Why can’t companies like Google, Apple, and Microsoft find ways to spend the tens of billions of dollars they have in the bank? That’s the question Peter Thiel asked of Eric Schmidt at a recent event. The fact that these huge sums of money are being parked by the biggest companies in technology is a problem for US productivity and employment and it’s a sign that the pace of innovation in tech is not where it needs to be.
That said, even if good ideas abounded, it would be difficult to put the money that’s already in the bank to use quickly. Even $1 billion is a lot of money to spend. You could use it to hire more than 5,000 engineers for a year. What would you put them to work on? How would you even scale up such a team if you had a project? There just aren’t that many shovel-ready projects available.
Apple put another $7.2 billion in the bank this quarter. That’s a symptom of something.
July 24, 2012 at 9:15 pm
Thiel and Schmidt seem to agree that one reason for this problem is that “government has outlawed things.” Would love to know what those things are. Couching the the problem as “too big government” is particularly troublesome if the issues are around monopolies, workers’ rights, privacy, the environment. Better to say “our society has decided that unregulated ‘innovation’ is perhaps not such a good thing.” Real innovation will account for those constraints.
July 24, 2012 at 9:16 pm
I think that blaming the government in this case is absurd, but par for the course with Peter Thiel.
July 24, 2012 at 11:28 pm
If these companies are unable to invest it all, shouldn’t excess cash be distributed as dividends to the share holders?
July 24, 2012 at 11:52 pm
@Phil: To pay dividends to shareholders, you would need to bring the cash into US. That would make it taxable. While it’s sitting in a bank account in an offshore fund, it’s not taxable. So they keep it in a foreign bank account because chances are corporate taxes will be cut to zero one day per fashionable economic doctrine and so they’ll be able to repatriate the funds without paying any taxes at that future date.
July 25, 2012 at 8:48 am
I wonder what could be done if these companies didn’t have to worry so much about patent trolls and litigation? If there is one thing I can see that could help this problem, it would be patent reform. That said, it says a lot when companies view cash as their best investment.
July 25, 2012 at 10:26 am
While I am completely in favor of massive patent reform (let’s get rid of them!), I don’t think they play much of a factor, because I don’t know of anyone who doesn’t do things due to patent litigation risk. In fact, you don’t want to research patents before working on features because if you knowingly violate a patent damages are tripled.
July 25, 2012 at 12:38 pm
I don’t think patents prevent companies like google or apple from innovating, apple’s recent patent war makes me think it more likely they’d love to file as many new patents as possible to hinder competition.
Paying dividends seems like a pretty good idea, because there is a limit on how fast you can grow your business, certainly once it’s that large. It’s probably a lot easier to enter a small number of new businesses each year with the focus to be successful than it is to spend billions of dollars and be successful, because the company can’t expand focus as easily as it can spend money.
July 28, 2012 at 10:48 am
If a tech company starts paying dividends, they’re acknowledging that it’s no longer a entirely growth-focused company (in the stock market, “Growth” stocks rarely pay any dividends, since the assumption is they’ll better use the money by reinvesting internally). Stockpiling cash helps them avoid acknowledging that they don’t have anything better to do with the money (since they could use the cash to make acquisitions).