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Wednesday, October 29th, 2003

Google Makes the Public Announcement :: IPO in February

 

Google announced it will make its first Initial Public Offering (IPO) of shares last Friday. The IPO, which is slated to be issued in late February or early March marks a major turning point in Google’s history and will likely cause changes at Google as shareholder demands will become part of Google’s operating strategies. Google has been privately owned since its inception in a Stanford University dorm just over 5 years ago. In the past 5 years, Google has grown into the largest and most used search tool on the Internet and is considered the largest catalogue of information in human history, akin to the world’s greatest librarian. It is also considered a money-making machine with rumored profits of upwards of $700Million last year based on estimated annual revenues exceeding $2.5Billion. The total IPO is valued between $15Billion and $25Billion.

One of the most interesting facets to this story is the innovative method Google will use to issue the offering. In a bid to distance itself from the scandal ridden world of Wall Street, Google will use an online auction format to allow investors to bid on the value of the shares they purchase. This move will save Google and its investors hundreds of millions in brokerage fees and should insulate Google against unscrupulous financial analysis and investment managers. On the other hand, it might also leave many investors without the benefit and security of professional advice when making their stock purchases.

Big questions about this IPO remain to be answered and in many cases remain to be asked. 1) Why is Google doing this at this time? 2) How will this effect the current version of Google? 3) How will a Google IPO effect the rest of the technology world? 4) Will Google’s announcement effect SEO strategies in the near to mid-term future?

1) Google is issuing the IPO for several reasons. First of all, it needs to bulk up its cash-holdings in order to fend off rivals MSN and Yahoo through improvements in its technologies and extra advertising of new services. 2004 will see a rise in search engine advertising as the big three introduce new services and compete for clients. We will also see the introduction of several new features that are currently being beta-tested such as geographic targeting of search results and contextual matching of information contained in various documents and advertising sources. In order to improve its public face and let the public know it is introducing new technologies, Google is going to have to spend a good deal of money, especially in light of the tremendous advertising budgets wielded by Yahoo and MSN.

2) It is difficult to say how the current version of Google’s traditional, (free) listings will be effected by an IPO. It is likely we will see more paid-content finding its way into the Top10 as investors will expect to see some sort of dividend from what is considered the most successful Internet property of all time. While the addition of paid-content in the traditional listings might seem way out of step for Google, many of the sites that are placing in the Top10 today are there because they paid someone to put them there, but not the folks at Google. Google’s PageRank formula had proven easy to manipulate in the past, causing Google’s engineers to tinker with the algorithm over the past 12 months. The “current” version of Google has been undergoing changes for much of the past year and should be considered, in actuality, several versions of Google. These changes have mostly been happening in the background with the introduction of what was supposed to be new spam-fighting algorithms and the integration of new services such as Blogger, Froogle and AdSense. The clean and extremely simple interface has remained the same but the results that Google has been returning lately have been laden with spammy SEO techniques such as hidden text, link-farms and keyword stuffing. We’re hoping the issuance of an IPO will help Google’s engineers focus on re-creating a product that end-users love to use without the inclusion of irrelevant and highly manipulated sites.

3) A Google IPO could have an invigorating effect on the rest of the technology sector if it is successful. Firms from the Silicone Valley to New Delhi have several new and innovative products to bring to market but most great ideas in development today will never be seen by the public as investors are justifiably wary of putting their money into the tech-sector. Google’s IPO might have a positive effect on a highly jittery investment community. At the same time however, like other tech-stocks from past and present, Google’s perceived value of $15 – $25Billion seems somewhat overstated and could mark the beginning of a new tech-bubble based on an unproven but fiscally feasible revenue model, contextual advertising. This is an area we should all watch very closely as we’ve been lulled into a false sense of security based on hubris before, with disastrous effects. Here’s to hoping the investment world keeps its collective heads on its collective shoulders before the collective collection agencies come-a-calling.

4) Lastly, will a Google IPO effect SEO strategies? In a word, absolutely. Google has consistently led the search engine sector over the past years with new innovations and customer-loyalty. Where Google goes, the rest of the field tends to follow. Google getting larger and more powerful leads us to believe that the days of the search engine spiders have returned in force. While bulking up on our Paid-performance services, mainstream SEO companies will be breathing sighs of relief this week as the realization that our market will not be fully dominated by AdWords and Content Match programs but will likely be split between specifically targeted advertising through contextual matching and traditional search engine return pages, just like in the old days. With the introduction of MSN’s new spider based search tool and the inclusion of Inktomi results in the Yahoo search returns, it is fairly easy to see that SEO techniques designed to please spiders are going to be in very high demand in the next few years. At the same time however, SEO firms will need to be far more precise in handling paid-advertisments through AdWords and Content Match programs as these revenue generators will be pushed heavily by the accounting departments of the big three firms.

Google’s IPO will have major implications for the entire tech-sector. How it plays out remains to be seen but the one certainty is that search, as an industry, has become a mainstream sector in both the global and Internet economies.


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