Alphabet will make non-Google businesses pay for services
Google parent Alphabet Inc. is moving to make its disparate parts more accountable internally for spending, according to people familiar with the matter, in an effort to ensure that its more speculative projects are self-sustaining.
Under the new system, “bet” companies such as Google X, Google Fiber and Google Life Sciences will be charged for using corporate services such as computing, recruiting and marketing, the people familiar with the matter said.
The changes are part of Google’s transformation into a conglomerate, which took effect in August but won’t be reflected in financial statements until next year. The people familiar with the matter said executives hope to make the bet companies more accountable for their costs, which may lead to more caution on spending.
There is little consistency in how other conglomerates handle such issues. Subsidiaries of Berkshire Hathaway Inc., in businesses such as insurance, transportation, retail and manufacturing, largely run independently. Berkshire itself provides very limited centralized services. By contrast, General Electric Co. in recent years has built a 6,000-person “shared services” organization to handle functions like sourcing, finance and legal work across businesses such as jet engines, power turbines, locomotives, medical scanners and lightbulbs.
Under Alphabet’s new system, leaders of the bet companies will have more freedom to develop their own services in areas like recruiting and marketing. The companies will still be able to tap Alphabet’s services, but they will have to bear the cost internally.