Second Book Excerpt: Google Goes Public

Given that it’s nearly a year since the blessed event, I thought it’d be fun to post a portion of my chapter covering the IPO. This is just a taste, the first 1000 or so words. As always, if I got stuff wrong, let me know….

Success and failure are equally disastrous.

—Tennessee Williams

Sergey Brin is jet-lagged; he has the vaguely disoriented look of

a young man still finding his bearings after a very long,

strange trip. I watch him enter a crowded restaurant and look

around for familiar faces—save for me, the persistent author, there

are few. He is in Davos, Switzerland, attending the World Economic

Forum (WEF), the annual conference of political and business lead-

ers. The room is full of captains of industry and members of the

media from around the world, and all of them stop to regard Brin,

who is, quite literally, the man of the moment (he is slated to give a

short dinner presentation that night).

Brin forges ahead around the tables, acknowledging a greeting

here and there, his hands pressed together at his chest like a yogi’s,

his eyes more alert as he warms to the task at hand. He sits down at

a table near the back, shakes hands all around, then informs his dinner

companions that he really did just step off his plane. He was

here to stand in for Larry Page, who was supposed to be at the dinner,

but Page was feeling under the weather after the ten-hour flight.

It is January 2005, and Brin is at Davos for the fourth time, but

this is his first as a billionaire helmsman of a newly public company.

At last year’s soiree, Bill Gates, CEO of Microsoft, acknowledged

quite publicly that “Google kicked our butt” in search, but promised

that Microsoft would respond with an even better offering. One year

later, Microsoft had indeed introduced an early version of its new

search software.

Back at the dinner, Brin is accepting congratulations

and plaudits for Google’s unusual initial public offering.

The stock’s stellar performance since the IPO

(it had more than doubled in less than four months)

had nearly everyone asking Brin what might be next for Google.

Brin accepts the plaudits, but is clearly uncomfortable lingering

on the story of the IPO itself. “We have more time to focus on the company

now,” he later tells one well-wisher. Clearly, Brin is glad the IPO is

behind him.

The journey from dorm rooms and Burger King takeout to private jets and

a starring role at the World Economic Forum has been dizzyingly brief;

certainly Brin can be forgiven a resultant touch of jet lag. And as

years go, 2004 ranked as a critical turning point for Google, the

company, as well as Brin and Page, the men. For 2004 was the year Google

began to grow up, not necessarily because it wanted to, but in the end,

because it had to.

Rumors of an IPO

On October 25, 2003, the top story on news.google.com read:

“Google Sparks Hope of New DotCom Boom.” Given that the

Google News computers choose stories based on popularity and

prominence of source, it’s fair to say that the speculation about

when and if Google would file papers to become a public company

had reached fever pitch. Later that same month, the New York Times

reported that Microsoft was eyeing an acquisition of Google, a story

that Bill Gates later disputed. In any case, it was clear that by the

end of 2003, Google was crowned Silicon Valley’s latest golden child.

Expectations were high—reports claimed Google’s IPO would value

the company at $16 billion, roughly the same size as Amazon.com.

As 2004 dawned, Google had become the talk not only of Silicon Valley,

but of Wall Street as well. Whispered financials for the

secretive company pegged 2003 revenue at nearly $1 billion, with

profits estimated at more than $300 million.

By this time, both Yahoo and Microsoft had realized the threat

Google posed to their businesses. Each of those companies had

valuable public shares and massive piles of cash, and they scrambled

to redeploy them against Google. Simply put, if Google was going

to compete, it could not afford to stay private. Valley watchers, press

pundits, and Wall Street writhed in ecstatic speculation: Would

Google’s IPO augur the second coming of the Internet bubble?

Could it usher in a new, more profitable era of tech growth? Who

would get rich? Who would fall behind? Who would follow in

Google’s footsteps? Might the company stumble?

In its early years, the company had downplayed talk of an

IPO—after all, the markets were in the tank, and no one seemed to

have an appetite for any kind of Internet stock, no matter how robust

the company might be. But 2004 marked a transition of sorts—it seemed

to be springtime again in the Valley—and the spotlight was squarely on

Google. With its venture backers, its thousands of option-holding

employees, and its massive profits, clearly the company was heading

toward one of the largest public offerings in the history of

technology. Right?

In fact, the answer was a qualified no. In an interview with the

San Francisco Chronicle in the fall of 2001, Eric Schmidt laid down

what would become the triumvirate’s standard answer to the IPO

question. “The IPO question we’ve debated internally, but frankly,

we’re profitable,” Schmidt said. “We’re generating cash. We don’t

ever need to go public.”

This line was repeated, over and over, for the next three years,

to the point where Google’s evasive responses were becoming

something of an industry joke. At a conference in early 2004,

Brin even went so far as to joke that an IPO was not in the offing

because “filling in all those accounting forms is too difficult.”

Turns out Google’s leaders were wrong about not needing to go

public. Because the company had given stock options to more than

one thousand of its employees, an obscure SEC regulation would

force Google to begin reporting as if it were a public company, as

early as April 2004. The stage, therefore, was already set.

Despite the realities of SEC regulations, that Google would be-

come a public company was never really in doubt. Once a company

takes money from venture capitalists, the event is nearly a fait

accompli—only an acquisition or bankruptcy can easily divert the

path. “The day I was hired I understood the company would go

public because it had venture investors. The only question was tim-

ing,” Eric Schmidt told me after the IPO, giving the lie to three

years of transparently disingenuous corporate line-toeing.

But despite their company’s obvious course, Brin and Page

struggled with the idea of becoming public. Google had prospered

in private, and its founders worried that the company would be

forced into a mind-set of short-term thinking, a trait common to

many listed companies.

Throughout 2003, Google toyed with scenarios that would allow

the company to stay private. It hired consultants to model complex

financial mechanisms—such as repurchasing options and the deploy-

ment of a shadow equity plan that might protect the company from

avoiding its seemingly predetermined fate. But the math never satisfied

Page, Brin, or their board—any way you cut it, the maximum payout

for Google’s investors was the public markets, plain and simple.

From “The Search – How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture,” Portfolio, 2005. Buy it here!