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Is Google Draining or Retaining? Reports of an exodus of talent from the company have been greatly exaggerated.

By Chris ThompsonPosted Monday, June 2, 2008, at 12:27 PM ET

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In 2007, Paul Boutin introduced four great Google applications you may not have known existed and pitted PowerPoint against Google's competing slide-show tool. Michael Agger wondered whether the "Big G" knows too much about us. Adam L. Penenberg offered some advice about how search engines should do business in China, and Chris Wilson argued that a theoretical Microsoft-Yahoo hybrid wouldn't compete with Google on Web searching.

Even some of Google's Silicon Valley rivals claim that Google has nothing to worry about. "People love to work there; it's a fun environment," says Craig Donato, who founded the rival classified ad aggregator Oodle. "I've actually been surprised and impressed by the number of people they've retained."

So where does all this hype come from? What prompted Fortune magazine to publish a 3,000-word story on the subject, with the title "Where Does Google Go Next?" According to Brett Bullington, who advises Valley startups and sits on the board of Digg.com, Google is just going through the same process of growth and maturation that Microsoft and Yahoo did a few years earlier. "The bigger issue they've got is that as they expand their employee base, so many employees, their experience with Google is really post-IPO, and the challenge is how do they keep this small, creative atmosphere alive," Bullington says. However, he adds, every company loses some of its more interesting players when it reaches a certain size, and the real story is how well Google is managing this process: "You go to a meeting at Google and ask yourself: [Can you] find a person who doesn't want to be at that meeting? They're all very active, and all very engaged. Show me another company where that's true."

That's not to say that Google doesn't face any challenges in keeping its smartest people. For one thing, the pre-IPO days when an early employee could expect massive stock windfalls are over. And for years, company managers have worried that someone has to do the dull, infrastructural coding, and hiring the best and the brightest will leave some people so bored that they'll leave to start afresh. "That was a problem in 2004," says David Friedberg. "I think the term was voyager engineers, like they would travel around and work on the things that most people didn't want to do." Google has tried to address this by offering "20 percent time," or one day a week when engineers get to work on pet projects like the social-networking site Orkut. In addition, Friedberg says, Google has begun contracting its infrastructural work to outside companies, reserving its own work force for the more intriguing projects.

Google's biggest problem may be that the company trains its employees so well that they become uniquely qualified to start businesses of their own. When asked about this supposed talent exodus, Chief Executive Officer Eric Schmidt told Fortune that the venture capital market was just too dry to lure people into the startup game right now. And in fact, venture investment dropped more than 8 percent in the first quarter. But according to Friedberg, it's one thing when any schmo with a business plan approaches a V.C. firm for seed money—it's another when you can boast Google on your résumé: "All the V.C.s are saying, 'Oh yeah, these Google companies are doing really well.' They're noticing that Google companies are better than the average company."

Nonetheless, Google seems merely to be entering the same maturing phase that its biggest rivals did before it—and managing the process better. If a true Google brain drain is going to occur, it will probably have to wait for the day that a better company emerges.