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The Financial Times
Google considers online IPO auction

By Richard Waters in San Francisco

Google is considering holding a massive online auction of shares early next year in an initial public offering that investment bankers predict could value the internet search-engine company at more than $15bn.

Holy cow. Does anyone have any more information on this?

I wonder if it's going to be a Dutch Auction IPO?



Great, another overvalued technology company (that we'll watch disintegrate over the next five years) coming at us.

Joi, what would you think if Google was valued at that level? Good, bad, indifferent?

A. If Google floats, the market cap will come out at a lot more than USD 15 bn. I would say we would be talking about more like USD 60-100 bn. It won't actually take that much money to push the price up to that sort of level - if they only float 10 percent of the shares, you would only need a million people willing to put in USD 6000 to push things to this sort of level.

2. Why would google want to float? What is the point in it? Do they need the capital? I doubt it, but if they do, why don't they just go to the bank and borrow the cash, using their brand as collateral and their not-insignificant cashflow to pay it off.

If they want to use the stock to incentivise the staff, they might as well do it with ordinary filthy lucre out of the cashflow, because there is no longer much accounting advantage to be gained from this type of incentive (since it became common practice to put share options on the P+L).

If they want to give the management an exit, then they should just write them a cheque. If they wantto give the private equity firms an exit, they should let them sell their shares to another private equity firm. They might even consider giving some money back to the shareholders if the cashflow can bear it.

Flotation could do some sick and twisted things to Google. It would certainly mean a 'loss of innocence', which is inevitable for every new company, sooner or later. But much more important, it could change the internal dynamic so that Google acted more like a 'gorilla' in the market. Google fundamentally isn't a gorilla. It's still basically an early stage company that happens to have had a lot of success. But they shouldn't let the success go to their heads. They can be a lot bigger and a lot better.

Just my two cents.

Makes perfect sense. A direct public offering is not an option for a company that needs promotion. Google is the perfect case for a DPO.

Benefits go beyond lower transaction cost, builds a more stable base of buy and holders, decreases volatility.

No, I'm sure a DPO is the way to go if they really want to float. That's the way famous companies (like public utilities) are often floated in Europe.

What I can't understand is why they want to float at all?

I posted this article in one of my email discussion groups and Michael Robertson pointed me to the following:


ps: Overvalued is right--$15BILLION?

I find the idea of a DPO extremely interesting. Considering the public attention that Google's movements get, the idea is like opening the Pandora box for collective thinking about the value added by investment bankers. In Google's case, investment bankers would:
a) fill their pockets with huge commissions and inside trading
b) fill their preferred clients' pockets with exclusive offerings
c) Use information asymmetry to build an imperfect market

In contrast to that, offering shares for direct auction on the Net is like the idea of perfect democracy. Who needs an investment banker? In a world where imformation flows free, we can afford to disintermediate them (and this goes perfectly well with Google's values... making info available to everyone)

Hi Enrique:

I'm not sure if Google's values can be equated to "making info available to everyone" anymore. There have been some fairly highly visible chinks in the Google information armor, as gamers learn to work the indexing system and Google tries to tweak their search bypass these issues. The unfortunate end result is that search results are getting edited. As Andrew Orlowski from the Register once said to me:

"This whole "Google is The Light" cult is very creepy. I'm being asked to trust something more than it deserves. Google is neither democracy nor encyclopedia - it's a synthetic experience. So long as we all remember it's a synthetic experience, we'll all be cool"

I'm also not convinced about the sustainability of advertising revenue for Google (but don't listen to me; I've been poo-pooing Yahoo since, well, since a long time ago). I just know that when I'm personally shopping for goods on the Internet, I never pay attention to any sort of banner ads or keyword searches. Things I'm buying online I already know where to source, and I just can't help but feel that most people shop online this way.

Also, I think there is a lot of content going underground (i.e. not visible on the Internet) as we speak because of these, and other issues (such as copyright). A search engine that can spider and index all the major P2P networks would be a good tool, but I imagine you'll have the same problem Kazaa is having: Tough to monetize because everyone will assume that you're using it for no good puposes.

AFAIK, just because employee option grants are expensed doesn't mean cash is leaving the company.

Microsoft got the best of both worlds in the 90's -- tax writeoff on the options without getting the bottom-line earnings hit.

well, you have the cash, no question about it, but it effects your quarterly profit figures, which are not computed on the basis of cash, and are what the Street generally goes by. Most floated tech companies have enough cash to operate anyway.

Yahoo Japan just listed on the Tokyo Exchange. Market cap of about 3 trillion yen -- about US$ 25 billion (!). There still a bit of dot-com fever left in Japan, it seems :-P

to address the point on why google is going to IPO: there comes a time in some companies' lives when they must give out significant stock. with a private company, this is generally a good problem: this probably means the company is growing and needs to use its increasingly valuable stock for retaining good talent, acquisitions, corporate expansion, etc. Government regulations state that when companies reach a critical mass of having outstanding options (the number which I don't remember off the top of my head), they must begin declaring (publicly) their balance sheets.

i believe for google, that date is april 30, 2004. since they have to publicise their numbers anyway, they might as well just go public and bring in a boatload of cash.

note: i'm no financial wizard, but this is certainly what i've pieced together. if my suspicions are correct, you'll see on IPO before May day next year.

How about that, they actually are going to do dutch auction.