Google has a brand worth $76.683 billion, making it the World’s third most valuable after Apple ($128 billion) and Samsung ($82 billion), according to brand valuation and strategy consultancy Brand Finance. That means that this week’s announcement of Google’s restructuring and the introduction of the Alphabet brand, though seemingly superficial, could have major financial implications. Brand Finance CEO David Haigh gives his view on the likely impact.
“In the short term, Google’s brand value will drop marginally as revenues from some of the smaller branded businesses are rebranded to Alphabet or, more likely, are given independent identities. However these make up only a very small proportion of overall revenues so the impact is unlikely to be that significant.
The more interesting question is what the impact will be on Google’s image long term. On the one hand Google Fiber and in particular Google X suggest to consumers that Google is at the forefront of technological innovation, continually relevant and more than just a search engine. Remove Google’s branding from them will reduce this halo effect. Apple’s mono-brand approach has clearly served it very well, creating better recognition of services and interlinking of messaging. Google seems to have decided that something closer to a ‘house of brands’ approach suits it better. Youtube and Android are already major parts of the company not bearing the Google name. The creation of Alphabet suggests this approach will be expanded.
The rationale for this may be more based on managerial and legal concerns than on those of branding. Our view is that the new structure is a step in the right direction in managerial terms, allowing the constituent businesses to work towards their particular goals in a more focussed way.
From the legal point of view, Google is attracting more and more negative attention, whether as a result of lack of transparency, invasion of privacy or anti-trust concerns. Under the new structure there is likely to be more information about Google’s revenue streams, improving its accountability to shareholders and appeasing regulators. The restructuring paves the way for further subdivision to allay anti-trust fears and also means that legal issues of other kinds can be contained within that business rather than tarnishing the entire company.
That point plays into branding too, if one part of the company is dragged through the mud, the risk of contagion is lessened if it is branded differently. Google has often been hoisted by its own petard over the ‘do no evil’ slogan, critics won’t be able to do the same to Alphabet or its non-Google brands.
Overall it is a sensible move that will see Google’s $77 billion brand value dip in the short term but probably grow faster and more sustainably in the longer term. We may also now see the emergence of a stable of new brands from Silicon Valley entering the upper echelons of Brand Finance’s brand value league tables in the next few years.”
Note to Editors
Brand Finance conducts an annual research exercise, valuing thousands of the world’s biggest brands. These results can be found in the league table section of Brand Finance’s website. For more information on this or commentary on other brands, please get in touch.
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.
Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes over 100 reports which rank brands across all sectors and countries.
Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.
Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Discount post-tax brand revenues to a net present value which equals the brand value.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.
The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.