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Wednesday, June 29, 2005

Just how much is "everything" worth?

This is the share price of Google since it's IPO last year. Despite a few setbacks, the company's stock has continued to appreciate at a steady clip.

Why is Google so valuable? Is their business model that much better than GM or Walmart? Perhaps the secret is not so much how Google makes money but that Google knows just about everything there is to know about on the web.

Hayek discounted the probability of an efficiently "planned" economy because there was too much information to internalize. Hayek argued that markets were much better at organizing production, distribution, and consumption, because individuals could use their private information - much of which could never be conveyed to the government in the first place - in allocating scarce resources.

I have long been sympathetic to Hayek's intuition. However, Google introduces something that Hayek may not have contemplated - or if he did, he would have had a hard time envisioning something like Google. Google knows just about everything there is to know about on the Internet. How much of everything is on the Internet? Probably not much - say five percent (for working purposes) of human knowledge? Because this Internet thingy isn't going away, as human knowledge continues to expand more of it will be duplicated on the web and Google will be capturing, sorting, internalizing that information.

If the Internet is essentially boundless, and therefore the information contained therein is essentially boundless, and one (or two or three) company is busy gathering and organizing all that information, is there any (reasonable) limit to the market value of Google?

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