Google and the ABC of creative destruction

I know, it’s been done to death. But I think it’s time to call BS on Alphabet.

The most remarkable thing about the announcement of Google’s restructuring was not the news itself but the rapturous praise that was heaped upon it. The branding community was quite giddy with excitement.

“Without a doubt the biggest rebrand in the 21st century.”

“One of the most incredible pieces of corporate brand communication I can remember.”

“A brilliant branding move.”

“A strategy at the opposite of what is typically recommended by consultants or advisors.”

 

The outpouring of adulation gave me pause for thought… had I missed something?

As a business story, Google’s creation of Alphabet, a holding company, is remarkable, not so much for what it is but for what it will make possible; as a branding story, it’s really old hat.

There is nothing in the creation of Alphabet that hasn’t been done many times before and equally as well by many other companies in the cause of business reconstruction and renewal.

At its most mundane, Google has turned itself into an unfashionable conglomerate. It’s a familiar tale, one told by such unglamorous conglomerates as ITW, Manitowoc and Textron. And it’s hard to forget the disastrous attempt by UAL Corp to bind together Hertz, Westin and Sheraton Hotels under a holding company called Allegis. This is a story I’d recommend as further reading for all brand strategists. If Alphabet is the branding road less traveled then Allegis is the reason why.

“The next world-class disease” according to Donald Trump

More worthy exemplars of the genre are to be found among the energy companies such as Constellation, NextEra Energy, Exelon. They grew exponentially beyond their regulated core utility origins by creating a holding company, à la Alphabet, so they could offer enhanced services and products in the competitive energy market, satisfying both shareholders and regulators.

The energy giant Exelon, for example, has its origins in two very humble regional utilities – PECO (Pennsylvania Electric Company), and Commonwealth Edison, which are now operating divisions of Exelon – just as Google will become an operating division of Alphabet.

For some reason we accept Amazon in all its sprawling vastness as it attempts to become the world’s retailer, even though it makes most of its money from its web services business, AWS. Google had become impossible to define. To most people, Google is a search engine; as a business, it is much more. And there, in that dynamic, is the tension that created Alphabet.

Google had grown into an opaque, messy hotchpotch of businesses, some speculative, such as driverless cars and life extension technology, and all financed by the phenomenon of Google itself, the financial nuclear reactor.

In decline: This Fortune cover appeared before Google was even created

Branding Google is like trying to brand an explosion. What the new structure provides is maximum flexibility together with investor transparency, discipline and financial accountability as the company makes big bets on the future.

Google’s founders, Messrs. Brin and Page, have handed over the reins of Google to Sundar Pichai who, by all accounts, will do a good steady job. For them, Google is done. The new more enticing future is spelled out by Alphabet, which, as a name, is about exciting as cold rice pudding.

No mind, they have spun a nice story around it and, as a holding company, it will work just fine. It has no other role to play other than that of a name for a legal entity that places the big bets. What’s interesting is what will happen underneath Alphabet in the operating divisions.

Is this the branding story of the century? No, far from it. But it does provide a glimpse into the future intent of one of the world’s great companies.

The truly brave thing about the creation of Alphabet is in its invocation of what economist Joseph Schumpeter called creative destruction, ‘the essential fact about capitalism’. It is the spirit of Schumpeter that will push the company far beyond its origins and the Google brand.

I can’t help thinking such an approach might have saved two other iconic American brands that found it impossible to escape the gravitational pull of their brand’s heritage and an addiction to the cash they threw off.

Kodak missed its chance several times to evolve beyond the failing Kodak brand and determine its own future as a business. It met its inevitable end in one form of creative destruction, Chapter 11,  to be reborn as something else entirely.

And then there is always Levis: as it seeks salvation with cheerleader CEOs who endlessly try to revive a commoditized brand by dressing from head to foot in the product, it keeps coming back to the same product conundrum of heritage versus innovation as it continues on the long, remorseless slide towards business oblivion.

Netflix and the lesson of Kodak’s museum brand

We love like family brands we accept and use to organize our lives. We respond as people do when they are betrayed, whether it’s justified or not.

Netflix is one such brand.  The DVD-by-mail company built a loyal customer base of almost 25 million who loved the control of ordering movies via the web and watching at their convenience. For the last three years, it finished either first or second in a national survey of customer satisfaction with e-retailers. That’s an intense level of brand connection.

A high-profile series of botched efforts to separate its core DVD service from its newer, video-on-demand-style streaming library has destroyed much of that goodwill.

Insult was added to injury when Netflix practically declared that its core DVD-by-mail service was for Neanderthals who still feel weirdly attached to antiquated entities like the Postal Service. They were no longer eligible to be members of the Netflix club – they’d have to pay extra to use a service called Qwikster.

Twitter and the blogosphere were aflame with indignation. Appropriate scorn was heaped upon the name, although much of it missed the point. The stock tanked and more than 800,000 subscribers decided there were better alternatives. Now, while all this demonstrates a staggering ineptitude when it comes to understanding brands and the relationship people have with them, the pity is that, until this meltdown, Netflix was thinking intelligently about its future.

Buried in a mea culpa email Reed Hastings addressed to subscribers was the real burning platform issue that he is rightly concerned about.

Who's next?

“For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

The market that Netflix has had to itself is clearly changing. Digitization of content is laying waste to traditional industries that either can’t see the writing on the wall or choose to ignore it. Amazon and Apple between them have destroyed Borders, Blockbuster, Tower Records and (almost) Virgin Megastores. Netflix wants to be on the right side of this equation.

If there’s any company that keeps Reed Hastings awake at night it should be Kodak.

Here is a revered American company and, at one time, a powerful global brand brought to the brink of bankruptcy by its addiction to the fat margins of its core film business and its reluctance to change. Over the decades Kodak has displayed all the behavior of a company in the thrall of its own brand, which digitization has all but destroyed.

Founded in 1880 by George Eastman the company is struggling to complete a challenging transformation from a company reliant on a dying business to a seller of consumer and commercial printers. This from a company that invented the digital camera. The brand belongs in a museum.

In Clayton Christenson’s classic treatise “The Innovator’s Dilemma”, technology giants are frequently toppled by “disruptive” technologies that erode seemingly impregnable businesses, often with startling speed. This is partly because it’s easy for incumbents to dismiss the disruptive potential of a fledgling technology–a classic hazard of linear thinking–and partly because adapting to the new world would itself disrupt existing, and usually highly profitable, business relationships.

Netflix deserves some credit for trying to buck this trend. With the high fixed-cost DVD business on the verge of stagnation, the CEO took the almost unprecedented step of effectively blowing it up in order to speed the transition to streaming.

He’s also just received a valuable lesson brand management. Don’t count Netflix out.