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Friday, June 20, 2003

Wouldn't it Be Better if Google Could Freeze Time?

Chatter about Google's possible IPO is getting to a few of its legions of fans. Wouldn't it be nice if 2002 could really be Google's Endless Summer?

I recently had this exchange with Perry Marshall, whose consultancy, Perry Marshall and Associates, helps high-tech, B2B companies target their markets more effectively.

Perry Marshall writes:

I don't know if the rumors are true -- Google PR says they're not -- but just in case the rumors are valid, please permit me to give you my two cents.

You guys literally built a better mousetrap and the world beat a path to your door. That is an exceedingly rare thing in today's business world. Congratulations on making a great search engine.

Now Wall Street wants Google. No question about it. And I'm sure the founders can collect at least a few hundred million of they go public.

But.... please listen.

19 months ago I helped sell a small private company to a publicly held firm. In anticipation of chaos, dismemberment and destruction, I bailed. I took the money and RAN as fast as I could.

Everyone else stayed.

The biggest shareholder, who got 80% of his money in a stock trade, subsequently lost $5 million in the space of a month as the share prices plummeted.
It was horrible, and everyone who stayed was probably envious of me because I got out, and because they found themselves reporting to a bunch of idiots.

Then those idiots gutted the company and it basically doesn't exist anymore.

So... please listen, if you go public, the world's greatest search engine will be cannibalized and sold for parts. All you wonderful people will suddenly be in a quarterly cycle of indentured slavery to quarterly reports. All the visionaries will be replaced by slave drivers.

In regards to the AdWords program: Wall Street will toss out your "relevancy requirement" in AdWords so they can make their numbers. The 0.5% minimum CTR will
become 0.25% and then 0%. They'll also get rid of your bid price multiplier that rewards good CTR's and eventually you'll be like Overture --- just a big bunch of surly bidding war whores.

Please understand - It won't happen because YOU are evil, it's will happen because Wall Street is so insatiably greedy. Within two years Google will become merely a shell of its old self. And it will lose its popularity and someone else will be king.

So --- keep AdWords intact, it really is a brilliant system. And don't sell out to the dark side.


Andrew replies:

There is no question that the reason for Google going public, as is usually the case in Silicon Valley, is so the founders and VC's can get liquid. It's inevitable. Let's just hope they don't go all the way to the extreme that you foresee here, Perry. Some companies that went public didn't completely lose their idealism - Apple and Netscape come to mind. Internet.com/JupiterMedia etc. never had wild fiscal success, but one could argue that they actually turned the tables on Wall Street: raised money and then ignored Wall Street and investors in favor of pursuing a particular vision related to verticals and content plays (Alan Meckler's in this case). IPO cash can lead to excessive conservatism and hyper-accelerated, unrealistic growth, but it can also foster massive innovation if the visionary founders are autocratic and irresponsible enough (we can only hope they are) to plow money into crazy ideas that just might work.

Ask Jeeves and About.com are two others that took bunches of IPO cash (to say nothing of the proceeds from their greedy-greedy secondary stock offerings at inflated valuations) and didn't really live up to their promise. The difference with Google, I think, is that they have a built-in bias towards technology and R&D. Ask Jeeves deployed its cash and stock irresponsibly for the first couple of years, never improving on their technology. When they finally acquired Teoma, Google was already the leader in the same type of technology, and ironically the sector was so depressed, Jeeves picked up Teoma for a song. Google is smart enough to use their money to hire more Ph.D.'s to work on more neat stuff.

Go2Net was an example of a fledgling company that used its stock to make acquisitions (cool stuff like Metacrawler) to fuel growth. Investors liked the stock even if Wall Street didn't (they went public via reverse takeover so no fat underwriting fees), so they did OK without catering to the big investment firms. The merger with Infospace was a disaster, but that's another story.

Maybe what I am getting at as I go back and forth on this issue is that possibly the best thing Google can do with its IPO cash is to hoard it and grow the company at a reasonable pace. No company should ever repeat the mistakes of cash-rich net stocks with inflated valuations - like Yahoo's overpaying at least twentyfold for Geocities, and Excite paying somewhere close to a billion for an online greeting card company.

Let the insiders and investors get liquid, Google, but don't get spend-happy, and please don't let Wall Street bully you into hitting certain short term quarterly profit targets when it isn't warranted. If the stock takes a short-term hit, well that's too bad. People ought to know by now that options aren't money. It will be incumbent on Google to keep salaries to a respectable level to retain their quality personnel, rather than dangling options in front of employees as was so common in the high tech sector during the boom.

Posted by Andrew Goodman




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