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Sunday, September 30, 2007

Google

When trying to find a topic to blog about, I tried to come up with questions I had about everyday life. In our “Blogging my Courses” handout, we were encouraged to apply things we have learned about economics to answer our questions. So, a question I have is, “How does Google make any money if it offers so many freebies to its employees?”

For those of you who don’t know what Google offers its employees, here is a website that explains it all: http://money.cnn.com/magazines/fortune/bestcompanies/2007/snapshots/1.html

Google offers its employees free: gourmet food, multiple snack bars, rock walls, swimming pools, salon services, massage chairs and a massage service, foreign language lessons, exercise classes (subsidized), personal concierge service, use of laundry machines (with free detergent), beach volleyball, work-out gyms, child care, on-site doctor visits, TGIF parties, and “pajama days.” Employees also get $5,000 if they buy a hybrid car, $2,000 if someone they recommend gets hired, and $500 toward take-out food during the month after having a baby. Also Google employees can bring their dogs to work, and 20% of engineers’ time can be spent on personal projects. Google also has various award/reward and bonus programs that can pay out over a million dollars each.

Google’s employee’s benefits are so good, that the website above asks, “Is Google's culture the cause of its success or merely a result? Put another way: Is Google a great place to work because its stock is at $483, or is its stock at $483 because it's a great place to work?” I would like to find this out too. It seems like a “chicken or the egg” question to me.

I understand that offering benefits to employees helps to reduce turnover and the high costs associated with it, but it seems to me that Google is offering so many benefits, that the money the company puts into the benefits would cut very deeply into its profits. Where do you draw the line? For example, does allowing engineers to spend 20% of their time, or over 1.5 hours out of every 8-hour workday, on personal projects actually “pay for itself” with increased productivity and work quality over the other 6.5 hours? 1.5 hours worth of work seems like too much to make up in 6.5 hours. And how significant is this benefit to reducing turnover?

Do the benefits help to pay for themselves by increasing competition for jobs? How about by increasing the potential for an employee to come up with a multi-billion-dollar business idea for Google? That single business idea could pay for all of the employee benefits for the year (Although it would require hiring new employees, who would also require benefits, but who would also have the potential to come up with a new multi-billion-dollar business idea, etc...)

So, I guess I have answered my own question, although it would be very difficult to prove myself right, since every business is different, which makes making exact comparisons almost impossible.

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