Thread: Google Searches for a Use for Its $26.5 Billion Cash

MAY 7, 2010, 4:10 P.M. ET.

Google Searches for a Use for Its Cash

If Google's management had a machine that could convert cash into growth in the search business, they would be using it. But they don't, so they have a hard choice to make: return cash to shareholders or start investing in higher-growth but lower-return businesses. If they choose the latter, the best course would be an aggressive foray into enterprise computing.

It's difficult to imagine a business with better returns on investment than Google's search franchise, which has allowed the company to build up a $26.5 billion cash pile—too much to be deployed in the core business.

Growth is slowing, thanks to Google's very dominance. There are niches and regions Google could penetrate, such as mobile search and Asia, but its recent retreat in China and its experience rolling out a mobile phone demonstrate that further search growth could be slow in coming.

Meanwhile, Google's balance sheet is flabby. The company's cash position is larger than any other tech company's and amounts to 19% of the firm's enterprise value. Google is now where Microsoft was six years ago, when it acknowledged that it had no good way to invest the $50 billion-plus that had piled up and announced plans to pay a dividend and buy in shares.

Google could pay out the whole pile, which amounts to more than $80 per share. But tech companies don't like to pay dividends. Google's current acquisition efforts aren't making a dent. So where else might Google put the money to work?

Enterprise computing is the natural answer, for two reasons. First, Google's stated aim is "to organize the world's information" and, while the company has tamed the Internet, it has barely touched the data behind corporate firewalls. Second, enterprise is where the money is.

Google has a small, fast-growing enterprise business devoted to extending its consumer products into businesses—search, email, documents and so on. The approach makes sense and leverages Google's computing infrastructure to offer clients Web-based applications.

The approach is fundamentally conservative. It doesn't aim at the biggest-ticket, highest-margin items in corporate IT budgets. Given what Google has done with search, what could it do for enterprise data collection, database design, analytics and data storage?

Established data-center vendors have products that work well with so-called "structured" data —essentially, data sets that would fit in a straightforward spreadsheet—but less so with the reams of unstructured data that businesses generate each day. Any company with an e-commerce, social-networking or telecommunications aspect throws off masses of unstructured information of precisely the sort that Google has made its name systematizing. Google mapped the biggest hunk of unstructured data ever—the Internet—so presumably it has some transferrable skills to offer enterprises.

http://online.wsj.com/article/SB1000142 ... EFTTopNews

They should donate 1% of the 26.5 billion to John Doe 2.

I would be very grateful if the gave me a couple million.