkway
Mountain View, CA 94043
USA                 
Telephone: 001 650 253 0000
Website: abc.xyz

Branches of trade: Search engine, software development
Legal form:
 Public company 
Financial year: 01.01-12.31.
Founding year: 1998

Table I: Economic Performance
20162015201420132012201120102009200820072006
Revenues (m $)90.27274,98966,00159,82550,17537,90529,32123,65121,79616,59410,605
Profit (m $)19.47816,34814,44412,21410,7379,7378,5056,5204,2274,2043,077
Stock price (year end)771,82759526,41.120707,38645,90593,97619,98307,56702,53460,48
Employees72.05361.84853.60047.75653.86132.46724.40019.83520.22216.80510.674

Executives and Directors

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Management:

  • Larry Page, CEO, Alphabet and Co-Founder
  • Sergey Brin, President, Alphabet and Co-Founder
  • Ruth M. Porat, Senior Vice President and Chief Financial Officer, Alphabet
  • Sundar Pichai, Chief Executive Officer, Google 
  • David C. Drummond, Senior Vice President, Corporate Development and Chief Legal Officer, Alphabet


Board of Directors:

  • Larry Page, Google Inc.
  • Sergey Brin, Google Inc.
  • John L. Hennessy, Stanford University
  • L. John Doerr, Kleiner Perkins Caufield & Byers
  • Roger W. Ferguson, Jr. 
  • Ann Mather, Central European Media Enterprises
  • Alan R. Mulally, Ford Motor Company
  • Sundar Pichai, Google
  • K. Ram Shriram, Sherpalo Ventures
  • Robin L. Washington, Honeywell International Inc.

History

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As Google officially states, the company's founders Larry Page and Sergey Brin were anything but friendly when they first met as computer science students on the Stanford University campus in 1995. Page was a 24-year-old graduate of the University of Michigan who was only at Stanford for the weekend; Brin, 23, was one of the students asked to show Page around the campus. It quickly became apparent that the two did not have a common opinion on every issue that came up in their discussions. Their different points of view and philosophies only found a common sounding board regarding one of the biggest challenges of the computer world: the selection of relevant information from an exponentially growing online data treasure.

In early 1996 Brin and Page started working together. They developed the search engine "BackRub", which got its name from its unique ability to analyze back links from any website. Technological genius Page, who had once designed a Lego brick printer, took on the task of creating a new type of server environment, using outdated computers rather than high-end machines. Their chronic shortage of money prompted them to scour the online environment of their faculty for new computers that they could connect to their network to increase server capacity. A year later, this approach to link analysis gave Page and Brin a growing reputation within the relatively young web community.

The two perfected their search engine. They embarked on a path that would later be one of the keys to delivering outstanding search results. They bought a terabyte of hard drives at a discount price and set up a computer warehouse in Page's dorm that became Google's first data center. Meanwhile, Brin opened a business office and asked potential partners if they would like to license a search engine that would give better-than-average results. Despite the dot.com fever rampant at the time, Brin and Page initially showed little interest in building a business based on their achievements.

Many CEOs of web portals did not recognize the great potential of the product at the time and underestimated Google. Brin and Page therefore decided to try it on their own and started looking for an investor. Sun Microsystems' co-founder Andy Bechtolsheim was known for his long-term thinking. One look at the demo version was enough for him to understand the enormous potential of Google. Bechtolsheim lost no time and wrote a $100,000 check. With the help of family members, friends and acquaintances, the company finally came up with a starting capital of about one million dollars and in mid-1998 Google, Inc. opened its doors in Menlo Park North, California. The door was opened by remote control, as it was part of a garage that a friend had sublet to the now three-man company. The "company premises" also provided a parking space for the first hired employee: Craig Silverstein, managing director of the technical department.

At that time, Google.com was already processing up to 10,000 search queries per day, still in beta. The search engine quickly caught the attention of the international press, and articles about Google appeared in USA Today and Le Monde. PC Magazine included Google in its "Top 100 Websites and Search Engines" ranking. Google took the world by storm. Open source giant Red Hat was the first company to use Google's search services as a commercial customer.

On 7 June 1999, Google announced that leading venture capital firms in Silicon Valley, Sequoia Capital and Kleiner Perkins Caufield & Byers, had committed $25 million in financing. Both companies, usually tough competitors, invested equally in Google and received the same number of board seats. Mike Moritz of Sequoia and John Doerr of Kleiner Perkins sat down with a third investor, Ram Shriram, CEO of Junglee, at the ping-pong table that served as the furniture of the Google quarter and planned their cooperation. In the period that followed, key positions at Google were increasingly filled with top-class specialists from other companies. Omid Kordestani of Netscape, for example, was appointed vice president of the management board. Urs Hölzle, a computer scientist from the University of California, was named vice president of the engineering department. With the move to the "Googleplex" in Mountain View, still the Google headquarters today, space problems were eliminated once and for all.

A special corporate culture was created in the Googleplex. To increase flexibility in the work area, large gymnastic balls were converted into mobile office chairs. The offices remained free of partition walls. While the employees had access to the most modern computers, the desks were partly made of old wooden doors on saw frames. Charlie Ayers was hired as head chef for the canteen, creating a health-conscious menu with dishes he had already served as tour chef for the band "Grateful Dead". In June 2000, Google officially became the WWW's largest search engine, with a directory of one billion pages.

There was no need for further borrowed capital. The reasons for the financial stability were increasing user numbers, including many clients who integrated the Google search engine on their homepages, and the development of a keyword-based ad program. With the income from banner sales, the group started to be in the black. In mid-2000, Google and its main competitor Yahoo announced a strategic partnership that strengthened Google's reputation - not only technologically, but above all economically, as it now received eighteen million search queries daily. The global triumphal procession continued when the Chinese portal market leader NetEase and the Japanese service Bigglobe added Google to their sites. By the end of 2000, Google was processing around 100 million search queries per day. By the beginning of 2004, five and a half billion pages were available for thinning. To this end, Google Local (later Google Maps) was launched, which showed users the fastest route to providers in their immediate vicinity.

2004: the year of the IPO, which turned Brin and Page into billionaires overnight. Google announced it would launch a free web-based mail service called Gmail which offered users almost three gigabytes of storage space for email traffic free of charge and integrated the ad system into the mails. Gmail has since been heavily criticized by data protection advocates because the content of every email is automatically searched for keywords to link it to advertising messages. It has been expanded further. The new European headquarters were built in Dublin, and offices were opened in Sao Paolo and Mexico City. In 2005, Google China was founded with Kai Fu-Lee at the helm, and closed five years later. Officially, because the censorship of the communist party was no longer tolerated.

Probably the most significant expansion of Google, besides the takeover of mobile phone manufacturer Motorola, was the purchase of the video platform YouTube. The globally popular entertainment service, which takes viewers away from the TV and onto the Internet, was bought in November 2006 for 1.65 billion dollars. The company's own portal Google Video had flopped with a market share of only seven percent. With YouTube, Google now has a huge online media empire that combines user generated content with increasingly professionally produced online formats. In 2019, 300 hours of video material were uploaded every minute. Nearly five billion YouTube videos are viewed daily. And every month YouTube is used by an average of 80 percent of all 18 to 49-year-olds. YouTube, once solely devoted to amateur movies, has become a global quasi-cable channel offering its professionally produced third-party content sorted by topic. Exclusive sports clips, high-quality news offers and complete films have long been available free of charge or for a fee on YouTube (YouTube Red). Google is thus moving into the field of activity of traditional media groups: providing content for users that is monetized by the sale of advertising.

At the beginning of 2013, Google was able to achieve a historic victory in a year-long legal battle before the Federal Trade Commission. In a ruling, the authority came to the conclusion that Google did not favour its own services and products over other providers in Google searches – certainly due to major lobbying efforts (in 2015 it emerged that the FTC commissioners had prevailed against the recommendations of the relevant officials who had found Google's behaviour to be clearly damaging to competition). Fittingly, in 2017, Google was the company that paid more than anyone else for lobbying in the US, at around €14.6 million (in 2016 it was still in second place, after Comcast). It was President Trump's first year in office, taxes and antitrust law were the focus of lobbying.

Management

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On december 3, 2019 Alphabet published the following press release: "Change in Alphabet management". Larry Page and Sergey Brin retired from operations and resigned from their positions as Alphabet's CEO and President. This came as no great surprise, as the two founders had been seen less and less at headquarters for some time and had hardly ever attended conferences with investors. Sundar Pichai, previously CEO of Google, became CEO of Google and Alphabet. "Page and Brin will remain active as founders, shareholders and board members of Alphabet." In their "Letter from Larry and Sergey", Larry Page, born in 1973, the sometimes unconventional 'Steve Jobs of Google', and Sergey Brin, son of Russian Jewish emigrants and the quieter of the two (also born in 1973), bid farewell to the top of the company with: "We feel honored that a small research project has developed into a source of knowledge for billions of people – a bet we made as Stanford students... Back in 1998, when we moved our servers from a dormitory to a garage, we couldn't have imagined the path that would take us." There were observers, however, who interpreted the whole thing as an escape. An escape from competition investigations, for example.

Sundar Pichai, born 1972 in the South Indian city of Madurai and working for Google since 2004, became the new man at the top. He had previously enjoyed a remarkable career. He grew up in poor conditions in Chennai, India, and did not hold his first phone until the age of twelve. As head of Google's Android division, he became one of the richest mobile managers worldwide. Against the objections of then CEO Eric Schmidt, he campaigned to develop his own web browser, Chrome. He was subsequently responsible for some of Google's most popular applications and products, including Chromebooks, Gmail, Docs and Maps. As head of Android, he made sure that the strict separation between Android and the other search areas, which had been in place for a long time, was removed. Pichai is popular and accessible among Google employees, and for Page and Brin, the combination of expertise, diplomatic skills and business acumen were key to his promotion to CEO. He also has visionary ideas. For example, his goal is to reach the next billion - equipping one billion people in the world's most remote regions with mobile internet and smartphones. With "Project Loon" for example (wireless Internet via weather balloons).

Business units

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Google is initially the Internet search engine of the same name, with three billion search queries daily. Its core business is the sale of advertising. With the help of advertising programs such as Adwords (for Google pages), AdSense and DoubleClick (for the Google Network of third-party partner sites) and in combination with Google Analytics, a statistical tool for measuring the frequency of search queries, search queries are linked to text ads or content to interactive ads.

The most important web and mobile applications include: the Google search, the Chrome web browser launched in 2008, the Google Maps app and the email service Gmail. With YouTube, the company has acquired the largest video community in the world. It also owns Google Books, the largest collection of "retro-digitized books" (current figures are not disclosed; in October 2015 there were over 25 million scanned books) and the Android app store Google Play.

Google lists about a dozen subsidiaries in the "Other Bets" division (which account for about one percent of total revenue). Subsidiaries under which "the next big thing" may well be hidden. There is Google Fiber ("super-high-speed broadband access over fiber optic cables") or the biotech company Calico ("methods against human aging"). There is also the investment arm CapitalG, Nest (smart home technology), another biotech company (Verily) and Waymo (development of autonomous vehicle technology).

Commitment in Germany and in Europe

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In Germany, Google has been represented with offices in Hamburg since 2001. There is another office with a "pizza oven and massage room" in Berlin (for the opening in January 2019, even Group CEO Pichal had come to visit), and a research and development center in Munich. Philip Justus has been head of Google in Germany since 2013; before that he held management positions at Ebay, Paypal and Zanox. Annette Kroeber-Riel is the "Google political leader", i.e. the chief lobbyist since 2008, defending the company in politics, industry associations and in regard to consumer advisors.

The company also maintains European research and development centers in Aarhus (Denmark), Dublin (Ireland), Haifa and Tel Aviv (Israel), Cracow (Poland), London (UK), Lulea (Sweden), Moscow and St. Petersburg (Russia), Trondheim (Norway) and Zurich (Switzerland). In 2011, the Alexander von Humboldt Institute for Internet and Society was founded on the initiative of Google and in cooperation with Berlin's Humboldt University.

Current Developments

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Record-breakingly low tax rates of the large US tech companies have been a cause for criticism for years. There is talk of "state-subsidized distortion of competition" when one sees in Europe that Amazon, for example, with a pre-tax profit of 11.3 billion US dollars in 2018, not only pays no tax in the USA, but also receives a tax credit of 129 million dollars from the US tax authorities. Or if Netflix paid $15 million in taxes in 2018, with a profit of $1.23 billion. A tax rate of 1.2 percent. Not to mention the "anti-competitive tax practices" of some EU countries (UK, Ireland, Netherlands, Luxembourg, Belgium, Malta, Cyprus).

Google, by far the largest of the tech companies and also a big "tax optimizer", had to deal with EU Competition Commissioner Margarethe Vestager in three major cases in recent years. With heavy fines: in 2017 it was 2.4 billion euros for Google's abuse of its dominant position in Google Shopping. Then in 2018 4.3 billion for illegal practices with the Android mobile phone operating system. And 1.5 billion in 2019 for Google's lazy tactics in online advertising. Only peanuts for Google?

Therefore, the news of december 31 2019 came as a surprise: "Google says goodbye to legal tax loopholes in Europe". For years, Google had smuggled many billions of euros out of Europe with a legal practice called "Double Irish, Dutch Sandwich". To be more precise: transferred via a Dutch subsidiary to a holding company registered in Ireland with tax domicile in Bermuda, where there is no income tax at all. "We will simplify our structure and license our intellectual property now through the US and not Bermuda," Alphabet said. Even less surprising is all this, when one knows that Ireland, under pressure from the European Union and the US, had decided in 2014 that the agreement with Google would be terminated and the tax benefits for the group would end in 2020.

On January 16, 2020, it is announced that Alphabet's market capitalization has reached the "magic mark" of one trillion dollars. "Google joins the trillion dollar club", where you can meet Apple, Amazon, Microsoft and the partly state-owned oil production company Saudi Aramco. "Only 15 countries achieve this level of performance" (World).

Further reading

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It is logical that the phenomenal rise of Google led to numerous book publications. A selection:

  • Assange, Julian: When Google Met Wikileaks. OR Books 2014
  • Edwards, Douglas: I'm Feeling Lucky: The Confessions of Google Employee Number 59. New York: Houghton Mifflin Harcourt 2012
  • Vaidhyanathan, Siva: The Googlization of Everything (And Why We Should Worry). Princeton: University of California Press 2011
  • Levy, Stephen: In the Plex: How Google Thinks, Works, and Shapes our Lives. New York: Simon & Schuster 2011
  • Auletta, Ken: Googled: The End of the World as We Know It. London: Penguin Press 2009
  • Girard, Bernard: The Google Way: How One Company Is Revolutionizing Management As We Know it. San Francisco: No Starch Press 2009
  • Jarvis, Jeff: What Would Google Do? New York: HarperBusiness 2009
  • Vise, David A.: The Google Story: Inside the Hottest Business, Media and Technology Success of Our Time. Surrey: Delta Publishing 2008