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Besides the "cult of shareholder value", there is also an opposite fallacy where the more difficult to measure a division's payoff, the more leeway they have in

Besides the "cult of shareholder value", there is also an opposite fallacy where the more difficult to measure a division's payoff, the more leeway they have in blowing through cash. Many of the "moonshots" seem like the kind of thing that sure, might have some kind of long-term payoff, but not necessarily one captured by Google, or that justifies arbitrary levels of investment. A company can survive such a tax even if it's negative payoff, especially if other divisions are crapping gold bricks, but at some point you have to figure out what your long-term expectation is and calibrate expenditures to that level.

jjoonathan 10y ago
Absolutely. Thanks for saying what nobody likes to hear. Markets consistently undervalue research in the utilitarian sense, but I'm pretty sure they don't undervalue it in the economic sense. To be clear, I think this is a shortcoming in the economic notion of value, not in research. > sure, might have some kind of long-term payoff, but not necessarily one captured by Google That's the crux of it. It's not about unwillingness of companies to "think big" and "take risks", it's not about a shrinking horizon of shareholder ROI expectations, it's about the difficulty of capturing the value that gets created. Economic value that can't be captured isn't economic value. Maybe (probably, in this case) it's utilitarian value, but it's not economic value. The notion of intellectual property was a valiant attempt to turn things around, but it introduces so much friction and so many routes of exploitation that it really hasn't changed the fact that on some level markets are fundamentally incompatible with basic research -- which is why fighting to fund it through the government is so important.
crucifiction 10y ago
I think this is a key problem for google. I am not sure there are many who believe that the Google R&D/moonshots are actually going to turn into businesses or executed products for Google sold by Google. Their "heart" never seems to be in any of the other areas that they entertain, even at huge amounts of funding (like GCE) they seem to still be hobbies. In contrast, I doubt there is any shareholder that would not believe that if Apple's r&d stumbles on something they wouldn't be able to execute on product and turn it into a $xx billion segment.

jjoonathan 10y ago

Absolutely. Thanks for saying what nobody likes to hear. Markets consistently undervalue research in the utilitarian sense, but I'm pretty sure they don't undervalue it in the economic sense. To be clear, I think this is a shortcoming in the economic notion of value, not in research. > sure, might have some kind of long-term payoff, but not necessarily one captured by Google That's the crux of it. It's not about unwillingness of companies to "think big" and "take risks", it's not about a shrinking horizon of shareholder ROI expectations, it's about the difficulty of capturing the value that gets created. Economic value that can't be captured isn't economic value. Maybe (probably, in this case) it's utilitarian value, but it's not economic value. The notion of intellectual property was a valiant attempt to turn things around, but it introduces so much friction and so many routes of exploitation that it really hasn't changed the fact that on some level markets are fundamentally incompatible with basic research -- which is why fighting to fund it through the government is so important.

crucifiction 10y ago

I think this is a key problem for google. I am not sure there are many who believe that the Google R&D/moonshots are actually going to turn into businesses or executed products for Google sold by Google. Their "heart" never seems to be in any of the other areas that they entertain, even at huge amounts of funding (like GCE) they seem to still be hobbies. In contrast, I doubt there is any shareholder that would not believe that if Apple's r&d stumbles on something they wouldn't be able to execute on product and turn it into a $xx billion segment.