The Pros And Cons Of Google's Alphabet Holding Company

By now investors are well aware of Google Inc GOOG GOOGL's plans to form a holding company called Alphabet. Most analysts like the idea, but what are the pros and cons of the situation?

Erich Joachimsthaler, founder and CEO of Vivaldi Partners Group, has some answers. His company has worked with a number of major brands, including AT&T Inc. T, Sears Holdings Corp SHLD and SAMSUNG ELECT LTD(F) SSNLF.

Pros

"It is good because it helps to speed up making acquisitions," Joachimsthaler told Benzinga. "There is now no longer a need to integrate acquisitions, match cultures and go through lengthy post-merger acquisition efforts."

Related Link: Altucher Asks: Why Did Google Create Alphabet?

Joachimsthaler said there was a time when size mattered through scale and scope -- today is "far less of an advantage."

"Incumbency never has been as irrelevant," he added. "McDonald's is large in size, but it makes the company slow to change. Google is a technology company in an industry where speed is even more important than in other sectors."

Thus, Joachimsthaler believes Alphabet will help Google innovate in areas that go beyond its core business.

"This allows them to focus on innovation efforts while also diversifying the innovations into new areas that currently don't have a fit with the overall Google business, but will fit well into Alphabet," said Joachimsthaler. It may also have an impact on the company's recruiting efforts.

"It helps to attract talent that might not fit into the unique culture of Google, but might fit into another culture," Joachimsthaler explained. "As we know, culture eats strategy for breakfast. Alphabet now has the freedom to create unique cultures that support business models or operating models that are far different than the 'Google' culture. It also gives top executives the opportunity to shape their own cultures."

Related Link: Is Tesla The Google Of Its Sector?

Cons

Joachimsthaler said that one downside is that Google will have to maintain and support individual brands underneath the Alphabet structure.

"From a branding perspective, this is more costly than building a single brand," he said. "But Google does not really care. It built the Google brand with hardly any advertising spending, so it knows how to efficiently and effectively build its brand."

Despite that one concern, Joachimsthaler thinks Google will ultimately succeed.

"This corporate structure will work," he concluded. "It is a rather painless exercise relative to the alternative -- mergers and integration. Integrating large, existing businesses into Google is time-consuming, unattractive and costly. The Alphabet structure simplifies. Simplicity wins!"

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.