Alphabet Conglomerate: Dynamics, Analysis and Growth

Industry Overview

Type of Industry

Alphabet Inc. is an American-based conglomerate that emerged as a result of Google’s corporate restructuring in 2015 (Glowik, 2017). The term conglomerate refers to a corporation consisting of several unrelated companies, in which one business entity owns a controlling stake in other constituent members. In the case of Alphabet Inc., the main company is Google. A conglomerate can have subsidiaries that operate in disparate industries. Alphabet Inc.’s diversification pursuits have led to the expansion of operations to the following industries: technology, capital investment, research, and life sciences and healthcare (Alphabet Inc., 2016). The main company of Alphabet Inc. specializes in digital and cloud services. It also generates revenue with the help of software, searching services, advertisement, video hosting, and hardware products (Glowik, 2017).

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Alphabet Inc. is a multi-industry conglomerate that operates in several industries both domestically and abroad. Therefore, its operations do not fall under a general umbrella term of one industry. In order to better understand the holding company’s profile and its standing in relation to competition, it is necessary to review several key industries in which it functions. By doing so, it will be easier to understand why its host company has repeatedly been referred to as an industry disruptor (Kushida, 2015). In addition, a structured approach to industry analysis will allow making meaningful predictions about the conglomerate’s future opportunities.

The search engine industry

The advent of the Internet made possible the emergence of Google in 1998 (Kushida, 2015). The company was associated with a remarkable growth, which allowed it to quickly dominate the market of search services. A recent industry report reveals that in 2016, 86.83 percent of internet users around the world relied on Google as their online search engine of choice (IbisWorld, 2017). The company’s second largest contender is Bing with 5.13 percent share in the industry (IbisWorld, 2017). Other competitors such as Ask, Yahoo, and AOL maintain only 0.46 percent share (IbisWorld, 2017). It means that Alphabet Inc. is the leader in the search engine industry.

Online advertising industry

The conglomerate’s recent consolidated financial statement reveals that its Google segment generated $63,785M in revenues in 2016 (Alphabet Inc., 2016). The majority of revenues from the parent company account for advertising that comes from the following Alphabet Inc.’s properties: Gmail, Maps, Google Network, YouTube, Google.com, and Google Play (Alphabet Inc., 2016). The company’s key competitors in the industry are Facebook, Yahoo, Verizon, and Twitter. Taking into consideration the fact that search advertising is the most profitable market within the industry, there is no surprise that Google generates a share of revenues that surpasses that of its competitors by far (Haucap & Heimeshoff, 2014).

The software industry

Alphabet Inc. is represented in the software industry by the Android mobile operating system, Chrome OS, Daydream VR platform, and the Google Chrome web browser (Alphabet Inc., 2016). Android has helped the company to enter the mobile phone industry and completely redefine the concept of the technology platform. The key competitors that produce operating systems for mobile phones are Apple and Microsoft (Pon, Seppala, & Kenney, 2014).

The hardware industry

Alphabet Inc. entered the industry when its parent company spawned Nexus brand. Currently, the company produces smartphones, voice assistants, and virtual reality headsets (Alphabet Inc., 2017).

Expertise and Markets

The multi-industry conglomerate operates in numerous markets the majority of which can be subsumed under the information and communication technology industry (ICT). The industry necessitates innovative management strategies. Therefore, the parent company of the conglomerate has developed unique approaches to management (Bock, 2015). These approaches presuppose hiring practices that emphasize role-related knowledge. Google’s head of People Operations refers to the unique learning ability of the company’s employees to learn as “Googleyness” (Bock, 2015, p. 16).

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After carefully analyzing the conglomerate’s operations in its key markets it is clear that its ability to disrupt entire industries hinges on its distinctive skills and expertise. Research and development (R&D) is the main area of Alphabet Inc.’s expertise. According to the conglomerate’s recent annual report, its R&D operations were performed by 27, 169 employees (Alphabet Inc., 2016). When compared to staffing levels in other departments, it is evident that its R&D segment is the most valuable driver of the holding company’s success in all its markets.

Alphabet Inc. is extremely skillful in promoting its brands. This expertise is especially important since the conglomerate’s subsidiary companies often enter already established markets that are characterized by a high level of competition. Alphabet Inc.’s branding infrastructure functions in such a manner as to facilitate the creation of unique corporate identities loved around the world. Todor (2014) argues that “strategic branding must be approached very carefully and subtle because the offer will be positioned in the consumer’s mind to produce the perception of advantage” (p. 60). There is no denying that branding strategy of the holding company helps it to take advantage of its technical expertise.

Future Opportunities

It can be argued that Alphabet Inc. has virtually unlimited opportunities to diversity its existing revenue streams. The conglomerate develops self-driving cars, which provides it with a prospect of disrupting the auto industry. Gruel and Stanford (2015) argue that autonomous driving is the next frontier in the industry, which is associated with the benefits of increased safety and mobility and decreased pollution. Taking into consideration the company’s vast experience in R&D, it is likely to take a leading role in the area of vehicle automation.

Another opportunity that should be explored by Alphabet Inc. is mobile advertising. The worldwide adoption of mobile devices pushes advertisers to deliver their messages through interactive ads on tablets and smartphones. Google already owns a large share of the mobile advertising market. However, it can expand it farther by transforming its Android mobile operating system.

The virtual reality market is another business area that will be explored by Alphabet Inc. In 2016, around 100 million virtual reality units were sold worldwide (Armstrong, 2017). Out of this number, 96 percent units were Google Cardboard (Armstrong, 2017). The device represents the bottom-end of the market spectrum. It follows that the conglomerate can explore the higher-tier of the market. The opportunity is associated with enormous revenues since Chinese virtual reality market is estimated at $8.5 billion (Armstrong, 2017). Therefore, the company can diversity its revenue sources by developing expensive virtual reality products.

Key Performance Indicators

When it comes to corporate social responsibility (CSR) having a set of essential criteria for measuring one’s progress is a must. Therefore, sustainability reporting presupposes a use of key performance indicators (KPIs) that helps companies to assess social and environmental components of their CSR strategies. Alphabet Inc. is a conglomerate that takes pride in the sustainability of its corporate profile. A recent CSR report issued by the Reputation Institute ranked Google the third out of 170, 000 companies (as cited in Strauss, 2017). Although the ranking reflects a remarkable achievement in the sphere of social responsibility, it represents a minor drop on the ranking list from the result of the previous year. In 2016, the company was positioned on the top of the list (as cited in Strauss, 2017). The reduction of the social responsibility score of the conglomerate’s parent company can be attributed to rising demands of the American public.

Environmental Impact

Alphabet Inc. measures its environmental impact by using a host of criteria. The conglomerate publishes its environmental KPIs in an annual report. Highlights of the report are detailed bellow.

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Greenhouse gas (GHG) emissions

The parent company and its subsidiaries take meaningful steps in addressing the issue of climate change. Therefore, Alphabet Inc. is intent upon reducing its GHG emissions. A structured approach to the reduction of its carbon footprint allowed the parent company to achieve carbon neutrality in 2007 (Google, 2017a). In addition to the decade of carbon neutrality, Google reached zero net operational carbon emissions in 2016 (Google, 2017a). The progress was made through the extensive partnership with carbon offset projects. Over the last five years, carbon intensity was lowered by 55 percent from 38.8 tCO2e per million units of revenue in 2011 to 17.6 tCO2e per million units of revenue in 2016 (Google, 2017a). Other GHG emissions KPIs also show drastic improvements.

Energy use

An average US datacenter of Google consumed 4, 522, 314 MWh of energy in 2016, which represented 50 percent of energy consumption when compared with a typical datacenter (Google, 2017a). The industry average of power usage effectiveness (PUE) was 1.7 in 2016 (Google, 2017a). It means that the company’s PUE of 1. 12 represents a substantial environmental difference.

Renewable energy

The company plans to achieve 100 percent of renewable energy consumption in 2017 (Google, 2017a). In the previous year, the company relied on 57 percent of renewable energy use in its operations (Google, 2017a). The KPIs show that the company makes a substantial contribution to the development of the green power market. Since 2010, the main company of Alphabet Inc. has purchased 2.6 GW of renewable energy, which is “equivalent to taking more than 1.2 million cars off the road” (Google, 2017a, p. 26). The investment in renewable energy surpassed $2.5 billion mark in 2016 (Google, 2017a). It can be argued that by increasing its renewable energy capacities, the conglomerate helps to reduce the cost of renewable power both in the US and globally.

Sustainable workplaces

Alphabet Inc. goes to great lengths to ensure that its workplaces are sustainable. Therefore, in 2016, 865, 494 square meters of its office spaces were certified by Leadership in Energy and Environmental Design (LEED) agency (Google, 2017a). Since 2013, the company’s Bay Area headquarters achieved a 40 percent reduction in the use of potable water (Google, 2017a). While it is a remarkable result, the company still has room for improvement. The sustainability of Google’s workplaces is underscored by the landfill diversion KPI of 78 percent (Google, 2017a). The KPI for Bay Area headquarters is even higher—85 percent (Google, 2017a). Furthermore, the company has many corporate electric vehicles and carpooling initiatives, which shows its commitment to CSR.

Employment

Empowerment

Alphabet Inc. tries to empower its employees. To this end, the company has devised the 20 percent rule. According to this rule, all employees in the parent company should dedicate 80 percent of their time to company assignments and 20 percent of the time to their own projects (Beck & Kleiner, 2015). The policy resulted in the increased employee interest, which benefited the company with new products.

Diversity

The importance of diversity has been acknowledged by numerous independent lines of investigation. To achieve a sustainable and diverse workspace that facilitates innovation, Google has started to publicize its diversity numbers. When compared with other companies operating in the Silicon Value, it is evident that the decision to make diversity KPIs public is unique and innovative (McGirt, 2017).

In order to reduce the infamous gender and minority gaps, the main company of Alphabet Inc. has taken many decisive steps. Currently, the company hires 69 percent of male and 31 percent of female workers (Google, 2017b). While they are far from being perfect, the numbers represent an improvement from the previous year. When it comes to the ethnic composition of the tech giant’s workforce, the numbers are as follows: Whites (56 %), Asians (35%), Blacks (2%), Hispanics (4%), Native Americans (<1%), Pacific Islanders (<1%), employees from two or more ethnic backgrounds (4%) (Google, 2017b). The numbers show that the company is dedicated to the creation of diverse workplaces.

In addition to its diversity improvement efforts, Alphabet Inc. tries to make their working communities more equitable. More than 70 percent of its employees have participated in a training aimed to eliminate their unconscious biases (Google, 2017b). More than 30 diversity and equity projects are conducted by 700 workers of the company (Google, 2017b). These KPIs serve as a testament to Alphabet Inc.’s commitment to just initiatives.

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Transparency

Google is dedicated to transparency; therefore, it shares KPI’s associated with privacy, security, and access to information with the American public. Specifically, Google discloses “the number of user data requests from government authorities alongside the total number of users/accounts specified in those requests” (Google, 2017c, para. 1). In 2016, 60 percent of governmental requests resulted in the production of data (Google, 2017c).

Supply Chain

The company’s responsible supply chain program helps to ensure that all employees are treated ethically. Furthermore, the program has been designed to reduce Alphabet Inc.’s environmental footprint. The measurement of supply chain KPIs helps to attain these two goals. Currently, the conglomerate has more than 400 suppliers in 23 countries (Google, 2017d). To create a supply chain that is aligned with modern CSR standards, Alphabet Inc. conducted 130 audits of its suppliers in 2016 (Google, 2017d). Furthermore, approximately 3, 500 workers participated in face-to-face interviews (Google, 2017d). The audits’ findings revealed that 14.8 percent of the conglomerate’s suppliers demanded their workers to work excessive hours (Google, 2017d). It follows that the company has to either sever ties with unconscionable suppliers or make sure that the practices are discontinued.

Other KPIs published by Google show that 11.1 percent of all audit findings were related to inadequate emergency responses (Google, 2017d). Moreover, 8.5 percent of the findings described some form of occupational safety hazards and 6.6 percent were associated with improper management of hazardous substances (Google, 2017d). There is no denying that in order to ensure its supply chain goals, the company has to resolve these issues. It is especially important for achieving its 90 percent mark for suppliers’ GHG emissions (Google, 2017d).

References

Alphabet Inc. (2016). Form 10-K. Web.

Alphabet Inc. (2017). Form 10-K. Web.

Armstrong, P. (2017). Just how big is the virtual reality market and where is it going next? Forbes. Web.

Beck, E., & Kleiner, B. (2015). Excellence in employee empowerment at professional organizations. Journal of International Diversity, 20(4), 1-10.

Bock, L. (2015). Work Rules!: Insights from inside Google that will transform how you live and lead. New York, NY: Twelve.

Glowik, M. (2017). Global strategy in the service industries: Dynamics, analysis, growth. Abington, England: Routledge.

Google. (2017a). Environmental report: 2017 progress update. Web.

Google. (2017b). Share our progress toward a more representative Google. Web.

Google. (2017c). Requests for user information. Web.

Google. (2017d). Creating a responsible supply chain: Our progress through 2016. Web.

Gruel, W., & Stanford, J. M. (2015). Assessing the long-term effects of autonomous vehicles: A speculative approach. Transportation Research Procedia, 13, 18-29.

Haucap, J., & Heimeshoff, U. (2014). Google, Facebook, Amazon, eBay: Is the Internet driving competition or market monopolization? International Economics and Economic Policy, 11(1-2), 49-61.

IbisWorld. (2017). Search engines in the US: Market research report. Web.

Kushida, K. E. (2015). The politics of commoditization in global ICT industries: A political economy explanation of the rise of Apple, Google, and industry disruptors. Journal of Industry, Competition and Trade, 15(1), 49-67.

McGirt, E. (2017). Inside the search giant’s effort to get more diverse—and to change the way we all see the world. Fortune. Web.

Pon, B., Seppala, T., & Kenney, M. (2014). Android and the demise of operating system-based power: Firm strategy and platform control in the post-PC world. Telecommunications Policy, 38, 979-991.

Strauss, K. (2017). The 10 companies with the best CSR reputations in 2017. Forbes. Web.

Todor, R. D. (2014). The importance of branding and rebranding for strategic marketing. Bulletin of the Transylvania University of Brasov, 56(2), 59-64.

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StudyCorgi. (2020, November 24). Alphabet Conglomerate: Dynamics, Analysis and Growth. Retrieved from https://studycorgi.com/alphabet-conglomerate-dynamics-analysis-and-growth/

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