Tuesday, June 01, 2010

Google Builds a Trading Floor

Business Week reports that Google has created its own in-house trading floor to manage its $26.5 billion in cash and short-term investments. The company has hired a number of top traders and analysts from Wall Street firms to run its in-house operation. Does this make sense? One could justify this move only if you believe that Google can be more effective and efficient at managing its own investments than it could under any other organizational arrangement. In other words, is this better than Google outsourcing the function? Is it better than Google creating an alliance or joint venture with an outside entity to do this together? Why should we believe that Google can manage its investments more effectively than outside experts?

The article suggests one reason why Google may be able to do this well. Business Week reports that Google has developed a proprietary technology that enables them to track their portfolio more effectively than many outside investment firms. Of course, we don't know how true this claim is. Perhaps some investment firms would challenge this assertion. However, even if we grant that Google has developed a technological edge, we have to ask: Would Google be better served selling this technology to investment firms? Would Google realize more value by making a business out of the software that it has developed as opposed to simply using it to manage its own cash holdings? Perhaps that is what they intend to do. Maybe they are simply testing the technology first in-house. We shall see.

1 comment:

Matthew said...

I remember hearing about this when the job postings for traders first appeared. There were rumors of another advantage for Google's trading platform in the form of synergy when combined with web searching. By being able to aggregate and analyze search statistics, it becomes easier to trend and predict consumer preferences. The argument was that Google could use this information to make smarter investments in its portfolio... and eventually offer the service to others. However, I think this sounds like one of those things that is much harder to do in reality.