To hear some folks talk, the Google Initial Public Offering (IPO) is the greatest thing to happen to the tech market since the great Netscape launch of 1995. Google, they figure, will take us back to those thrilling days of yesteryear when all the world was an IPO stage and the tech cowboys were making millions. No such luck.
The world is different now. And this is a different kind of company and a different kind of IPO.
One reason the world is different is that a whole lot of folks watched their life savings or net worth vanish in a puff of smoke during the collapse of the Dot-Com Bubble. They're warier now and they might even be prone to look for a profitable company to invest in.
Google is indeed profitable and that's a pleasant change from Bubble Days. Back then it seemed like just about anyone could go public. Now, though, regulations have been tightened up and compliance with those regulations has gotten more expensive.
There are other things that are different about the Google IPO. For one thing it will make use of a Dutch auction format to offer shares to the public. The share structure is different, too. The voting structure is rigged to favor the existing owners, probably, they figure, so that it's harder for Google to be taken over and easier for management to concentrate on doing what it wants.
The Google Guys, Larry Page and Sergey Brin, want their company to remain their company, even after the public plunks down cash to buy a big chunk of it. That's pretty much what they say in the chatty letter attached to the public filing.
According to the letter, the motto of the firm shall be "Don't Be Evil." That's hardly the stuff of the standard prospectus.
I always get a little suspicious when folks in business attribute social purpose to what they do. So far the only business person who's been able to bring off some social change by the way he runs his business is Ricardo Semler.
Most other successful founders, such as Bill Gates, are content to make a lot of money from the business and use that money to bring about change. Sam Walton may have believed that it was a great social good for folks in small towns to have access to stores with great prices, but the reason he set up Wal-Mart the way he did was to deliver value in the market that would lead to business success.
The Google Boys also say they may invest the company's resources in "unpredictable ways." In other words, "We're gonna do what we want with the money you give us." Will this work? I think not.
Right now, Google has power because it's profitable. It has so much power that the company has actually taken control of the IPO process. That might make you think that they could do the other things they plan.
When you're profitable, the shareholders and the analysts will let you get away with a lot. But string a few bad quarters together and that patience can wear thin pretty quick. The Google Boys might want to consult with Ben Cohen and Jerry Greenfield of Ben and Jerry's Ice Cream or Anita Roddick of the Body Shop.
Human nature could cause problems, too. I spent enough time in enough dot-com companies during the Bubble to have an idea about how those stock-owning employees view things. Stock tickers reporting the company's stock price were on most of the monitors I could see.
Brin and Page may have the discipline and wealth to pursue social goals and independent courses instead of immediate profit, but I'm not sure Google's employees will always agree with them. It's human nature to look out for your own good and the laws of human nature haven't been repealed just yet.
The laws of economics haven't been repealed either. Money still rules in the market. Think about this. Why is Google going public at all?
The founders don't seem to want to go public. They'd prefer the level of control and freedom that comes with not having to report to shareholders. Google doesn't need the money. The company is throwing off plenty from operations to fund growth. The only reason that makes sense is that the venture capitalists who funded Google want to cash in on their investment.
In the end the basic laws of nature, human nature and economics will apply, no matter what Messrs. Brin and Page want.
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Warren Buffett is considered the great sage of investing. His practical, value-based approach to investing has made a lot of money for him and for shareholders in the Berkshire Hathaway Corporation. It's not likely that Mr. Buffett will be buying any of the Google shares for Berkshire, since he tends to think that high-multiple offerings cannot be readily valued.
Every year he writes a letter to the shareholders that has become must reading for anyone concerned with investing or the economy. In fact, his letter is, in part, the model for the letter that Page and Brin added to Google's filing. You can find Buffett's letters to shareholders back to 1977 on the Berkshire Hathaway site.
Mr. Buffett has not written a book on investing, but he follows the principles of one of his teachers, Benjamin Graham. Lawrence Cunningham has done a great job of bringing the thinking of those two together in his book, How to Think Like Benjamin Graham and Invest Like Warren Buffett.
If you want to go back to the original, the Ben Graham book you want is: The Intelligent Investor: The Definitive Book On Value Investing.
Investing is often presented as an arcane art for which you need charts, graphs, and graduate degrees in multiple disciplines. That works for some folks. Other folks have done well following the ideas of another successful investor, Peter Lynch. My favorite among his books is: One Up On Wall Street : How To Use What You Already Know To Make Money In The Market.
There are lots of sites and publications out there analyzing the Google IPO. The business press, investment houses and individual analysts all are having their say. Ironically, probably the best place to find commentary about the IPO is to do a Google search.
10 May 2004
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