1. Finance & Investment Society
Alphabet Inc.
Qualitative Information
Matthew Mencinger

2. Alphabet Inc. 2
Basic Information: Alphabet
Company: Alphabet Inc.
Exchange Traded: NASDAQ
Ticker: GOOGL Class A, GOOG Class C
Sector: Technology
Industry: Advertising / Internet information providers
Description:
Alphabet is a collection of businesses the largest of which, of course, is Google. It also includes businesses that
they combine as Other Bets and generally are pretty far afield of their main Internet products such as Verily,
Calico, X, Nest, GV, Google Capital and Access/Google Fiber. The Alphabet structure is about helping
businesses within Alphabet prosper through strong leaders and independence.
At Google, their main source of revenue, innovations in search and advertising have made their website widely
used and one of the most recognized brands in the world. They generate revenues primarily by delivering
online advertising that consumers find relevant and that advertisers find cost-effective. Google's core products
such as Search, Android, Maps, Chrome, YouTube, Google Play and Gmail each have over one billion monthly
active users and has still more opportunities to expand into. Google's vision is to remain a place of incredible
creativity and innovation that uses technical expertise to tackle big problems. The Other Bets are also making
important strides in their industries, and the goal is for them to become thriving, successful businesses in the
long term.
Recent Developments:
Alphabet was recently created in October 2, 2015 to be the parent company for Google. Google Inc.’s
artificial-intelligence systemwill be interpreted as a driver by federal regulators; a step toward compliance
that would help the tech giant’s self-driving cars hit U.S. roads. The Calico subsidiary is working on “defeating
aging” through genetics and new revolutionary medical practices. There were also talks from Citigroup that
Alphabet should buy AIG to move into the insurance business to acquire all the data it would have and disrupt
the insurance business and bring it into the 21st century. Google also has recently sided with apple in the
encryption battle with the FBI. Google fiber is also expanding faster, further and taking market share away
from big cable companies like Comcast. Originally thought as an experiment, Google Fiber is making strides to
disrupt the monopoly that the big cable companies have. Another subsidiary Sidewalk Labs is working with

3. Alphabet Inc. 3
Google to develop the first internet-connected urban development. Lastly, Google Ireland has come under fire
for tax avoidance and has been fined for unpaid taxes and may soon have to pay even more taxes as Ireland
puts laws in place to make it less of a tax haven.
Management and Governance:
Larry Page (former CEO of Google) is the CEO of Alphabet and Sundar Pichai is the new CEO of Google former
product chief for Google. Also of note is the CEO of Alphabets subsidiary Calico Arthur D. Levinson who is
present chairman of Apple and Genentech and was the CEO of Genentech. Alphabet is effectively the
umbrella company and the owner while the other companies like Google and Calico are subsidiaries having
their own CEO’s and running themselves, but reporting to Alphabet.

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Porter’s Five Forces Analysis: *Online Advertising
*This will mainlyfocusonAlphabet’ssubsidiaryGoogle since it
produces90% of itsrevenue
Bargaining Power of Buyers: Low
There is very high growing demand for online advertising
among major companies trying to reach a bigger market and
online advertising is the cheapest and most efficient because
of how many people can access the internet and how fast
advertisements can be made and distributed and get high
volumes of traffic in a few minutes. In the industry each
buyer is only a small part of revenue and are not considered
a very strong force due to how many customers Google has
for advertising. Buyers could always go to competition but
Google has so many customers it wouldn’t most likely when
a company leaves it wouldn’t matter and Google has the
most market share and the biggest database for accruing
data on target users for their customers that most would
want to sty with Google. Therefore, because there is such
high demand and Google has most of the market share
there is low bargaining power for the buyer.
Bargaining Power of Suppliers: Low
Alphabet is usually the main costumer for most of its
suppliers meaning that most of the suppliers revenue is
made from them. This makes the supplier entirely reliant on Alphabet and will do what they can to keep doing
business with them. Alphabet is also bigger than its suppliers and so it will be treated as a very valued
customer. Also, Google has the Small Business Supplier Diversity Program which allows Google to buy from
small businesses even thought the businesses might not be able to supply all the supplies Google needs.
Therefore, the bargaining power of suppliers is fairly low because Alphabet gives them all of their revenue
most of the time and if they aren’t happy Alphabet has the capital to go find another supplier who will do the
same thing or even make they’re own company that will do it better.

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Threat of New Entrants: Moderate
Alphabet has economies of scale by being the second largest company in the world so it can use their size to
keep competition out, protecting its market share. Emerging start-ups may be able to innovate and provide
products and services faster than Google can. There are fairly low barriers to entry being that it is easy to and
fairly low cost to make a online website that offers pay-for-click advertising. However, there are significant
cost advantages for established company’s because of the constant expense it takes to run servers and the
ability to buy important data from other companies on customer analytics for better advertising targeting. So,
because of economies of scale Google has a substantial advantage against the competition due to there access
of massive amounts of data that can more accurately target the right user their customers want to market to.
Threat of Substitutes: Moderate
There are low switching costs (using a different search engine / advertising platform) is not expensive to do
and it is very simple. There is a moderate availability of substitutes available for advertising like TV, radio,
different search engines and specialized search engines and advertising platforms that might draw market
share away from online advertising, but the trend seems to be people moving away from those traditional
platforms of marketing to online advertising because of cost and difficulty switching. Therefore, Google
doesn’t have to worry too much about threat to substitutes because of merely how much market share they
control and how much better their advertising analytics are compared to the competition.
Rivalry among Existing Players: High
Apple, Microsoft and Facebook are Alphabet’s biggest competitors and they are some of the largest
companies by market capitalization with a rank of 1st, 3rd, and 6th respectively out of all publically traded
companies with Alphabet being 2nd. They are all huge companies all competing in the Technology sector.
There are a decent amount of large firms but also a lot of high diversity firms, which would be the startups
that specialize in certain areas of technology or online advertising that would threaten Alphabet. Since there
are low switching costs between firms this creates a highly competitive environment in the industry to be the
best.
SWOT Analysis: Alphabet
Strengths:
Alphabet’s main strengths are in the brand, which has been made famous by Google. Google has created a
brand that stands for quality, cutting edge and innovation, while still caring about the people behind the
technology and this is reflected in their motto “Do no evil” and Alphabet’s motto “Do the right thing”.

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Alphabet’s size is also a major strength due to its scale of economy it can keep new threats out and afford to
take a loss on their “other bets” due to their advertising revenue, and because of these subsidiary companies
they are very diverse and are able to keep growing as a company.
Weaknesses:
The main weakness for Alphabet would be its “other bets” being very risky companies and most might not pan
out to anything especially in the long run. So they have the potential to just drain assets from the rest of the
company and could be wasted on.
Opportunities:
However, most of their opportunities can be found within their “other bets” companies as well. Some
examples would be the self-driving car, cure to old age through Calico, Google fiber service, internet-
connected city through Sidewalk Labs or even finTECH insurance through the purchase of AIG.
Threats:
Major threats can be seen on the form of competitors with Apple trying to compete with their own self-driving
car. Also tax reform is making Alphabet’s tax safe havens in Ireland and other offshore shell companies subject
to fines and has already cost them millions in fines. Lastly startups with low barriers to entry have the ability to
become more specialized and take away market share from Alphabet because they discovered something
sooner and had the ability to implement it quicker and faster.

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Sources:
"Alphabet Inc. 2015 Annual Report Form (10-K)"
http://www.bloomberg.com/news/articles/2016-02-11/google-faces-u-k-lawmakers-as-osborne-s-tax-victory-
sours
http://www.bloomberg.com/news/articles/2016-02-10/google-s-self-driving-car-software-seen-as-driver-by-
u-s-agency
http://www.bloomberg.com/news/articles/2016-02-11/google-defends-u-k-tax-settlement-as-lawmakers-go-
on-the-attack
http://www.bloomberg.com/news/articles/2016-02-11/google-tells-parliament-it-won-t-pay-google-tax-in-u-k
http://www.bloomberg.com/news/articles/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-
lost-to-tax-loopholes
http://www.bloomberg.com/news/articles/2016-02-12/google-wins-u-k-abuse-lawsuit-against-mapping-rival-
streetmap
http://www.factset.com/insight/2015/10/the-abcs-of-google-reorganization
http://www.bloomberg.com/news/articles/2016-02-03/u-k-s-tax-deal-with-google-wasn-t-just-about-
offshore-havens
http://recode.net/2015/12/28/the-stealth-attempt-to-defeat-aging-at-googles-calico/
http://qz.com/617714/citigroup-analysts-think-googles-parent-company-should-buy-aig/
http://www.theverge.com/2016/2/17/11040266/google-ceo-sundar-pichai-sides-with-apple-encryption
https://www.techdirt.com/articles/20160222/09101033670/google-fiber-expanding-faster-further-making-
comcast-very-nervous.shtml
https://www.google.com/finance?q=NASDAQ%3AFB&fstype=ii&ei=JqwFV4D5K8StmAGt8ZL4DQ
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http://www.bidnessetc.com/66731-alphabet-subsidiary-sidewalk-labs-hints-development-plans-a/