Google chairman Eric Schmidt offered some candid remarks when venture capitalist Peter Thiel asserted the search company has no creativity as to what to do with its $50+ billion cash hoard. Google is like a bank that generates an enormous cash flow, but it’s no longer a technology company, that’s Thiel’s challenge to Schmidt. Watch him destroy Google’s chairman in a video embedded right after the break and feel free to opine down in the comments…
Thiel’s challenge to Google’s chairman:
Google is a great company, it has 30,000 people. On the other hand, Google also has $30, $40, $50 billion in cash – it has no idea how to invest that money in technology effectively.
Schmidt’s response:
The core problem we’re gonna have going forward is that you have two forces that are gonna govern much of what’s gonna happen in the future.
The first is globalization, which we’re not gonna repeal, and the second one is automation, which we’re not gonna repeal.
It’s basically a jobs problem and the solution is education, Schmidt remarked.
Than Thiel drops the hammer:
You have $50 billion dollars at Google. Why don’t you spend it on doing more in tech or are you out of ideas?
To this, Schmidt decided to just let Thiel’s statement stand. That didn’t sit well with Thiel, who went on to say that “Google is no longer a tech company”, adding this:
Google is basically a search engine. The search technology was actually developed a decade ago. It’s a bet that no one else will come up with a better search technology.
He likened investing in Google to betting “against the technological innovation in search”.
It’s like a bank that generates an enormous cash flow 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.
Ouch!
So, who’s spending R&D money responsibly then?
The online retailer Amazon, according to Thiel:
Amazon is the only one in my mind of the big tech companies that’s actually re-investing all its money, that has enough of a vision of the future that they’re actually able to re-invest all their profits.
Here’s your clip.
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While it is true that Google does not top the list of 10 biggest spenders on research and development, I wouldn’t go as far to say Google is just stashing its profits rather than invest into the future.
The truth is, Microsoft, Google and Intel all outspend Apple on research and development. In fact, and this may surprise you, Apple actually spends more on marketing and advertising as part of the general overhead costs than it does on research and development.
According to S&P Capital IQ (via USA Today) data from March 2012, a list of the top 10 companies and their R&D spending in the past 12 months looks like this:
• Microsoft: $9.4 billion
• Pfizer: $8.4 billion
• Intel: $8.4 billion
• Merck: $8.3 billion
• Johnson & Johnson: $7.5 billion
• IBM: $6.3 billion
• Cisco Systems: $5.6 billion
• Google: $5.2 billion
• Eli Lilly: $5.0 billion
• Oracle: $4.4 billion
Apple?
It’s #18 on the list with an R&D spending of $2.6 billion, or just two percent of its $127.8 billion annual revenue.
Now, back to Google.
I mean, if anyone is incubating hundreds of projects in the hope that a few will make a difference, it’s gotta be Google. Besides, the Mountain View, California-headquartered company is throwing money at projects that are not its core business, such as self-driving cars and fiber Internet service
Here’s Google CEO Sergey Brin, Turkish President Abdullah Gül and his wife enjoying a ride in one of Google’s experimental self-driving cars at the Googleplex.
Google’s Glass Project also pops into mind. It’s not a piece o technology that will get mainstreamed anytime soon, but it certainly files as an investment into the future aimed at ensuring that Google stays at the forefront of technology.
What do you think, is Google just a money printing machine these days that doesn’t put its cash hoard to good use?