The much anticipated Google IPO has come and gone. Sighs of relief all around. But what have we learned from this? For me, I was struck by an almost systematic bias against the offering within the mainstream media and business press. Sure, Google made some serious mistakes that could have tanked any lesser company (like the Playboy interview, guys whatcha thinkin'?) and the press loves it when things go wrong. But I had a much deeper impression that commentators and reporters really didn't want Google to succeed. And that got the underdog in me mad and let the cynical side of my thinking win out: for clearly no establishment, no status quo, likes an upstart that tries something new (namely, the "dutch action" process which is actually quite old, but never mind) and no incumbents (e.g. Wall Street investment bankers) like having their power base challenged. It must hurt to have thos lucrative IPO premiums circumvented. No bonuses at Christmas. Quelle domage.
So the chalice had to be poisoned. Fine. This is "rational" in a narrow economic frame, I suppose. The nasty nature of markets, and so on. The irony, of course, is that technically a dutch auction is more efficient and a "purer" market form for generating capital than the current process which uses intermediaries like investment bankers to get the offering to market. No, what pissed me off the most was the paucity of pundits who noticed these biases, the lack of meta-comment on what was really going, which once upon a time was the remit of investigative journalists. Where did they all go? One voice, thankfully, emerged; I was relieved to read a piece by James Surowiecki in the FT, Ignore Wall St's Whining Google's IPO worked" (August 20, 2004).
It was fitting for Surowiecki to write this article given the content of his new book, The Wisdom of Crowds,which as it would happen was on my mind having just read it. In any event, James (can I call you that?) articulated my tacit impressions much more clearly. He writes:
If Google's unorthodox method of going public has had any impact on the company's stock price, it is only because it forced Wall Street into a concerted whispering campaign designed to sabotage the IPO. It is hardly a coincidence that after Google directly challenged Wall Street's stranglehold on the capital-raising process, it suddenly went from being among the most-loved companies in America to among the most criticized. Much of the bad-mouthing we heard before the IPO came from money managers looking to talk down the company's price so that they could get a better bargain...
As self-serving as most of these attacks on Google have been, even more dismaying have been the criticisms levied against the Dutch-auction method. Because a Dutch auction in effect allows investors to set the IPO price collectively it makes it unlikely that a company's stock price will soar soon after it goes public. This is an entirely good thing, since the higher the price at which a company goes public, the more money it will raise.... Because it used the Dutch auction, it knows it is getting what people were really willing to pay, instead of what a coterie of investment bankers thought their friends and cronies should have to pay.
Wall Street can spin this however it wants. But Google went public without underwriting from a major investment bank, without handing out favours to well-connected executives and without dictating a price in the manner of Soviet central planners. Because it did, it now has hundreds of millions of dollars that it would not otherwise have had. By any standard, this was one IPO that worked.
[Forgive me for quoting the article at length, but I did so because (a) he says it better than I could and (b) I think FT expires its links.]
In my words, Google experimented with a potentially disruptive technology in the capital markets, a daring and important thing for the future (even if it doesn't catch on) and this shouldn't be lost in the noisy disparagement and naysaying amongst the business elites. Other entrepreneurs, encouraged by Googles first step, will find other chinks in the citadel. Recall that a "disruptive technology" by definition is something that takes a function, often high cost, out of the hands of a centralized group of experts and into the hands of ordinary people, usually at a much lower cost and in a more accessible form. In a nutshell, they create new value -- faster, better, and cheaper -- for a broader base of people. The hinge-points of history pivot around these: the printing press and computers are examples of disruptive technologies. The financial markets are ripe for revamping. Already the number of people participating in financial and equity markets has skyrocketed. Let's take it to the next level and make access even more equitable and fair. Bearing this framework in mind, I take away three things from this event.
1. Blogging as Reverse spin: There are people who point to what we are doing -- the emerging blog sphere -- as a potentially disruptive space. I'm not sure about this, but these arguments may hold water, especially given the current lackluster performance of the mainstream press as evidenced by the Google IPO coverage and even more egregiously, the failures over the Iraq war coverage. (See the excellent "Unfit to Print" in the New York Review of Books) This makes our job of surfacing different perspectives and information to fill these "value vacuums" in public discourse all the more important.
2. The Wisdom of the Masses The Google IPO and the intentions of its founders to try a more equitable and efficient process in generating capital is an encouraging sign and well overdue in timing. With more successes like these, the wisdom of the crowds may just start putting into check the manipulations of the mandarins, and reducing that dangerous democratic deficient we are seeing in so many aspects of our social and economic systems. In the meantime, let's get more of these pressure-releasing experiments and adaptations into the world. Small changes can add up to bigger ones, and an incremental strategy may be the best way to reform our financial system and create better metrics for prosperity. So bravo Larry and Sergey and those that follow their brave lead.
3.Taking on the Prince(s) Lastly, as Machiavelli wrote "There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain of success than to take a lead in the introduction of a new order of things, because innovation has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new." Let's make sure we take these power dynamics into account when devising our strategies for positive social disruption. (I wonder if the Google executives did a game theory or scenario analysis for their IPO strategy? That would have helped in understanding what they were up against.) No, naive we will not be. Rather, we'll just have to be sure that we have better ideas, better tools, bottom forces on our side, and I hope the best of human nature manifested. Now that's a combo that even Wall Street may find hard to beat.
Its nice to see the sector back in play but now comes the hard part for the google crew - hold their value. I'm eagerly waiting to see what they do with all that money!
Lest anybody think this isn't a big deal after reading this article, consider this: the limited liability company is a mechanism for distributing risk among investors. And that's all.
Disruptive technology? Hell yes.
Anything which changes the "risk landscape" - moves risk from one set of parties to another, reduces or increases it, is hugely disruptive.
Consider http://cafepress.com/ - print on demand stuff like shirts or mugs. Or, well, CDs. For a base price of five dollars they will individually print a single CD with a cardboard cover: you upload the content, they do everythning else. Not sure your album is worth printing a thousand copies? Well, how's about just one - and one more for every person who chooses to buy one.
Reducing or moving risk is a big deal. I hope Google sets a trend and gets these wall street parasites off all our backs.
also worth mentioning is michael lewis on 'The Mystery of Wall Street's Stubborn Fees' and socially responsible investing (thru the lens of the google IPO :)
james surowiecki is guestblogging here, btw!
Check out our post from last April, The Transcommercial IPO, for some other interesting aspects of what Google chose to do -- and why traditional investors may not be happy with them.