5 Reasons Google Formed Alphabet

Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) announced Monday that it plans to form a new company called Alphabet. The news has been met with a lot of praise, a little skepticism and a number of questions, but there may be a few key reasons why Google moved in this direction.

1. Liability

Rob Enderle, principal analyst at Enderle Group, said that the first reason is to limit liability.

"They're trying to contain the liability and they're probably looking at the EU in particular, which has been looking to fine them on antitrust grounds," Enderle told Benzinga.

2. Greater Flexibility

Enderle said that by launching Alphabet, Google will be able to provide a "greater degree of flexibility for [its] divisions."

"Remember, they haven't had a lot of success in executing outside of their core area," he said. "This could allow those divisions to step outside of the core and maybe execute."

Related Link: Google Gives Twitter The 'Broadest Audience Possible'

3. Big Titles And Employee Retention

Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, told Benzinga that Alphabet will allow Google to "provide big titles to leaders of these new, entrepreneurial ventures." Enderle believes this could help with the firm's retention problem.

"They've have had retention issues with executives leaving because they can't get those senior titles," said Enderle. "But those separate firms, of course, each firm gets its own CEO, CFO and suite of executives. With an acquisition like Nest, the people are more likely to stay on because they keep the titles they came in with as opposed to losing them as part of a merger."

4. Making Sense Out Of Google

Tech industry expert and analyst Jeff Kagan told Benzinga that Google should have done this a long time ago.

"This is Google's way of trying to make their vast array of companies and directions have some order," said Kagan. "Google is not just a search engine company; they're into dozens of different businesses. Separating them into different companies makes sense."

Moorhead believes this is Google's attempt to "separate its 'science projects' from more tangible businesses that deliver profits."

5. Forcing Transparency

The biggest benefit could from clearer reporting.

"I do think that it [will] force a little more transparency that the analysts are looking for," said Moorhead.

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