Market cap isn't real. That's just a valuation based on...well, usually, 'feelings'. Microsoft has real money. Google has real money too, but not Microsoft money.

That's why Twitter, which is a tiny company with no profits and probably not much more growth potential, has a higher market cap than some insurance companies an retail chains with good growth, real money and solid long term market potential. "Feelings".

I think I generally agree with what you're saying, but a comment made during a CFR discussion[0] makes me want to point out that those "Feelings" can be of value:

"What about Facebook? What about Twitter? I have no idea what Twitter is good for. But if it flips out every tyrant in the Middle East, I'm interested."

I guess it's just pretty hard to allocate resources in the traditional sense that most people are used to because of leverage that companies like google can provide, but people try anyways.

All in all, I think google is just trying to increase confidence from advertisers in it's content network.

[0]: http://www.cfr.org/technology-and-foreign-policy/technology-...

.... That's a valuation based on "There exists a person who has recently put his money where is mouth is and paid someone $MARKET_CAP/N for 1/N of the company."

Which is hardly to say that you can unload the entire company at that price, or that it'll last, but it's a step above mere 'feelings'. :b

I think you nailed it there. Market cap is valuation and subject to change on a whim [edit- specifically, it's a measure of sentiment; it's a prediction of future cash flows] . Free cash flow is probably a more accurate measurement of the "poor" vs. "rich" concept. Let's be honest though- both companies are filthy rich.