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Google's Alphabet: It's all about getting new ideas into orbit

Asking why Google created Alphabet is the wrong question.

The right questions to ask are: Why did Google miss social networking? How is it that limo company Carey didn’t see the opportunity in smartphone-powered transportation and Uber's founders did? Why did it take SAP until 2011 to get into cloud apps, twelve years after the founding of Salesforce.com? And how come most of the innovation in technology security is coming from startups and not Symantec, McAfee, or Bluecoat?

Existing Markets Have Gravitational Pull

We believe the answer to these questions lie in what might be the most powerful force in business—the gravitational pull of existing markets. Gravity drags executives of existing businesses toward perfectly rationale decisions like listening to customers, meeting salespeople's requests, responding to competitors’ moves, and thinking about new features for current products.

Managers tasked with competing for market share in known categories don't question these priorities. But it turns out they are death when it comes to inventing new products, business models and market categories.

Eddie Yoon, a principal with The Cambridge Group, a consulting firm, in a landmark article for the Harvard Business Review, writes:

… category creation is the exception for large companies, not the rule. According to data in Nielsen’s Breakthrough Innovation Report, only 13% of the world’s leading consumer product companies introduced a breakthrough innovation from 2008 to 2010. Although large companies have the resources, capabilities, and growth aspirations to drive category creation, many market leaders merely sit on the sidelines watching new entrants create breakthrough products and business models.

Managing Versus Creating

The Google search business is one of the greatest technology Category Kings of all time. The search business unit is responsible for almost all of Google’s $66 billion in revenue. ComScore says Google has 67 percent market share and the space is growing at an annual rate of 26 percent At most large companies like Google, executives focus on managing and growing existing businesses. In a lot of ways they get paid to not screw up. Clearly, for Google, the smart thing to do is milk this cash cow forever.

The only problem—a legendarily awesome, high-class problem—is what about all of the new innovation Google wants to do? The gravitational pull of the search business inside Google is surely massive.

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