6 ms·

I don't understand what is the big problem in just splitting Google into separate companies. This will be great for everyone, including shareholders. It is not

I don't understand what is the big problem in just splitting Google into separate companies. This will be great for everyone, including shareholders. It is not a secret that one of methods to unleash value in a stock is to split the company. See for example the case of Ebay and Paypal.

alexpetralia 6y ago
Can you provide more evidence of this?
guyzero 6y ago
"It is not a secret that one of methods to unleash value in a stock is to split the company" Yes, and it's not a secret that the other way to unleash value is to merge companies. See for example AT&T or Exxon & Mobil.
- gph 6y ago
  But you'll notice the companies that successfully gain value through merging are typically competitors that are able to generate more value together instead of fighting for the same profits. The same does not seem to be true for any of the Alphabet companies, except in the sense of being able to leverage shared user data for better targeted ads. Perhaps that does make it worth it to remain one company, but it's debatable, especially for something like Waymo which likely won't benefit from having access to search data.
  - guyzero 6y ago
    There are tons of industrial conglomerates, from GE to Samsung to Siemens and there's not really any universal agreement that they're any worse than more focussed companies. This goes all the way back to the most basic theories of organization - why do companies even exist? Why is everyone not effectively a contractor? Why do companies not outsource every non-core function? And there are good reasons why companies exist - see https://en.wikipedia.org/wiki/Theory_of_the_firm https://en.wikipedia.org/wiki/Theory_of_the_firm External transaction costs are real and breaking Google up could significantly increase those. Someone from Siemens once told me "Siemens is an investment bank that happens to own all of the companies it has invested in." I'm not sure whether that's true or not, but it's a good description of conglomerates in general.
    - coliveira 6y ago
      > "Siemens is an investment bank that happens to own All conglomerates are like this, the clearest example is Berkshire Hathaway.
      - guyzero 6y ago
        Exactly. Why not break up Berkshire?
        martin_bech 6y ago
        Berkshire is for all intents broken up, everything operates independently.
        perl4ever 6y ago
        I vaguely think people have written how having the insurance business attached to the others is a useful/complementary structure, compared to a regular mutual fund or something. Maybe you could ask from the opposite perspective, why aren't all mutual funds organized like BRK?
    - rsj_hn 6y ago
      So there was this thinking in the 60s that the key skill of a firm is management, and so if one firm was a market leader in manufacturing pipes, they could buy up a struggling auto rental or accountancy firm and with their superior management skills they would make those better as well. This at least was the justification for a wave of conglomerates buying up smaller firms. Others might say a better justification was the cheap corporate credit available to some (but not all) firms, and thus the competitive advantage of conglomerates was access to credit, rather than management. The smaller firms and individuals did not have the same access to credit. But in the 80s, the pendulum began to swing the other way. The problem from the perspective of the credit markets -- whether shareholders or bondholders -- was the difficulty in obtaining detailed operational information from these large conglomerates. They became very opaque, as they could use the losses of one firm to subsidize another, and it was hard to drill down and figure out what was happening by looking at the financial statements. So then began a wave of slicing these companies up and selling off the pieces. Or from a completely different perspective, it was the extension of new types of credit such as junk bonds that allowed insiders to do leveraged buyouts, which tipped the scales away from the conglomerates and led to a lot of asset sales that "unlocked value" while other operations were shutdown. Not saying who is right, just offering some perspective that these arguments have been engaged with 60 years ago, and ended up with mixed results.
MattGaiser 6y ago
What would be the parts though? There is one profitable part (ads). The other parts are supported by that part or at least require deep integration with that part. Maybe you could split of Google Cloud, but I bet it would just become a digital REIT.
- rosywoozlechan 6y ago
  The separate companies would be: Google (Search), YouTube, Doubleclick (Ads), Android (Android, gmail, docs, google drive, Meet, google cloud, Stadia), maps and business listings (a Yelp competitor). I don't think Google Cloud should be its own thing. I see the business software, Android, Stadia and Google Cloud all part of the same company. It's basically a Microsoft clone. I could even see Microsoft buying that part of the business from Google.
  - wadkar 6y ago
    Wouldn’t this severely hamper the use of shared single mega repo at Google and also very easy and effective sharing of all kinds of data across products and services?
    - dodobirdlord 6y ago
      Also, who gets the datacenters? The existing traffic peering agreements? The subsea cables? Google’s core technical infrastructure can’t be “divvied up” without destroying it. It would have to look something like Google’s entire technical infrastructure going to Google Cloud and the all of the existing products becoming customers of that company.
      - zo1 6y ago
        Maybe the data centers are a separate off-shoot and all the other services "license" from it. Who knows what smart individuals could come up with in that regard. It's like untangling a giant code-base at the end of the day. Right now, the data centers (and other google properties/capabilities) are kinda like a bunch of global variables/state/functions. By splitting google up, you have to identify interfaces and contracts between large silos and make sure all interactions go across those boundaries instead of being "deeply" intertwined and reliant with each other. Who knows, this might even make Google more competitive at the end of the day. If anything, it could make the "ROI" and financial metrics of their individual products more explicit instead of nebulous "cross-subsidizing" centers.
samename 6y ago
Wouldn't this give other companies in other countries (who thereby can't be split up) more power and prominence?
- Avicebron 6y ago
  This is the classic argument, "we need our big guy to fight their big guy", it's not true. Nimble smaller companies can work, and it's not like we don't have a government to negotiate how we address large foreign companies. What this is arguing is ceding national power to a private corporation because we have given up on the govt. It's a weak smokescreen..... Besides. They. Dont. Pay. Taxes. In. The. Country. They. Claim. To. Be. Protecting.
  - rrdharan 6y ago
    > Besides. They. Dont. Pay. Taxes. In. The. Country. They. Claim. To. Be. Protecting. Besides being an incredibly annoying way to state your point (leave the hand-claps on Twitter, please), note that their very highly paid employees pay a ton of tax. Abolishing the corporate income tax entirely is something I'm in favor of and it has its proponents across the political spectrum: https://www.milkenreview.org/articles/the-progressive-case-for-abolishing-the-corporate-income-tax-2 https://www.milkenreview.org/articles/the-progressive-case-f...
- Barrin92 6y ago
  only if the split up companies do worse in their split up form, which I don't really see happening for a lot of them. Why would AWS be a worse company if it oeprated on its own? If size was the only thing that mattered you'd never see small companies beat big companies, in countries or across them. This is generally not the case. Healthy ecosystems seem to be more important long term than short-term dominance.
pessimizer 6y ago
Or even Standard Oil: "Rockefeller ran the company as its chairman, until his retirement in 1897. He remained the major shareholder, and in 1911, with the dissolution of the Standard Oil trust into 34 smaller companies, Rockefeller became the richest person in modern history, as the initial income of these individual enterprises proved to be much bigger than that of a single larger company." https://en.wikipedia.org/wiki/Standard_Oil https://en.wikipedia.org/wiki/Standard_Oil
- guyzero 6y ago
  Some of the Standard Oil companies have been re-merged into Exxon-Mobil and they'd gladly do more mergers if they were allowed to.
  - coliveira 6y ago
    But this is to the benefit of the executives. It doesn't mean that shareholders and consumers wouldn't be better with a split of the companies. This is a clear case when the greedy of a few trump the interest of many. The right thing to do is to block consolidation of companies.
    - guyzero 6y ago
      Why would oil companies not benefit from economies of scale? These aren't Bain-style leveraged buyouts. It's true that once a company gets a lot of market power, either as a buyer or a seller, it causes problems. But by this logic, why not breakup Walmart first? There's lots of documentation on how they push supplier cost so low that suppliers are practically going out of business selling to WalMart. Google seems less problematic than lots of companies.
      - chrisco255 6y ago
        Really, in the age of Amazon you're arguing for Wal-Mart to be broken up?

alexpetralia 6y ago

Can you provide more evidence of this?

guyzero 6y ago

"It is not a secret that one of methods to unleash value in a stock is to split the company" Yes, and it's not a secret that the other way to unleash value is to merge companies. See for example AT&T or Exxon & Mobil.

gph 6y ago
But you'll notice the companies that successfully gain value through merging are typically competitors that are able to generate more value together instead of fighting for the same profits. The same does not seem to be true for any of the Alphabet companies, except in the sense of being able to leverage shared user data for better targeted ads. Perhaps that does make it worth it to remain one company, but it's debatable, especially for something like Waymo which likely won't benefit from having access to search data.
- guyzero 6y ago
  There are tons of industrial conglomerates, from GE to Samsung to Siemens and there's not really any universal agreement that they're any worse than more focussed companies. This goes all the way back to the most basic theories of organization - why do companies even exist? Why is everyone not effectively a contractor? Why do companies not outsource every non-core function? And there are good reasons why companies exist - see https://en.wikipedia.org/wiki/Theory_of_the_firm https://en.wikipedia.org/wiki/Theory_of_the_firm External transaction costs are real and breaking Google up could significantly increase those. Someone from Siemens once told me "Siemens is an investment bank that happens to own all of the companies it has invested in." I'm not sure whether that's true or not, but it's a good description of conglomerates in general.
  - coliveira 6y ago
    > "Siemens is an investment bank that happens to own All conglomerates are like this, the clearest example is Berkshire Hathaway.
    - guyzero 6y ago
      Exactly. Why not break up Berkshire?
      - martin_bech 6y ago
        Berkshire is for all intents broken up, everything operates independently.
      - perl4ever 6y ago
        I vaguely think people have written how having the insurance business attached to the others is a useful/complementary structure, compared to a regular mutual fund or something. Maybe you could ask from the opposite perspective, why aren't all mutual funds organized like BRK?
  - rsj_hn 6y ago
    So there was this thinking in the 60s that the key skill of a firm is management, and so if one firm was a market leader in manufacturing pipes, they could buy up a struggling auto rental or accountancy firm and with their superior management skills they would make those better as well. This at least was the justification for a wave of conglomerates buying up smaller firms. Others might say a better justification was the cheap corporate credit available to some (but not all) firms, and thus the competitive advantage of conglomerates was access to credit, rather than management. The smaller firms and individuals did not have the same access to credit. But in the 80s, the pendulum began to swing the other way. The problem from the perspective of the credit markets -- whether shareholders or bondholders -- was the difficulty in obtaining detailed operational information from these large conglomerates. They became very opaque, as they could use the losses of one firm to subsidize another, and it was hard to drill down and figure out what was happening by looking at the financial statements. So then began a wave of slicing these companies up and selling off the pieces. Or from a completely different perspective, it was the extension of new types of credit such as junk bonds that allowed insiders to do leveraged buyouts, which tipped the scales away from the conglomerates and led to a lot of asset sales that "unlocked value" while other operations were shutdown. Not saying who is right, just offering some perspective that these arguments have been engaged with 60 years ago, and ended up with mixed results.

MattGaiser 6y ago

What would be the parts though? There is one profitable part (ads). The other parts are supported by that part or at least require deep integration with that part. Maybe you could split of Google Cloud, but I bet it would just become a digital REIT.

rosywoozlechan 6y ago
The separate companies would be: Google (Search), YouTube, Doubleclick (Ads), Android (Android, gmail, docs, google drive, Meet, google cloud, Stadia), maps and business listings (a Yelp competitor). I don't think Google Cloud should be its own thing. I see the business software, Android, Stadia and Google Cloud all part of the same company. It's basically a Microsoft clone. I could even see Microsoft buying that part of the business from Google.
- wadkar 6y ago
  Wouldn’t this severely hamper the use of shared single mega repo at Google and also very easy and effective sharing of all kinds of data across products and services?
  - dodobirdlord 6y ago
    Also, who gets the datacenters? The existing traffic peering agreements? The subsea cables? Google’s core technical infrastructure can’t be “divvied up” without destroying it. It would have to look something like Google’s entire technical infrastructure going to Google Cloud and the all of the existing products becoming customers of that company.
    - zo1 6y ago
      Maybe the data centers are a separate off-shoot and all the other services "license" from it. Who knows what smart individuals could come up with in that regard. It's like untangling a giant code-base at the end of the day. Right now, the data centers (and other google properties/capabilities) are kinda like a bunch of global variables/state/functions. By splitting google up, you have to identify interfaces and contracts between large silos and make sure all interactions go across those boundaries instead of being "deeply" intertwined and reliant with each other. Who knows, this might even make Google more competitive at the end of the day. If anything, it could make the "ROI" and financial metrics of their individual products more explicit instead of nebulous "cross-subsidizing" centers.

samename 6y ago

Wouldn't this give other companies in other countries (who thereby can't be split up) more power and prominence?

Avicebron 6y ago
This is the classic argument, "we need our big guy to fight their big guy", it's not true. Nimble smaller companies can work, and it's not like we don't have a government to negotiate how we address large foreign companies. What this is arguing is ceding national power to a private corporation because we have given up on the govt. It's a weak smokescreen..... Besides. They. Dont. Pay. Taxes. In. The. Country. They. Claim. To. Be. Protecting.
- rrdharan 6y ago
  > Besides. They. Dont. Pay. Taxes. In. The. Country. They. Claim. To. Be. Protecting. Besides being an incredibly annoying way to state your point (leave the hand-claps on Twitter, please), note that their very highly paid employees pay a ton of tax. Abolishing the corporate income tax entirely is something I'm in favor of and it has its proponents across the political spectrum: https://www.milkenreview.org/articles/the-progressive-case-for-abolishing-the-corporate-income-tax-2 https://www.milkenreview.org/articles/the-progressive-case-f...
Barrin92 6y ago
only if the split up companies do worse in their split up form, which I don't really see happening for a lot of them. Why would AWS be a worse company if it oeprated on its own? If size was the only thing that mattered you'd never see small companies beat big companies, in countries or across them. This is generally not the case. Healthy ecosystems seem to be more important long term than short-term dominance.

pessimizer 6y ago

Or even Standard Oil: "Rockefeller ran the company as its chairman, until his retirement in 1897. He remained the major shareholder, and in 1911, with the dissolution of the Standard Oil trust into 34 smaller companies, Rockefeller became the richest person in modern history, as the initial income of these individual enterprises proved to be much bigger than that of a single larger company." https://en.wikipedia.org/wiki/Standard_Oil https://en.wikipedia.org/wiki/Standard_Oil

guyzero 6y ago
Some of the Standard Oil companies have been re-merged into Exxon-Mobil and they'd gladly do more mergers if they were allowed to.
- coliveira 6y ago
  But this is to the benefit of the executives. It doesn't mean that shareholders and consumers wouldn't be better with a split of the companies. This is a clear case when the greedy of a few trump the interest of many. The right thing to do is to block consolidation of companies.
  - guyzero 6y ago
    Why would oil companies not benefit from economies of scale? These aren't Bain-style leveraged buyouts. It's true that once a company gets a lot of market power, either as a buyer or a seller, it causes problems. But by this logic, why not breakup Walmart first? There's lots of documentation on how they push supplier cost so low that suppliers are practically going out of business selling to WalMart. Google seems less problematic than lots of companies.
    - chrisco255 6y ago
      Really, in the age of Amazon you're arguing for Wal-Mart to be broken up?