Alphabet, Google and What's at Stake for the Capital Markets

There are long-term benefits that could materialize, but in the short-term, not much is going to change.

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Anthony Malakian, US Editor, Waters & WatersTechnology.com

Anthony says that the unveiling of Alphabet could be a good thing for capital markets firms, but it will take a while for this to play out. In the short term, though, there's no reason to worry.

When you have one of the top two or three most ubiquitous names in technology, why wouldn't you want to ditch that name for a name that is as staid and hoary as the English language itself? 

Well, Google isn't exactly ditching its name, but its parent company is. Yesterday, Google Inc. CEO Larry Page unveiled the new parent-company moniker, Alphabet Inc. In a blog post, Page, who now is the CEO of Alphabet, made the announcement. Alphabet will serve as a "collection" of companies, with Google being the largest. But in this process, Google will also shrink as other brands that were once owned by Google will now become separate entities with their own CEOs. Alphabet Inc. will replace Google Inc. as the publically-traded company, but it will still trade on Nasdaq as symbols GOOGL and GOOG.

Naturally.

Much Ado About...Nothing? Something?

What does this all mean for the sell side? Honestly, probably not a whole heck of a lot in the short-term, but in the long-term, it might serve to help trading firms.

Currently in the capital markets, some use Google for chat. The search behemoth has tried to help firms in the space with document and email search. There's also the analyzation of Google searches to make trading decisions based off of sentiment and brand-awareness analysis. Chrome is becoming the browser of choice for many in the development community. Of course, there's the cloud. And you hear rumors of firms experimenting with Google Docs and Google Spreadsheets.

Most pertinent to the capital markets, though, Google has been at the forefront of the establishment of a Consolidated Audit Trail (CAT), teaming with SunGard on a potential solution. And when it comes to big data and analytics, Google has firmly established itself as a major player and partner.

There's no reason to believe that any of these services will change. Sundar Pichai is taking over as the CEO of Google. In his 11 years at the company, Pichai has rocketed up the corporate ladder, from middle manager to the C-level, finding success with Google Toolbar, Chrome, Google Apps and Android. He's quietly been a major driving force of innovation for Google. And if he does go off the rails, Page and Sergey Brin, Google's co-founder and now the president of Alphabet, are still there overseeing everything.

A Google Vet's View

Rick Lane, CEO of Trading Technologies, who served a stint at Google three-plus years ago, told me that the separation of Google's properties might help it to grow a greater presence in the capital markets.

"Potentially, it makes it easier for the parent company to make a bigger play in the capital markets where maybe the margins aren't as large," he says. "Where a project might have died at one executive meeting at Google before, perhaps now it will see the light of day because their hands are a bit freer to explore other areas like this."

He adds, though, that you won't see that potential scenario "bearing fruit" in the short term. If they make an immediate investment in Google Finance, then maybe more development might come more quickly; but Finance will be the "litmus test", he says.

"I do think that some of the ways that Google could help our space actually do fall in the core Google internet business, as opposed to something that falls on the fringes that would be warranted to be pulled out into Alphabet," Lane says. "But the litmus test, in my opinion, that tells me that we're not going to see anything of great interest in the short term is if they let Google Finance die on the vine. When you look at its biggest competitor — Yahoo! Finance — Yahoo! has clearly invested in that product; it's a go-to for retail investors. Google hasn't done much with that."

The Talent Chase

Some in the media have speculated that this shakeup will help Alphabet attract and retain programmers. From Vauhini Vara of the New Yorker:

People like [Mark] Zuckerberg, Page, and Brin haven't only been worried about losing customers, they're also anxious about retaining talent. Silicon Valley programmers have been leaving established companies to join smaller, newer, faster-growing firms, while some prospective employees have been rejecting the big corporations' job offers entirely.

But TT's Lane says that there's a risk here, as well. Young programmers like having the "Google" brand on their resumes, rather than company "XYZ" that is under the Alphabet umbrella.

"Google is a pretty great place to work," Lane says, "so I wonder if they'll lose some of that cache. For people where the name matters more than what the day-to-day is going to be, I wonder if they're leaving some of that brand equity that they have in Google for some of these other enterprises. It will be interesting to see."

Staying Ahead

My favorite takeaway from Page's blog came even before he announced the new company's name:

We are still trying to do things other people think are crazy but we are super excited about. We've long believed that over time companies tend to get comfortable doing the same thing, just making incremental changes. But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant.

Having spent six years here at Waters, this is a theme and a challenge that every vendor and bank IT department faces: How do you not get complacent but also not make a radical change for change's sake?

To Lane's earlier point, all of this will take some time to shake out. There will not be an immediate influx or mass exodus of programmers; there will not be immediate rollout of capital markets' oriented technologies, nor will there be an immediate scale back of services.

This will take time, but there's no reason to believe that this will hurt trading firms. The real interest will be if the status quo is maintained, or if this potentially serves as a refocusing of investment by Google into the capital markets.

 

Some Random Thoughts

* After finishing Season 2 of True Detective, I think I'm going to watch nothing but Tyler Perry movies for a long while. I need a laugh right now. And a drink.

What's that? David Simon has a show on Yonkers coming up? OK. Never mind. Let's fire this thing back up.

* "No more LOLs: 50% of Facebook users prefer 'haha' to laughing out loud."

Look at what you all have done! I shall never laugh out loud again. OMG. Amirite?!

* I honestly believe that the New York Jets are better off with Ryan Fitzpatrick as their QB rather than Geno Smith. Still...\#LOLJets. Or, sorry, \#HAHAJets.

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