[ChuckMcM]

I expect there are several things. The interesting question for me is how people nominally running for profit businesses decided it was "better" to hold cash than to grow the business. This is acutely true at Apple which is in even worse shape than Google in terms of billions of dollars sitting around and not doing anything. The rumor of course is that they (Apple) are building a self driving car that they will announce at some point but programs that large are hard to keep completely quiet.

So the economist in me is really wondering what that capital is doing sitting around when its owners are getting trounced for loosing their leadership edge.

[nostrademons]

Not sure if you were at Google in 2009 when this question came up in the immediate aftermath of the financial crisis, but the answer is that opportunities are discontinuous. Economics in the real world doesn't work like "spend $x, make $y = $2x" in any sort of high-tech industry. Rather, it's "wait 10 years for the appropriate technology to be developed, spend whatever it takes to acquire it, then you have the opportunity to spend $x for the chance to make $100x". The gating factor is the development of the technology itself, which is unpredictable and depends upon certain intuitive leaps of faith by many, many researchers, sometimes working in concert and sometimes just exchanging ideas by chance.

Holding large cash reserves gives these big companies a chance to pounce when an opportunity does present itself. That's also why prices for genuine innovation tend to be kinda insane. It's a market with one seller and max 3-4 buyers, so not exactly competitive.