Does the Wealth of Google Presage Stagnation?

July 29, 2012

Is Google’s cash a fat spare tire for management? That seems to be the view of a prominent entrepreneur who recently debated the issue with Google’s Eric Schmidt, as revealed in reason’s “Is Google’s Cash Pile a Sign of the End of Technological Progress? Peter Thiel Says Yes.”

Thiel is famous for co-founding PayPal, investing very early in Facebook, and avidly supporting Libertarian candidates and ideals. His small-government stance was evident in his discussion with Schmidt, in which he insisted that government has “basically outlawed everything having to do with the world of stuff, and the only thing you’re allowed to do is in the world of bits.” Therefore, he insists, Google has nothing new it can invest in because everything except what it has already perfected is illegal. Huh?

Thiel goes on:

“The intellectually honest thing to do would be to say that Google is no longer a technology company, that is  it basically ?? it’s a search engine.  The search technology was developed a decade ago.  It  is a  bet that there will be no one else who will come up with a better search technology.  So, you invest in Google, because you’re betting against technological innovation in search.  And it’s like a bank that generates enormous cash flows every year, but you can’t issue a dividend, because the day you take that $30 billion and send it back to people you’re admitting that you’re no longer a technology company.”

Um. . . yeah. Blogger Brian Doherty seems as dissatisfied with this logic as I am, and thinks Schmidt did a poor job at refuting Thiel’s argument. Since he doesn’t reproduce Schmidt’s response, I can’t evaluate that conclusion. However, I think the holes in Thiel’s argument speak for themselves.

Cynthia Murrell, July 29, 2012

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