1 May 2004

Bart Decrem set me up with a Gmail account. I noticed today that Gmail includes a dashboard:

Three things are interesting about the Google IPO from my point of view:

• The bankers are taking only 3% of the transaction, instead of the usual 7%. This might not sound like a big deal to the uninitiated, but 7% has long been a hard-and-fast rule for IPO business. The perception that Google’s offering is a guaranteed blockbuster and the relative draught in the underwriting business the last several years has given them a strong position, which is no doubt why they were able to negotiate such favorable terms. Perhaps this will set a precedent for future IPOs.
• Google’s float is being sold through a Dutch auction.

  There is nothing genuinely new about this structure. WR Hambrecht & Co. have been performing dutch auctions for a number of years through their OpenIPO program, including Andover.net, Peet’s Coffee, and others.

  But most of these companies are outliers with relatively low market caps which happened to have creative management teams. Google may bring some credibility to this process. This is good, because the traditional IPO process is largely a racket run by the old boy’s club, and a proliferation of Dutch auctions would level the playing field.

• In thorough imitation of Berkshire-Hathaway CEO Warren Buffet, Larry Page wrote an owner’s manual for Google shares. The letter is worth reading on its own, and many people have summarized it, but here is one of my favorite quotes: “A management team distracted by a series of short term targets is as pointless as a dieter stepping on a scale every half hour.”

So, they’re awfully smart, but man what a tough market to be in. The software industry in general is a bit of a rat race. I don’t think I’d be in computers if they didn’t do such wonderful things.