The ABCs of Google's Alphabet announcement
Part of Google's bombshell restructuring, under a new parent called Alphabet, is that its most recent top hire -- CFO Ruth Porat -- gets even more power. Here's what the financial issues look like for Porat and Co.
When Ruth Porat, Google's chief financial officer, addressed analysts on a conference call for the first time in July, she preached one thing: balance.
"A key focus is on the levers within our control to manage the pace of expenses while still ensuring and supporting our growth," she said at the time.
If only they knew the half of it. Balance was at the center of a bombshell announcement Monday, when the company created Alphabet, a holding company for Google's many businesses. Google will be a slimmed-down version of itself under the new umbrella, focusing on core products like search, email, YouTube and Android, the company's software that powers smartphones and tablets. More nascent projects -- like Google X, the company's experimental lab focused on moon shots like driverless cars and drones, as well as Fiber, Google's high-speed Internet initiative -- will be broken out into separate companies, with their own CEOs, managed by Google's co-founders and the Alphabet conglomerate.
As part of the restructuring, Porat gets a bump in responsibility as well: She'll continue to be Google's CFO, but will also be CFO of Alphabet. That's a huge role.
As Page laid out in his announcement, a big part of Alphabet's raison d'etre is to handle money matters. The brain trust at the holding company will "rigorously handle" capital allocation for each business. They'll determine compensation for each business' CEO. Starting in the fourth quarter, the company will also report financials for Google on its own, as well as the rest of its money-losing enterprises -- giving investors a better sense of the health of Google's core business.
In other words: Pull those levers, Porat.
She's likely the right person to do it. As a Wall Street veteran, Porat, 58, is the counterbalance to the free-wheeling Page and fellow co-founder Sergey Brin. She joined Morgan Stanley in 1987 and held several major jobs at the company, including vice chairman of investment banking and co-head of technology investment banking. A Silicon Valley native, she is a graduate of Stanford University and holds a masters degree in administration from the Wharton School. She also serves on Stanford's board of trustees.
Google landing the well-respected Porat for the role in March was widely acclaimed. Early reviews are favorable. After her first conference call in July, Google had a historic day on the stock market -- adding $65 billion to its market cap.
"Ruth has gotten off to a great start right out of the gate," Joseph Fath, portfolio manager at T. Rowe Price, told The New York Times shortly afterward. She's also No. 32 on this year's Forbes Most Powerful Women list.
Here's what to expect in the era of Alphabet -- with Porat as the maestro behind Larry and Sergey.
Moon shot clarity
The future of Google's self-driving cars was apparently too cloudy for the company's investors. So, now they get more clarity. Alphabet will report finances for Google's core products separately from the moon shots like self-driving cars and computer-connected contact lenses, meaning shareholders can get a general sense of the costs for Google's more out-there projects.
Still, investors won't get details about everything. For example, YouTube's financials -- a closely guarded Google secret -- still won't be broken out.
"It remains to be seen exactly how much transparency will be provided," Brian Weiser, an analyst at Pivotal Research Group, wrote in a note to investors. "It may be overly optimistic at this point to hope for discrete business unit breakouts."
A big payout?
Because capital allocation, the way the company spends money, will come from the very top -- a group that includes Porat -- some analysts think that could pave the way for shareholder paydays.
"We believe this approach could create an environment for capital returns such as buybacks or dividends," wrote Ronald Josey, an analyst at JMP Securities.
Hoarding talent
One key to ensuring the company keeps humming -- and eventually gets its moon shots to make money -- is making sure top execs don't walk away from Google for high-profile jobs elsewhere. Doling out CEO titles for the independent divisions means Google can reward top talent, especially as they become more in-demand from other tech companies.
Case-in-point: Sundar Pichai -- a trusted Page lieutenant who was promoted to Google's new chief executive as part of the restructuring -- has been a frequently mentioned name whenever a glitzy CEO position opens up, notes Evan Wilson, an analyst with Pacific Crest Securities. It's very unlikely that locking him down was the impetus for the restructuring, but it's a nice byproduct.
"Google having a new CEO is the biggest part of the announcement," wrote Wilson, in a note to clients. "We think Sundar Pichai is extremely capable."
A compelling argument?
One of the things that looms over Google's head is the possibility of a penalty from the European Union for more than $6 billion. That's because of a drawn-out antitrust investigation alleging that Google has abused its market dominance to unfairly rank its own products -- like Shopping or YouTube -- ahead of competitors in search results. The Alphabet restructure isn't likely to curb the scrutiny from the EU, said James Angel, a professor at the Georgetown McDonough School of Business.
But the restructuring could provide an argument when it comes to other criticism over Google's reach. For example, if critics call foul over privacy issues with some of Google's moon shot projects, like its Life Science business or driverless cars, Google's core business can try to argue that there is a separation. "They may be able to claim, that's them, not us," Angel said.
"But, that they will be able to argue that persuasively remains to be seen."
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Verizon abandons contracts: Everything you need to know (FAQ)
Confused about Verizon's shake-up of the way you pay for wireless service? CNET has you covered with all of the answers.
Verizon has made some big changes to how it sells wireless service. But that has also left a lot of questions.
On Friday, Verizon said it would eliminate its long-standing practice of signing customers up for long-term service contracts and offering subsidies to blunt the high cost of smartphones. Instead, it opted for new plans that are slightly cheaper (with some exceptions) but require you to pay for your own device.
It's part of an ongoing shift in the industry in how consumers pay for their service, with more people actually opting to pay for their own smartphones because it can lead to lower monthly charges down the line if you stick with the same device after two years. T-Mobile shed its contracts two years ago, while the other carriers have been gradually moving away.
Verizon, however, opted to rip the bandage off quickly and did away with them in one fell swoop. That may leave some puzzled about how it affects them, which is where CNET comes in. Here are some answers to the most frequently asked questions about Verizon's new plans.
Why is Verizon doing this?
The wireless industry has been steadily heading toward this goal ever since T-Mobile made its splashy announcement two years ago that it would get rid of phone subsidies and service contracts. Verizon had already offered a monthly installment program called Edge.
It's a bit surprising that Verizon was willing to go all-in on the no-contract plan considering i,t has the largest base of contract customers. Its Edge plans weren't as popular as other rival installment plan, and its base seemed pretty comfortable with their contracts. It just goes to show you, the times are a-changing.
What are the advantages of this plan?
Verizon said it was making these changes for the sake of clarity and simplicity. For the most part, you get four buckets of data to choose from -- a small bucket of 1 gigabyte of data will cost $30, a medium with 3GB will cost $45, a large with 6GB will cost $60 and an extra large with 12GB will cost $80. There's also the device access fee of $20 a month to connect a smartphone. A tablet or Wi-Fi hotspot will cost $10 a month, and a connected device like a smartwatch will cost $5 a month.
Relative to its previous portfolio of family and single plan options, it is simpler. But it's not necessarily cheaper. The $20 smartphone access fee represents a discount to previous users who had to pay a $40 fee under a contract plan, or $25 if you had a 4GB data plan or smaller. But if you had a larger family plan, you previously paid $15 a month for the access fee, so this actually represents a $5 price hike for every line you have.
You do, however, get a bit more data for your money under these new buckets.
Can I keep my existing plan?
Yes, your legacy plans are safe. No matter what plan you have -- a grandfathered unlimited data plan, a prior bucket of data or a previous contract plan -- you will be able to keep it with no changes to the terms. As noted, bigger families with high data buckets and lower device access fees would benefit from keeping their existing plans.
Also, if you switch to one of these new plans, you won't be able to switch back.
I'm on a contract and I have a 'free' upgrade coming up. Do these changes affect my upgrade?
Rest assured, your upgrade is safe. Every two years, Verizon offers existing contract customers the opportunity to upgrade with what is essentially a $200 voucher to spend on whatever new smartphone they want. Customers opting for a more expensive smartphone, like an iPhone 6 Plus or an iPhone 6 with higher storage pay the difference.
Verizon customers on the contract plan will continue to get that perk as long as they stick with their original plan.
So is this the end of contracts for Verizon?
Not exactly. If you don't want to pay the full price of a smartphone upfront (and few do), Verizon will allow you to sign an agreement that says you will pay for your device in 24 monthly installments. That is essentially another contract.
How do the monthly installment plans work?
You take the total cost of the smartphone and divide it by 24 to get your cost each month (excluding taxes). Keep in mind that an unsubsidized smartphone is pricey -- a base model iPhone 6 will run $650, or roughly $27 a month. At this point, monthly installment plans are fairly standard in the industry -- even fellow wireless giant AT&T has been increasingly pushing them on customers.
Other carriers let me upgrade early. How often can I upgrade with these new plans?
You can upgrade whenever you want -- as long as you pay off the previous device. Other plans, including T-Mobile's Jump on Demand and AT&T's Next plans, allow you to swap in your phone early for an early upgrade. Sprint likewise allows you to pay a little more each month to upgrade your phone after one year, instead of two.
Verizon, however, doesn't offer such flexibility. The company previously offered customers a chance to upgrade early by paying a bulk of the previous device's cost and swapping in their old phone, but it eliminated that policy in May.
So be prepared to pay up if you want to switch often. One positive: There are no upgrade fees under the new plans.
What about all these unlocked smartphones I keep hearing about?
If you're freaked out about paying for your own smartphone, there's good news: We've seen a crop of affordable, but premium, smartphones emerge in the market (as long as you're not an Apple fan). Many of these smartphones are being sold directly by the manufacturers, so you don't even have to deal with going to a Verizon store to get a good deal. They're referred to as unlocked devices because they aren't tied to a specific carrier.
But here's the bad news. Many of these unlocked smartphones won't work on Verizon because of the specific technology needs of its network. There are some exceptions, including the Motorola Moto X Pure Edition and Nexus 6 from Google and Motorola. Apple has an unlocked iPhone 6 that can work with Verizon too.
My family uses a massive amount of data. How do I get a larger plan?
The largest publicly available plan is the extra large bucket with 12GB. But Verizon will offer larger buckets to customers who feel they need even more data.
Customers looking to get one of these larger buckets should go into the store and talk to a salesperson. The website will also have a link to options that range between 20GB and 200GB.
If there's no contract, I can leave Verizon anytime, right?
Yes. You can also switch between buckets from month to month in case you feel the need to use more or less data.
If you do leave early, you will still be on the hook for the full price of your device. Also, your Verizon smartphone won't be able to pick up the fastest 4G LTE wireless networks from rival carriers. In fact, you're almost certainly going to need to buy a new phone if you switch and care about a fast connection.
Also, if you are going to leave Verizon, be sure that whatever carrier you switch to offers an acceptable level of coverage. The worst thing that can happen is you switch for price but end up with a phone that drops phone calls.
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