Philanthropy smackdown: Google vs. Gates.

Philanthropy smackdown: Google vs. Gates.

Philanthropy smackdown: Google vs. Gates.

Moneybox
Commentary about business and finance.
Sept. 18 2006 5:33 PM

Philanthropy Smackdown

Google vs. Gates for the World Charity Championship.

Google.org has accomplished in one week what it took its parent company years to accomplish: It has already stolen market share from Bill Gates. As the New York Times reported last week, Google will commit $1 billion to a for-profit philanthropic operation that will do everything from back startup companies to lobby legislatures. Among its first projects: helping to build a superefficient ethanol-gasoline-electric car engine.

Trendy and utopian? Absolutely. And yet the hardheaded John Tierney, the Times' house libertarian and an avowed foe of corporate do-gooding, has given his grudging approval. Google, which has managed to make Microsoft look old and stodgy as a business, is now trying to make the Bill and Melinda Gates Foundation look stodgy as a philanthropy.

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Google wasn't the first Silicon Valley company to devise search algorithms for finding stuff on the Internet, and it isn't the first Silicon Valley outfit to fuse the profit motive and philanthropic efforts. eBay founder Pierre Omidyar has already funded dozens of organizations, including for-profit companies that make socially useful goods and venture philanthropy outfits. Marc Benioff, the founder of Salesforce.com and the Salesforce Foundation, claims to be the pioneer of the 1/1/1 model—a company that donates 1 percent of its employees' time, 1 percent of its equity, and 1 percent of its product to philanthropic endeavors. But Google is reaping the great publicity because these days, the market values what Google is doing more than it values what most other companies are doing, including Microsoft.

While Google is hailed as the architect of the world's technology and philanthropy future, Microsoft, the erstwhile globe-changing software company, is looking more and more like an Old Economy industrial firm: a dividend-paying, slow-growing behemoth founded by an industrialist/accused monopolist who has created a foundation in part to expiate the sin of amassing the world's largest fortune.

Google's willfully innovative approach to philanthropy has made the Bill and Melinda Gates Foundation seem like a 2.0 philanthropy in a 3.0 world. The Gates Foundation, with assets of $29 billion, according to last year's annual report, gives away about 5 percent of assets in grants each year ($1.4 billion in 2005). The newly named conduit for giving away Warren Buffett's vast fortune is now building up staff and infrastructure to be a lasting power in the world of philanthropy. Google, by contrast, isn't interested in building fancy new headquarters and hiring a cadre of program officers. Larry Brilliant, the M.D./technology entrepreneur tapped to head Google.org, told the Times that the company is forgoing such a strategy in part because it has a moral imperative to harness all the tools at its disposal—including market forces—right now. "Dying people can't wait for some 20-year plan." Google's founders share similar dreams. The 2004 prospectus noted that the company's founders believed they would eventually be as effective at solving issues of poverty and environmental degradation as they are at solving the issues of how to track down a long-lost high-school friend. "We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world's problems."

Thus far, however, Google's actions don't exactly match the rhetoric or the public acclaim. The $1 billion that Google is committing represents less than 1 percent of its market capitalization. * And Google founders Sergey Brin and Larry Page, who are tied for 16th wealthiest American, according to Forbes, are being touted as new-era Rockefellers even though they're really not investing much of their own fortune in Google.org. Each owns about 31.5 million shares of Google, according to the most recent proxy statement, or about $12.6 billion worth. Together they have about $25 billion in Google stock. To fund a $1 billion philanthropic initiative, they'd have to part with about 4 percent of their net worth. But Page and Brin aren't donating their own money to Google.org; they're causing the company, of which they own about 20 percent, to donate shares of Google. Talk about operating leverage: They give 20 percent of the funding and receive 100 percent of the credit. By contrast, Gates has funded the Gates Foundation entirely with his own money.

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In part because of Microsoft's long-running legal problems in the 1990s, Gates has had to bend over backward to make his philanthropy seem truly selfless. The Gates Foundation, which has done world-changing work on global health and poverty, takes pains not to be seen as promoting initiatives that could help boost demand for Windows. Google doesn't operate under the same constraints. The self-referentially good company (don't be evil) came to market long after the excesses of the 1990s. It has had none of Microsoft's image problems. All it has done is make people rich while giving them access to free information. So, the fact that Google's shareholders are funding the philanthropy, and could ultimately benefit from it, isn't seen as a big problem. You don't have to be a stock analyst to see how efforts like giving away free Google ads to nonprofits, or promoting literacy through the use of subtitles in Indian films, can ultimately help Google Inc.

Google.org certainly represents a new wrinkle in philanthropy. But as an organization that relies on stock instead of cash as a currency; that makes bold, even arrogant, claims about changing the world; and that sticks public shareholders with the bill for the bosses' pet projects, it's perfectly in keeping with the ethos of Silicon Valley.

Correction, Sept. 21, 2006: The piece originally miscalculated the relative value of Google's commitment. One billion dollars represent less than 1 percent of Google's market value, not less than one-half of 1 percent of it. (Return  to the corrected sentence.)