Buzz rising over Google IPO
By Griff Witte
Washington Post
To get a sense for the level of hype surrounding the possibility that Google Inc. will become a public company this spring, there's at least one surefire way: Google it.
Type "Google IPO" into the vaunted search engine, and within 0.07 seconds, links to 14,000 Web sites come bounding back. The links lead in every direction: online columnists predicting the company's initial public offering of stock will be the first bang of Internet Boom 2.0, discussion threads in which investors pine for a piece of the company, a blogger who insists simply that the Google IPO "is evil."
Most of the sites are in English, but many are in French, German or Japanese. There's even a Web site called "Google IPO Central: Your Unofficial Source for Discussion and News about the Upcoming IPO."
The company's refusal to comment on whether it will go public does little to dampen the buzz. For denizens of Silicon Valley and Wall Street alike, the Google IPO has been decreed a monumental event even before it happens, one that could lift the long-struggling tech sector out of its doldrums.
"It's way better than even money that this is the IPO of the decade," said Roger McNamee, a managing director of the tech-oriented private equity firm Silver Lake Partners. "Everybody and their grandmother knows Google. Demand is going to be off the charts."
But because anticipation has reached such a fevered pitch, some analysts wonder just how successful Google's IPO can truly be when measured against the hype. They worry, too, that a public Google will ultimately buckle under to investor pressure for ever-higher profit margins and sacrifice the very thing that has made it so popular: the purity of its search. The analysts point to other search companies that went public, such as Yahoo Inc., and in the process diluted their focus on search as they ventured increasingly into the realm of job listings, horoscopes, chat rooms and personal ads.
As a public company, "if they are not developing a particular product and their competitor has it, they may feel pressure to go in that direction to please investors," said Danny Sullivan, editor of Search Engine Watch, a site that analyzes the search industry. "It's 'I've got to keep up with the Joneses whether or not the Joneses are doing the right thing.' Right now they have the luxury of avoiding that."
In this case, the Joneses are two of the world's best-known tech companies — Yahoo and Microsoft Corp. Both would like to capture from Google a chunk of the enticingly lucrative search market. Google has the curse and the blessing of enjoying a squeaky clean reputation for putting the integrity of the search process ahead of commercial interests.
"Google is all about providing access to information, not being a venue for ads," said Peter Norvig, Google's director of search quality. Norvig said that although the company offers paid search results, they're always clearly marked and never get in the way of the objective results that remain the company's focus.
It's that philosophy that has earned the company the loyalty of millions of Internet users who rely on Google for help navigating the Web. But it also means the company has a high capacity to disappoint if it undercuts principles in the name of profits.
"When you're God, you have quite a long way to fall if you do something wrong," Sullivan said. "It's hard to think of a company that's been put on a pedestal as much as they have."
The company's ability to earn profits while not alienating users by bombarding them with ads, tech analysts say, is a direct outgrowth of the founders' vision.
Sergey Brin, a University of Maryland alumnus, and Larry Page, a veteran of a D.C. software company, created Google while they were idealistic Stanford University graduate students. The company still lists under "10 things Google has found to be true" that "you can make money without doing evil."
To be sure, going public is not Brin's and Page's first choice. Both have indicated in past statements that they're in no hurry to do an IPO. But because of Securities and Exchange Commission regulations governing private companies of a certain size, Google would be forced to disclose its financials this spring even if it didn't go public. Since the company will soon lose a key benefit of staying private, most Google analysts consider it a near-certainty that the company will try to reap the rewards of going public.
"You think of all the Microsoft millionaires. I'm sure the Google people are starting to make their calculations," said Michael Moe, chief executive of Think Equity Partners, a San Francisco investment bank.
Analysts' estimate Google's value at $15 billion to $20 billion, and they say an IPO could generate up to $4 billion. The company won't release figures, but analysts have estimated its annual revenue at $500 million to more than $1 billion, with profits in the range of $150 million to $300 million. The money pours in along two primary paths: by giving advertisers the chance to display links to their sites based on a user's search terms, and by providing Google search capability on other Web sites — such as AOL and washingtonpost.com.
Google's size and proven profitability make it, in the minds of many on Wall Street, much less of a gamble than the countless Silicon Valley start-ups with strong technology but shaky business models that went belly up.
"The company seems to be a printing press for money," said David Menlow, president of IPOfinancial.com, an IPO research firm. He said "virtually any price" for the stock "will be considered acceptable."
