Google just became 'Alphabet.' Here's why that spells big news for health care.

Dan Diamond, Executive Editor

Google's been grappling with a problem that's familiar to hospital systems: The company has moved beyond its original mission, and is trying to reconcile its short-term operations with its long-term ambitions.

Health care executives are refocusing on population health. Google's reshaping itself to tackle population-level problems.

And that's one reason why the tech giant on Monday announced that it's transforming from "Google"—the search engine firm, with a diverse mix of subsidiaries—to "Alphabet," a holding company that includes Google and a handful of intriguing, if currently unprofitable, startups that are disproportionately focused on health care.

(More on Alphabet's soup of companies in a second.)

How a holding company works

When I first read about Google's big move, I immediately thought of this blog post by Tom Cassels and Ben Umansky, which defines how a "holding company" works.

As Tom and Ben write, the "corporate office has a narrow role, and incentives are aimed at maximizing the performance of the individual business units." It can be a way to break up the Towers of Babel that start lurking within many diversified, complex companies, and Ascension is one of the health systems that's moved to this model.

Of course, a holding company model might not be right for many health care systems, Ben told me—especially if the system is disaggregating the hospital, medical group, surgery centers, and whatever else that a patient might touch in a standard episode of care.

"In a single geographic market you don’t want those things running themselves independently because you get some combination of gaps, redundancy, and outright conflict," Ben warns. (If anything, that's why an operating company model might be better for health systems, he noted.)

But that's not the case with Alphabet. "Google's pieces aren’t all the same thing," Ben pointed out to me. "Biotech, self-driving cars, that search engine thing—the markets and business models are different, synergies aren't as obvious, and the potential for internal competition seems much lower." And that's why a holding company model might make more sense for Google and Alphabet than it does for a health care system.

Alphabet's health care companies

As Ben alluded to, and I teased above, there were four potential health care giants lurking within Google.

  • Calico: The new biotech firm that's researching the biology of aging.
  • Google Ventures: The venture capital arm of Google, which invested 36% of its funds into health care companies last year.
  • Google X: The "moonshot" division that's working on incredible inventions straight out of a sci-fi movie, like nanoparticles intended to circulate throughout your bloodstream and spot cancer.
  • Life Sciences: The team that's developing inventions like a "smart" contact lens designed to monitor your body through miniature sensors.

Under Alphabet, each will have more room to be innovative and independent. Each also will be more accountable for performance—which could motivate them to work toward producing results.

It's worth noting that some of these firms have already made a mark on health care. Google X brought us Google Glass, which some hospitals and doctors believe could be transformative.And Google Ventures is already an important player in the health care venture capital world; the company committed $153 million to health care investments last year.

Not everyone is convinced that great things are coming. Matthew Herper, one of the great biotech journalists, thinks that the move to Alphabet will actually insulate the health care startups from profit pressures, rather than set them loose.

But I'm struck by something that investor James Altucher posted on Tuesday morning, a few weeks after he got a special tour of Google's headquarters. Here's an excerpt of his post; the italics are mine.

    [W]e met with a friend high up at Google and learned some of the things Google was working on. 

    Nothing was related to search. Everything was related to curing cancer (a bracelet that can make all the cancer cells in your body move towards the bracelet), automating everything (cars just one of those things), Wi-Fi eveywhere (Project Loon) and solving other "billion person problems". 

    A problem wasn't considered worthy unless it could solve a problem for a billion people. 

You know one problem that's plaguing a billion-plus people?

Health care.

On this week's episode of the Weekly Briefing: Venture capital and health care

Listen to this week's episode of the Weekly Briefing, as Dan, Rivka Friedman, and Rob Lazerow discuss how capital is flowing into health care, and whether Silicon Valley is well-positioned—or not—to help "heal" America's fractured health care system.

And subscribe to the Weekly Briefing on iTunes so you'll immediately get a brand-new episode every week. Listeners are calling it "fascinating and fun," and "disturbingly good." According to one well-known health care expect, "it's excellent. I get smarter listening to it."

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