We like comparisons, especially when they help relate the known to the unknown. They can provide a broad understanding of the unknown, but it is important not to be wholly reliant on comparisons in attempting to understand an unknown entity. A young soccer phenom may dribble in a manner reminiscent of Lionel Messi, but to proclaim him “the next Messi” would overlook the myriad of ways that they are dissimilar. Once upon a time, Bobby Jindal was declared the “Republicans’ Obama.” The comparisons swiftly ceased once the only real similarities were found to be some charisma and a foreign-born parent.
The creation of Alphabet, the new holding company for Google, led to a hasty – and inaccurate – comparison to Berkshire Hathaway (this comparison is either argued for or alluded to here, here, and here). On the surface, it’s an easy comparison: tons of cash, low debt, different classes of stock, capital allocation decisions made by a holding company. Hell, they both have Indian-born whiz kids running the core businesses (Sundar Pichai at Google, Ajit Jain at Berkshire)!!
Once you get past the surface comparisons, however, the comparison falls apart. As many have noted, Berkshire Hathaway is comprised of self-sufficient cash-generators, whereas nearly all of Alphabet’s profitability comes from Google. Many of the other entities that will comprise Alphabet could be categorized as glorified R&D departments. You could spin off most of Berkshire’s companies tomorrow without much of a problem. Alphabet will not be comprised in such a manner.
Building a version of Berkshire Hathaway has been the goal of many different businesses in many different fields (here’s one example). Berkshire transcends industries, of course, owning dozens of companies in areas such as insurance, energy, consumer products, etc. What binds them together is profitability; what will bind Alphabet’s companies together is technology. Alphabet has the potential to be more cohesive than Berkshire, but will have to enjoy widespread profitability among its various companies for it to be properly compared to Berkshire. As of now, the framework is more similar to a venture capital fund, with one huge winner showering money over everyone else.
Discussion of Alphabet potential for success is a very different conversation. The history of conglomerates does not inspire confidence for such prospects, although Google’s leadership seems determined to avoid the fate of aging tech giants such as Microsoft, HP, and Dell. Once you lose the innovation edge, it is hard to reacquire, and Google is certainly looking to forge a different path.