What Google learned from Warren Buffett

Google's reorganization as a holding company is an attempt to combine Buffett's business savvy with technological innovation

Larry Page
(Image credit: Justin Sullivan/Getty Images)

Most of the tech and financial press reacted with bafflement to the news that Google is transforming its corporate structure. It is now a publicly traded holding company called Alphabet, with Google as one of its subsidiaries, and its other ventures and interests as other subsidiaries, each with its own CEO. Some of the other ventures include Google's famous moonshot efforts to build self-driving cars and promote longevity, but also more ho-hum (while still very interesting) ventures like Nest, the home equipment company founded and still led by Tony Fadell, one of the key inventors of the iPod.

The reorganization will certainly please the hedge fund community, because it gives financiers a way to bet on those more speculative efforts. Alphabet will report separately the financial performance of Google and of the rest of Alphabet. This means that traders will be able to buy Alphabet stock while selling short (that is, betting against) some asset or synthetic security that mimics the financial performance of Google, the difference between the performance of those two assets representing a bet on the performance of Alphabet's non-Google ventures. And this, in turn, by increasing investor interest in Google/Alphabet, might boost the holding company's stock a little bit.

But let's be clear, getting a little stock market boost (while giving hedge fund traders a new opportunity for financial engineering) almost certainly isn't Google co-founder Larry Page's main motivation for making such a drastic move.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Another impetus behind the reorganization is to retain talent in Silicon Valley's hyper-competitive labor marketplace. Human nature is what it is: For a lot of people (if we're honest, particularly men), it's very important to be able to put "CEO" on their business card, rather than "Vice President." With this new holding structure, for example, Sundar Pichai, who was CEO of Google in all but name before the reorganization, can now say that he's the actual CEO of Google, giving him an added reason to stay at the company rather than explore some other super-lucrative opportunity.

But, again, that can't be the whole story.

Quartz's Alice Truong put her finger on the key aspect of this story in noting that Page has expressed admiration for Berkshire Hathaway founder Warren Buffett.

Buffett has always put emphasis on the fact that Berkshire Hathaway, a classic holding company, gives operational independence and leeway to the businesses it invests in or buys outright. Buffett wants to be seen as a great "home" for a company, which is often the brainchild of a person who doesn't want to see it destroyed by corporate raiders. And he also wants to be seen as a long-term investor, who buys a business to see its story play out over decades.

If you look at Google's moves over the past few years, the similarities become even clearer. Like Berkshire Hathaway, it has a core business (search for Google, insurance and reinsurance for Berkshire) that accrues mind-boggling amounts of cash, which it then tries to deploy strategically. Like Berkshire Hathaway, it is now, and will only increasingly be, a collection of related businesses, rather than a single company with a single strategy and sector focus. Like Berkshire Hathaway, Google is also increasingly an investment company, through arms like Google Capital and Google Ventures, and not just a product company. Like Berkshire Hathaway, it wants to be seen as an acquirer that is friendly to CEOs and entrepreneurs, a key competitive advantage especially in Silicon Valley, where a strategic acquisitions culture often rubs visionary entrepreneurs the wrong way.

Unlike Berkshire Hathaway, Google is also an R&D lab full of moonshot projects, but it's clear that a Berkshire Hathaway-like structure would be the best way to develop projects that grow into significant businesses in their own right.

Clearly, the ambitions of Page and his co-founder Sergey Brin have grown beyond search, and even beyond information technology. (It's easy to forget that Google proper is still doing astonishing, cutting-edge artificial intelligence research to improve its software.) They are young men who see themselves as looking out decades into the future, when tech will mean not just information technology, but also biotech, rockets to space, and more.

Page has often spoken of his admiration for the genius inventor Nikola Tesla, saying that he became an entrepreneur because Tesla's inability to turn his inventions into viable businesses hampered his ability to keep inventing — and ultimately rendered him a broken and destitute man.

Here is evidence of just how much Page is determined not to make Tesla's mistake, perhaps by becoming a mix of Buffett and Tesla. It's exciting to watch.

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.

Pascal-Emmanuel Gobry

Pascal-Emmanuel Gobry is a writer and fellow at the Ethics and Public Policy Center. His writing has appeared at Forbes, The Atlantic, First Things, Commentary Magazine, The Daily Beast, The Federalist, Quartz, and other places. He lives in Paris with his beloved wife and daughter.