In 1892, the General Electric Company united a wide range of businesses—making lightbulbs, phonographs, sockets, dynamos—under a simple thesis: that electricity was a pretty big deal. GE, of course, was right. It became the dominant holding company of the industrial age, a conglomerate of machine-driven innovation.
Today a new crop of companies are driven by their conviction that the internet, too, is a pretty big deal. And as these firms compete to dominate the digital age, their strategies increasingly resemble that of General Electric of yore.
Google made it plain this week with a plan to reorganize under a new holding company called Alphabet, evoking a Scrabble board of enterprises that reach well beyond its original mission “to organize the world’s information.” Self-driving cars, longevity, and other lofty ventures will stand on their own within Alphabet, alongside Google’s core business, the one that makes lots of money.
Whether born out of boredom, fear, envy, or innovation, the move seemed to make sense of the company’s sprawl. Indeed, some of the world’s largest technology companies are perhaps best understood as holding companies, whether they make it official or not. Facebook has amassed a collection of tangential businesses—Instagram, WhatsApp, Messenger, Oculus VR—intended to anticipate the next big thing. Alibaba has seemingly entered every conceivable digital industry in China.
By managing these far-flung endeavors separately, as Alphabet will, these giants are guarding against the same kinds of changes that made them big in the first place. Put another way, they are trying to learn from the mistakes of eBay, Yahoo, Microsoft, and others that made big bets and acquisitions, only to fold them into a declining core business.
Larry Page, who will serve as CEO of Alphabet, is said to admire the structure of Berkshire Hathaway. The two won’t have much in common to start with, but Page would do well to follow Warren Buffett’s lead in at least one respect: Investments inspire confidence when accompanied by a clear and simple thesis.