Googling Google

The New York Times editorial has some wise words for Google and its impending flotation. There are very serious dangers involved – and Google would be well advised to be very cautious. I think a valid comparison is made with Netscape during the heady days of the browser wars – market share does not guarantee people will stay. Keep reading for the full, but brief, editorial.

It wasn’t a mistake. That recent newspaper reporting that two young Stanford graduates have decided to become instant billionaires by taking their Internet company public was not some reprint from the late ’90s.

It sure read like one, though, including the pledge by Google’s founders – Sergey Brin and Larry Page – that their one-of-a-kind company with the “Don’t Be Evil” motto will remain committed to making the world a better place. Such idealistic talk out of Silicon Valley, so seemingly empowering back in 1999, seems embarrassingly naïve now that the party’s ended, at least for the rest of us.

Google has created the most popular Internet search engine, one so dominant that “google” it has become a common verb. Thanks mainly to its advertising revenue, the privately held company is quite profitable – in stark contrast to many of the ill-fated dot-coms that rushed to go public during the bubble.

Many of those companies did so to raise operating capital, but not Google. It has plenty of money in the bank. Indeed, judging by its Securities and Exchange Commission filing announcing the intention to go public, Google is not relishing the transition to a publicly traded company, which will force it to disclose far more financial and operational detail.

The sole reason for this initial public offering is to let employees and investors cash in – one of the venture capital firms that backed the company early on will see its $13 million investment turn to billions.

It’s hard to begrudge Google insiders their rewards for building an admired Internet blue chip comparable to Amazon or eBay. But investors should not be carried away by their nostalgia for the halcyon bubble days.

Nor should they pay too much attention to all the hype about Google’s auction-like IPO, which will make it easier for investors to “get in” as if it were a sure thing.

Google will have a frothy market capitalization, perhaps in excess of $25 billion, once it goes public. It could still continue to grow and thrive from there, and a speculative bet to that effect might pay off handsomely.

But it might not. The Google story, of a powerful Web gatekeeper whose business model is predicated on its ability to sift others’ content for you, is a reminder of how a slim technological advantage can reap enormous dividends in the new economy. But slim technological leads can be lost – just look at Netscape’s current market share – with devastating results. And plenty of other online behemoths, from Yahoo to Microsoft, will be challenging Google’s dominant search engine.

It will be interesting in a few years to google Google to see how the story will have unfolded.