Google's IPO Journey: Challenges and Successes

1. Chapter 9: Google Goes PublicChapter 10: Google Today, Tomorrow Neel Vora

2. Google: Time to Cash Out? • Reports valued Google’s IPO at $16 billion • Estimated 2003 revenue: $1 billion, profit: $300 million • In order to compete with the giants (Yahoo! and Microsoft), it would be in Google’s best interest to raise more money

3. What is an Initial Public Offering?(IPO) • An initial public offering (IPO) is the first sale of a corporation's common shares to investors on a public stock exchange, such as NASDAQ. • The primary purpose of an IPO is to raise capital (money) for the company. • Being listed publicly on a stock exchange and being owned by thousands of investors imposes heavy regulatory compliance and reporting requirements.

4. Google’s naïve attempts to stay private • Why stay private? • Eric Schmidt: “We’re generating cash. We don’t ever need to go public.” • Google didn’t want to become a “short-sighted” company • However, Google was bound to become publicly traded • SEC regulation forcing them to report because of stock options offered to employees • Companies funded by venture capitalists almost always result in IPOs • During 2003, they unsuccessfully toyed with different strategies to remain private

5. Google’s IPO Process • Decision to become public in early 2004 • Debate over filing for public offering • Using investment bank vs. auction method • Ended up using a Dutch auction • Proposed S1 (formal public offering document) • Sell $2,718,281,828 worth of shares

6. S1 “An Owner’s Manual for Google’s Shareholders” • Outlined how Brin/Page planned on running the company • Claimed Google was different, so it would not act as a traditional public company • Proposed corporate structure that protected Google’s ability to “innovate and retain its distinctive characteristics” • “Dual class shareholding structure”: Founders and executives have far more control than common shareholder (common in media companies)

7. Google’s IPO Process • Google pissed off Wall Street: • S1 represented a destruction of the traditional share selling, corporate governance, investor communications, and management structure of public companies • However, it showed tremendous numbers in the income statement • Profits, Cash, Operating Margins

8. Google’s Struggle to IPO • Bad Reputation • Google increased Secrecy • Slow amendments to S1 and entire process • Playboy Interview • Relentless scrutiny (SEC) • Companies uneven management of overwhelming growth • Reporting requirements would require a great deal of restructuring (e.g. Advertising) • Founders’ reluctance about the public path • High estimated price range: $108 - $135

9. Initial Public Offering (Finally) • Auction on August 12, 2004 • Bad conditions (stock markets, oil prices, terrorism, olympics) • revealed market price range: $85 to $108 • Public on August 19, 2004 • Price was $85/share

10. Awesome Results • Ridiculous stock growth • By end of day stock reached ~$100 • Topped $200 by November, 2004 • Climbed $300 by next summer • Google continued to innovate and release products • Quarterly reports were very impressive • What should the company do next?

11. Post-IPO steps? Conduct Strategic Review. • Created “Tablets” (declaration of what makes Google itself) • Post-IPO Organization (core groups) • Core search • Advertising Products • “20 Percent” (Gmail, Google News, Orkut) • “10 Percent” (Google Keyhole, Picasa) • Could now execute on its two core businesses, while other groups could pursue projects that could potentially turn into core businesses or useful products

12. Brin and Page: Still in Power • Brian Reid (former senior manager) sued Google for age discrimination • “Google is a monarchy with two kings” • Culture: “youth obsessed” • However, somehow they have succeeded • 5 year revenue growth is 400,000% • Fastest growing company ever

13. Similarities Humble Beginnings Primarily Search Company Success (Growth, IPO, Market Cap) Campuses Differences Yahoo’s Founders not as powerful Yahoo has in fact experienced failure Much easier to do partner business with Yahoo Google’s Competition: Yahoo!

14. Google Predictable Returns results about the singer Usher (first few results) GoogleNews Results Adwords on the right side Rest of results are due to diversification algorithm Poe’s “Fall of the House of Usher” Yahoo! “also try” feature Driven by editorial decision to track and connect search patterns Aggressive approach to commercialization Yahoo’s search shortcut: attempt to bring all pertinent information about Usher to one place Launch (Yahoo music) Yahoo Shopping Yahoo News Organic Search Results Differences in Search e.g. “usher”

15. Yahoo’s Search Intent • Steers searchers towards its own editorial services (to satisfy searcher intent) • More willing to have overt editorial and commercial agendas • Allow humans to intervene in search results (i.e. original Yahoo directory) • Media Company • “Human’s First, Technology Second”

16. Google’s Search Intent • Repelled by the idea of becoming a content or editorially driven company • Focus on technology (algorithms and computations) over humans • Media-Driven Technology Company • “Technology First, Humans Second”

17. Google as a Middleman • Google has tried to establish itself as a “superdistributor” • E.g. Allow us to index your content, when people find it, we’ll enable you to sell it • However, playing middleman is tough when someone is searching for a general term • Who do you list first? • E.g. “hip-hop”, Which artists listed first? • According to Yahoo/reason, whoever pays the most • Google is probably going to try to find an “objective” answer

18. Google’s transition to a Media business • Media company: • Mediate information and services • Revenue streams: advertising/subscription • Reluctance (unlike Yahoo) to tie commerce into media products • E.g. Google News (no business model) and Froogle (only Adwords) • Gates innovation in search results space • If a consumer wants to shop or browse quality news results, it’s okay to make money on it • There is hope • Google Print • Becoming Portal – Customize homepage

19. Google’s Future: Retaining • Founder’s Award Program: Incentive program promising millions to teams that created projects that significantly increased Google’s overall value • Many times innovators go to new companies, then get a huge payout

20. Google’s Future: Innovating • Biggest challenge is to innovate in a focused, market-driven fashion • Upcoming innovations: digitize, index, organize, access personal information • Expand AdWords to its most far reaching potential: have every product be advertised in the appropriate market within Google • The company would like to provide a platform that mediates supply and demand for essentially everything (the world economy)

21. Google’s Future: Take over the world Google’s goal: “organize the world’s information and make it accessible” • World’s information could be accessible through the concept of a Web operating system • They could deliver every possible service that exists on top of a computing platform • Store everything on one platform: Google grid • Unlimited Potential: Battelle thinks that it could someday become things such as a phone company, cable provider, university, a combination of eBay, Amazon, Microsoft, etc.