There’s been a great deal of consternation over Google’s supposed abandonment of net neutrality. As of now, Google and Verizon are denying that there’s a story and the NYT is insisting Edward Wyatt’s reporting is sound. We’ll find out soon enough.

But the case did lead me to think about Google’s image problem. Google’s recent decision to fold Google Wave should not be seen as a failure, in my view. Rather, it reflects a healthy willingness to let a project that fizzled to go kaput, and to apply its insights and incremental innovations to Google’s more successful cloud applications, and to Google Me, the company’s much-discussed social networking effort.

What is interesting, however, is that Google seems to be losing momentum in the “war for talent.” Facebook has managed to attract a number of Googlers and ex-Googlers, despite Google’s deep pockets, and other cutting-edge firms are having similar success. In the age of digital organizations, this is very serious. I briefly discussed the broader implications of digital organizations in a recent column:

The authors observe a sharp divergence between firms that successfully transformed themselves into effective digital organizations and those that did not. Very bluntly, digital organizations flourish while others wither and die. Brynjolffson and Wharton economist Lorin Hitt identified the defining characteristics of digital organizations, and the most striking were those centered on valuing the strongest performers within an organization: In digital organizations, employees are empowered to make decisions and they are subject to performance-based incentives. Recruiting and investing in top performers is a high if not the highest priority.
The logical implication is that the transition to digital organizations is a recipe for even more inequality. In “Performance Pay and Wage Inequality,” economists Thomas Lemieux, W. Bentley MacLeod, and Daniel Parent maintain that the increasing use of performance pay can account for “nearly all of the top-end growth in wage dispersion.” Assuming this pattern holds, there is no reason to believe that we will see any decrease in wage dispersion. Quite the opposite: The most skilled workers will cluster in digital organizations, and wages at the top will continue to expand at a healthy clip.

To be sure, there is every reason to believe that Google will continue to flourish for many years to come. But is the bloom already off the rose? Has the life-cycle of innovative firms been radically compressed, with decay setting in much sooner than had been the case in the past?

Critics of capitalism often lament “the rat race,” and the (supposed) increase in anxiety as firms outsource and shrink and demand ever-increasing productivity. One gets the impression, however, that firms are in a somewhat weaker position relative to star performers as well. The owl of minerva has been buzzing around at high speed like a hummingbird.

I see this as a good thing. But it is certainly unsettling.