Dynamist Blog

The Google Effect

Elise Ackerman of the San Jose Mercury News reports on the economic effects that followed Google's IPO.

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.

That's more than the gross domestic product of countries like Iceland, Panama and Bahrain.

And the total Google effect could have exceeded $50 billion, thanks to the so-called multiplier effect, in which every dollar of spending theoretically creates two or three dollars more of economic activity.

Closer to home, the cash that stayed in Santa Clara, San Mateo, San Francisco and Alameda counties - where the bulk of Googlers live - couldn't have come at a better time.

Googlers began getting their loot exactly as the rest of Santa Clara County - Silicon Valley's epicenter - hit bottom after the dot-com bust.

Santa Clara's labor force shrank to 840,700 - its lowest post-boom level - in April 2005, the same month the lockup that had prevented Google's executives and employees from selling their shares after the IPO expired.

Google began minting millionaires at a time when a million-dollar paycheck had become something of a local rarity. The California Franchise Tax Board counted only 4,005 tax returns for Santa Clara households earning more than $1 million in 2005 - less than half the number reported five years earlier at the height of the boom.

"It was like they were the only ones keeping the lights on around here," said Russell Hancock, president, Joint Venture: Silicon Valley Network.

In some cases the Google money was easy to follow. Hugues de Vernou, president of Village Imports in Brisbane, said he was able to keep his specialty food business going, in part thanks to Google's food orders. "We are very grateful to have them as a client," he said. "They are extremely innovative in the technology world and certainly very selective as far as their food."

Indeed, the Google effect might have been felt as far away as France, where suppliers wrapped up Bucheron and Pont l'Eveque cheese and other delicacies for de Vernou to deliver to Mountain View.

Ackerman collects a wide variety of examples, from new charitable ventures to wars for cooking talent. Overall, it seems the Google effect seems to run more to comic books than conspicuous consumption. This is, however, an area where $2 million homes are considered "mid-market."

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