WASHINGTON, Aug. 17 (UPI) -- Popular search engine Google may have fallen short of its high-flying goal of floating its initial public offering for over $100 a share, as the ghost of the dot-com crash still seems to haunt the Internet sector.
It wasn't supposed to be this way. After all, Google had become no less than a verb in popular vernacular, with the early expectations in spring that IPO would be a big hit on Wall Street
In keeping with Google's online business model, the company ran the beginning phase of its IPO as an electronic auction, reducing the underwriting fees paid the respective investment banks handling the IPO and making for a level playing field for any potential issue buyers who could bid on shares directly. While such an online auction of shares was by no means the first, this was the largest at over 25 million shares.
Known as a "Dutch" auction, the process allocated the stock based on public bidding which sets the price according to an equilibrium achieved through high and low bids. For instance, a bidder could put out several bids -- say 15 shares at $80 per share and 10 shares at $100 -- and then win X number of shares according to how the auction priced the stock.
It was supposed to be exciting.
But the luster of the Dutch auction seemed to wear off before it even started. Also there were other oddball problems, such as the company inadvertently breaking its "quite" period with an interview to Playboy magazine that while given earlier this year was published in the September issue which hit the newsstands before the IPO kicked off, roiling the Securities and Exchange Commission.
Google asked the SEC to declare its registration statement for its initial public offering effective as of Tuesday at 4 p.m., meaning the stock may begin trading as soon as Wednesday at whatever valuation was determined at its auction.
Money manager Jack Rothstein, president of Rothstein Investment Advisory Services and publisher of WealthCast.com, said that Google missed the boat in when it launched its IPO.
"This public offering is entirely ill timed because we are in the midst of a secular bear market where the climate for new issues is awful. Had Google gone public during the cyclical bull market a year ago, there would have been greater potential here" Rothstein said.
"As things currently stand, there is nothing that excites me about this stock. The company is not even a pure technology play because it is a search engine, a business entirely vulnerable to losing valuable market share because of the proprietary software or code of a better competitor. Think Microsoft," Rothstein added. "Finally, this IPO is nothing like the ones for Amazon.com or Yahoo, where there was a raging bull market and a strong environment for stocks like Google. In the end, Google is about great PR. I don't invest in PR."
University of San Francisco business school associate dean Eugene Muscat said, "The glamour of past IPOs in the bay area has given way to deep skepticism regarding "open" opportunities. It may not be fair nor true but people on the street feel that others will make money on the IPO, not them, " adding, "As for institutional investors as well as people on the street the market does not like complexity nor idiosyncratic practices. The unusual auction structure has turned off many. In California we pride ourselves on being different, in this case many do not believe that different is better for them.
Attorney Thomas J. Murphy, a securities specialist with the Chicago-based firm of McDermott Will & Emery, echoed these sentiments, saying, "This has been a very peculiar offering with a lot of distractions and unusual circumstances, including: the Playboy interview; the undemocratic dual vote structure; the confusion over how to bid; the high practical thresholds to participate in the offering, despite the stated goal of including the little guy; and the chutzpah to try to do such a big deal in the August 'doldrums.' "
While being a child of the West Coast, Google did not try for IPO magic immediately but waited, but perhaps waited too long.
Google had its foundations in a Stanford dorm room and grew quickly. But, unlike many of its tech brothers, it opted not to go public during the dot-com craze, as it was still in its infancy during the waning days of the boom.
And then came the March 2000 tech and Internet stock crash which made the financial climate highly unfavorable for any tech IPOs.
In the meanwhile, the company has busied itself growing in usership and perfecting its business model. At question, is how successful Google has been as an advertising-driven company. Estimates of Google's current revenues range from $500 million to $1 billion a year, according to various analysts. The majority of the company's revenue is advertising-driven.
Net advertising is back up after a marked drop post-2000. The Interactive Advertising Bureau and PricewaterhouseCoopers reports that Internet advertising sales for the final quarter of last year were $2.2 billion, a quarterly record.
Overall, Net ads totaled $7.3 billion last year, a 21 percent jump.
The Net advertising industry is still making up for lost time, however, with last year's total still shy of the 2000 record of $8.08 billion.
Still, Google's IPO comes at a time when Net advertising is on the upswing and has come of age, with proven models demonstrating how to reach the myriad of Netsurfers who use the medium on a daily basis.
Google's major funding partners include the investment firms of Kleiner Perkins Caufield & Byers and Sequoia Capital. Other investors include Stanford University; Andy Bechtolsheim, co-founder of Sun Microsystems and current vice president at Cisco Systems; and Ram Shriram, who has held the positions of president of Junglee and vice president of Business Development at Amazon.com.
Started six years ago by two enterprising Stanford students -- the same school which brought the world Yahoo -- Google quickly gained in the search ranks by virtue of its so-called page ranking system which often made for more successful and accurate searches. Founders Ph.D computer science candidates Sergey Brin and Larry Page formulated the page ranking algorithm while still in school, surmising, among other factors, that pages which linked to more often (more popular) were greater sources of information.
Danny Sullivan, the editor and publisher of the searchenginewatch.com Web site, told UPI earlier how Google quickly advanced over fellow search engines.
"Google was fortunate to come along with a better system of producing search results at a time when its competitors were getting lost in the morass of being portals. They forgot that quality search was something visitors wanted. It gave Google an opportunity, and searchers have since flocked to it," Sullivan told UPI. "Today, now that its competitors have learned how much revenue search can produce, they've greatly improved. Google is still the market leader, but it's competition is much closer."
According to company history, Page's Stanford dorm room becomes Google's data center while Brin's room served as the business office. The two students put their studies on hold, raised $1 million in funding from family, friends, and angel investors to start the company.
On Sept. 7, 1998 Google was incorporated and moved to its first office in a friend's Menlo Park, Calif. garage with four employees. Initially, Google answered an average of 10,000 search queries per day. Also in 1998, PC Magazine included Google, which was still in its "beta," testing phase in the list of Top 100 Web Sites and Search Engines for that year. At the time of its launch, Google faced such large-scale competitors as AltaVista and Yahoo (also started at Stanford by Brin-and-Page friend David Filos) both of which already had millions of users.
Since its launching, Google has grown to host an estimated 250 million searches daily, according to the searchenginewatch.com Web site.
The search engine has worked its way into popular vernacular with the verb "to Google" someone, meaning to look up their background information -- with "Googling" becoming popular facet of the dating ritual, among ego-battling colleagues who want to see who has more Internet listings.
