Is there really a “Google Effect”?

The San Jose Mercury News had a cover article last week on the “Google Effect” which discussed how a “soaring stock price creates a gusher of wealth that is spreading far and wide.”

Really?

The examples they give are Googlers buying fancy bikes (in order to ride to work) so the bike shops are benefiting. They are also apparently buying custom boats and imported foods so specialty grocers in Silicon Valley are apparently seeing a big uptick in business. Here is more:

The wealth spread far and wide as Googlers hired maids and nannies, accountants and financial planners. They bid up home prices in Silicon Valley’s most elite ZIP codes and splurged on $15,000 custom bikes and $650,000 boats.

But no one knew how big the Google gusher was - until now. A Mercury News analysis of company documents filed with the Securities and Exchange Commission provides a rough estimate of the wealth that erupted from the famous search engine, spreading throughout the Bay Area and far beyond.

From 2004 through 2006, the most recent data available, Google generated more than $19 billion as employees cashed in stock options, top management sold shares and businesses provided Google with everything from imported olive oil to information technology services.

There are about 13,000 Google employees now but only about 4,000 to 5,000 are actually in the San Francisco Bay Area. And, yes, while the stock is hitting new highs, how many of those workers are older employees that would have more valuable stock options? Probably not that many.

Too much emphasis is put on one company whose stock is doing really well. Is the media in Dallas talking about the “Exxon effect” (as the stock has doubled in the past few years?) Or in Chicago, where the Chicago Mercantile Exchange stock (CME) has gone from $41.00 at the IPO in December 2002 to $629 today? That is a far better return than Google (which has gone from $95 to $637).

Where are all the CME millionaires? (Many employees there had stock options as well.) You would think that their spending habits are spilling over into the Chicago economy as well. They are a smaller company, with about 1500 employees, but those are a lot of rich employees.

There is no doubt that a rising stock price and a company that is hiring thousands of new workers a year will “create” a lot of spillover wealth effect in a region. But there is too much obsession with these companies and the wealth they are creating. ChevronTexaco is also headquartered in the Bay Area. They own a large refinery right near the Bay. Their stock is also doing quite well. I would bet if you looked at their “wealth effect” it too would be quite large.

The “Google Effect” is what happens in the normal course of a great company growing and doing business. Nothing more.