Interestingly, Google is not even admitting that an increase in investments, R&D, or other valuable assets are in the works. Company officials claim they want to put more shares into circulation to meet the insatiable demand. Some securities analysts accept this claim:

Some analysts, like Steve Weinstein of Pacific Crest Securities, believe Google's explanation. The company statement indicates it simply wants more stock in circulation. According to Weinstein, it makes sense for Google to make more stock available on the open market before it becomes part of the (S&P) 500. The money, he said, is secondary. "Two billion dollars isn't that much money for Google," he said.

This line of reasoning does not satisfy all Google watchers, however. Many of them, the article asserts, "believe cash points to secret plans."

"Follow the money," said a banker who asked not to be identified for fear of alienating Google. "Why would they need $10 billion in cash?" That's a big question, and it puzzles and intrigues many top high-tech analysts. Many would not comment on the record but provided pieces of the puzzle.

Google has been buying broadband capacity. It has acquired "dark" or unused optical fiber and companies that can provide ways to transmit data on power lines. It has recently hired experts in satellite communications and has experimented with WI-FI networks. It can be good business to control the distribution system your company depends on for revenue. That costs money, but considering how much cash Google reels in, a quick call to a bank could seal any deal. The company doesn't need extra funds to build a "server farm" of equipment to store and manage Web pages. Nor does it need more money to add storage capacity or build a new network.

Cash, however, is more important overseas and is particularly helpful in emerging high-tech markets, such as India or China. Cash also helps if you don't want the banking community or Wall Street to know what you are planning. The notion that Google might be stockpiling money for some form of sneak attack has generated speculation. "The space they are in changes very quickly. They know that. Cash creates options and flexibility," said Whyman.

My inclination is to believe that the company is going to preparing to undertake a series of major acquisitions and investments in the coming 12-24 months, ones that have implications for the firm's core strategy, particularly its product, market, and geographic scope. I just can't help but thinking that no firm put this much hair on its war chest just to provide more stock for investors and institutions to buy and sell. I think that Whyman asks precisly the right question:

"They are in a great strategic position," said Whyman. "The question is, where do they go?"

I can't claim to know the answer. Clearly just what firms and technologies Google folds into its evolving business model and which ones find themselves on its business end will be revealed at the time and place of Google's choosing. One thing is clear, however: if Google keeps growing in size and keeps adding hair to its war chest this rapidly, people will soon mistake it for an 800 lb. gorilla.

Update: A student of mine at American University of Sharjah, Lina "the Warrior Princess" Osman, sent me a link to an article suggesting that Ebay may be one of the firms on the business end of Google's strategy.

Update 2: Will of the Integrative Stream, someone who might have been a student of mine had I stayed at MIT, also wonders whether Google is now an 800 lb Gorilla.

Tags: google | acquisitions | Mergers | technology | finance | Business |

Links: Conservative Cat | Don Surber |